July 4, 2023

Accounting for Marketing Agencies: All You Need to Know

Contents

Like most entrepreneurs, you have big plans for your marketing agency. You know what success looks like and you have a few ideas about how to get there.

But in reality, growing a successful agency isn’t easy. You need to deliver consistent results for clients in addition to managing the administrative work that’s inherent to building a business.

It’s easy to lose sight of the big picture while contending with the many necessary evils of building a business, such as accounting. 

You didn’t start an agency to do accounting, but you need solid accounting to build a successful agency. Because as you execute a game plan to grow your agency, you need assurance that financial realities support your growth strategy. 

Furthermore, financial problems in a small agency will exacerbate as the agency scales, hampering growth and creating stress, so it’s a good idea to begin building an accounting system early on.

I created this walkthrough for busy agency owners who aren’t sure where to begin or what comes next. No matter how big or small your agency is, in this article I’ll show you the steps for building a financial infrastructure that positions your agency for growth.

Alright, let’s get started.

The Basics of Marketing Agency Accounting

There are accounting terms and concepts unique to marketing agencies. Here are the essential ones you should know, if you don’t already know them:

Billable Hours 

Billable hours are time an employee spends working on a client's project that will be billed to the client. Not all agencies will use billable hours, but it’s important for any agency to understand how labor costs are allocated to client projects in order to monitor project-profitability.

Accounts Receivable (“AR”)

An agency’s “receivables” balance represents amounts invoiced but not yet collected from customers.

It’s important to track receivables in order to know which projects have been invoiced, which invoices have been collected, and which invoices have not yet been collected.

A large receivables balance could indicate trouble collecting payments from clients, so monitoring receivables in your accounting system will help prevent cash flow issues.

Accrued Revenues 

Work In Progress (or “WIP”) is similar to accounts receivable, but it refers to unfinished projects to which billable hours have “accrued” but have not yet been invoiced.

An agency would recognize accrued revenues in order to align revenues and expenses, such as salary costs, with the time period in which they were earned or incurred. 

Tracking your agency’s WIP balances can prevent cash flow and capacity issues, since WIP represents labor costs incurred but not yet recouped.

Deferred Revenues

An agency recognizes deferred revenues when a client pays in advance for services not yet rendered. Examples of deferred revenues include pro-forma, upfront, and retainer payments. 

Like accrued revenues, an agency tracks deferred revenues in order to align income with the period in which the agency earns the revenue. Deferred revenues are converted to income when the agency bills for underlying services performed.

Additionally, tracking deferred revenues shows how much of your agency’s cash balance could potentially be refunded to clients. Not tracking deferred revenues as a liability would give a false impression of how much cash your agency has to cover operating costs at any given point in time.

Accounts Payable (“AP”)

An agency’s “payables” balance is the amount it owes to its vendors at a given point in time. An agency can have more than one type of payable, such as employee or government agency payables. Like the accounts receivable balance, accounts payable also resides on the balance sheet.

A payables balance that increases month-over-month could indicate that your agency is struggling to pay its bills on time, hurting its relationships with suppliers. Therefore it’s important to monitor this account on the balance sheet to identify any bills that have been unpaid for more than 30, 60 or 90 days.

In reality, your agency might not carry an accounts payable balance if it pays most of its bills with a credit card. If your agency pays suppliers using payment terms, then it’s important to track payables in its accounting system.

Payment Terms

Payment terms are the expectations of how and when a client will pay once you invoice them. Your contracts and invoices should establish clear payment terms and create a sense of urgency around payment.

The best payment terms are “due on receipt.” Terms that are too generous can create cash flow problems when clients take their time to pay. You should also make it easy for clients to pay on time by accepting electronic payments with clear payment instructions on your invoice.

Your agency’s suppliers and vendors might also offer payment terms, giving the agency additional time to pay its bills.

Billable Expenses

Billable expenses are costs that the agency incurs on behalf of a client’s project and will be charged back to the client. These costs are often necessary in order to perform the contracted services. 

For example, if you’re running ads for a client and need to be reimbursed, you’ll need to track billable expenses related to the project and invoice the client for the cost of running ads.

Your accounting system should facilitate both the tracking of billable expenses and the invoicing of those expenses back to clients. Failing to bill back project expenses erodes project profitability and could create cash flow problems for your agency.

Overhead Expenses 

Overhead costs are cash outflows not associated with client projects. These are general & administrative costs that your agency incurs to sustain itself. Examples include rent, utilities, software subscriptions, and salaries for non-client-facing staff.  

Tracking overhead costs separately from billable costs in your accounting system helps identify opportunities to cut non-essential costs, improving your agency’s profitability.

The Importance of Project-Based Accounting

A marketing agency’s operations generally entail completing distinct projects for various clients. 

Some projects are more profitable than others. 

The key to running a successful agency is to replicate the winning projects and avoid the unprofitable projects, so tracking each project’s profitability should be a key component of your agency’s accounting system.

What is project-based accounting?

Project-based accounting is a method of accounting that tracks the financials (e.g. income, costs, billable hours, overhead, etc.) of a unitary client project. Granular, project-level accounting provides a picture of the success, from a financial standpoint, of each project. 

Understanding project profitability and the levers that drive profitability will help you make better decisions around resource allocation, pricing, and overall financial management.

Let's review some examples in which project-based accounting helps an agency make better decisions.

Benefit 1: Resource Allocation 

Your agency is working on two projects. Project A is for a small local business and Project B is for a regional corporation.

With project-based accounting, you’ll track the time and resources your agency spends on each project and compare that to the project's total billings. 

Although Project B has a larger billing, you might discover that your team is spending a disproportionate amount of time on Project B, which threatens to make it unprofitable. 

Project A, on the other hand, is profitable but at risk of being delivered late and thus harming your client relationship. By reviewing the project financials, you can reallocate resources from Project B to Project A and speed up the deliverables. 

Benefit 2: Pricing Strategies 

Now suppose your agency provides SEO services through fixed-fee contracts.

After looking at the historical financials for various projects, you realize that your SEO services consistently incur higher labor costs relative to the revenues generated by the services. 

This insight leads you to believe that your fixed-fee rate is too low for SEO services. You need to either do less for the same price or keep service-levels the same and increase prices

Example 3: Client Profitability 

Project-based accounting helps identify your most profitable clients, the clients on whom your agency should focus its business development efforts. It can also help identify your least profitable clients.

For instance, although a particular client generates more revenue than any other client, they may also demand more resources relative to other clients. 

By closely tracking revenues and expenses associated with this client, you can re-evaluate your relationship and potentially mitigate scope issues when you renegotiate your current agreement. You might even consider letting them go to unlock opportunities for other more profitable clients.

Best Practices for Marketing Agency Accounting

To benefit from project-based accounting, your agency should first implement best practices specific to agencies. 

Smaller agencies may not need to use all of these best practices, but keep them in mind as your agency grows.

Use cloud accounting software

Any mature agency should use accounting software such as QuickBooks, FreshBooks, Wave, or other software to track its finances. Accounting software can be pricey, but its numerous benefits outweigh the costs.

The main benefit of accounting software is that it improves the accuracy of your agency’s financial reports by forcing your numbers to balance.

For example, you can’t record a revenue transaction without also posting an equally offsetting transaction to the bank account balance.

Accounting software also has a bank reconciliation feature that, when used on a regular basis, keeps account balances in the accounting software in sync with actual bank account balances.

In addition to reducing errors, modern accounting software includes automation features such as recurring transactions, data import, categorization rules, and others. Automation saves time and allows you to focus on growth tasks, such as acquiring new clients.

With the click of a button you can generate up-to-date financials from your accounting software to assist with financial planning and, come tax season, the financials will be ready for your CPA or tax professional.

Use the accrual method of accounting

Most businesses use the cash method of accounting because of its simplicity.

Under the cash method you recognize revenues when cash hits the bank account and expenses when cash leaves it. The cash basis method is useful in answering the most fundamental and often the most important question in financial planning:  “Did we bring in more cash than we spent?”

However, the cash method doesn’t provide the full picture of your agency’s finances. It often fails to match revenues with the period in which they were earned and expenses with the period in which they were incurred.

What does that mean exactly? Let’s walk through an example.

Say your agency completes a large project at the end of June. You also pay staff assigned to the project in June. The client takes a few days to pay and their payment finally settles in your business bank account in July. 

Under the cash method, your agency’s June financials would include salaries paid but wouldn’t include revenues earned from the project since payment was not collected until July. 

Not matching expenses and revenues to the same month causes June to look like a bad month, which wasn’t actually the case since the agency completed a large and successful project. 

The accrual method solves this problem by recognizing the billing as June revenue regardless of the month in which the agency collected payment for the billing.

As your agency scales and as you become more detached from the operations side, you’ll need consistent financial reporting across time periods. Consistent reporting increases the comparability of disparate time periods, leading to better insights that drive growth for your agency.

Use invoices to bill clients

Regardless of how your agency bills its clients, it needs a system for tracking who has been billed, how much they’ve been billed, and whether or not they’ve paid.

The simplest way to implement an effective billing process is to use invoices. 

An invoice is a formal request for payment from your agency to the client. It’s a document that outlines the services provided in addition to the quantities, prices, terms of payment, and other relevant details. It’s a document formalizing the transaction.

When your agency raises an invoice, it adds receivable to its balance sheet. The receivable remains on the balance sheet until the client remits payment. 

If your agency uses project accounting, it can allocate the invoice to a client project to assess the project’s profitability in conjunction with other project costs.

In addition to enabling project accounting, invoices reveal the amount of cash that hasn’t yet been collected from the agency’s clients, thus improving cash flow.

Track billable labor

There are many ways to bill your clients: hourly, fixed-fee, value, retainer, etc. 

Regardless of how you bill, if your agency fails to recover its labor costs, then it will fail to be profitable because it will eventually run out of money.

For projects that bill by the hour, you need to implement a timekeeping system that allocates contractor and employee time to client projects. You’ll then use reports from the software to prepare the client’s invoice.

Ideally, your selected timekeeping software integrates with your accounting system, since you need to allocate labor cost to client projects in order to truly benefit from project-based accounting.

Even if you bill on a fixed-fee basis, you still need to ensure that you recover the underlying labor cost. Otherwise you might be doing too much work for too little pay and not realize it.

By tracking billable labor, regardless of your billing method, you can allocate labor costs to individual projects, providing insight into the profitability of each project.

Track billable expenses

Agencies often incur project-related expenses and, if the contract provides for it, might need to bill the expenses back to the client.

The best way to to track billable expenses is to immediately note the expense in your accounting system as a billable expense.

Setting up a separate bank account or credit card dedicated to client expenses helps segregate billable expenses from overhead expenses. When preparing the client’s invoice, you’ll know that all your expenses in the dedicated account are billable.

By not tracking billable expenses your agency runs the risk of failing to be reimbursed for costs that should be paid by clients.

Best accounting software for a marketing agency

Using cloud accounting software is key to establishing a sound financial infrastructure for your agency. Let's review the main players and criteria for choosing the right software for your agency.

Also check out my picks for the best marketing agency accounting software.

Criteria for selection

Consider these factors when selecting a cloud accounting software for your agency:

  • Agency Size: If you run a small agency then you likely only need basic accounting features such as invoicing and transaction categorization. Whereas if you run a larger agency then you might be ready for project-based accounting, in which case you’ll need a more robust software.
  • Integration Capabilities: Integrations with other tools you're using, such as time tracking or project management software, can be a huge timesaver.
  • Ease of Use: If you’re not ready to hire a bookkeeper, your accounting software should have a user-friendly interface and accessible customer support to reduce your learning curve and ensure you get the most out of the software.
  • Scalability: As your agency grows, your accounting tool should be able to grow with you. Look for software that allows you to add features as your agency grows. Just because you don’t need a feature now, doesn’t mean you won’t in the future.
  • Cost: Balance the cost of a potential accounting software with the benefits it provides to your agency.

Spreadsheets

Spreadsheets are free and simple, but not very reliable since they require manual data entry and lack system controls that force your accounts to balance. Consider spreadsheets only if your agency is new and needs a free option. Bear in mind that your agency will soon outgrow spreadsheets.

Wave

Because it’s free, Wave is an excellent option for agencies on a limited budget or those just getting started. Like other paid options, it includes basic invoicing and payment processing features that sync with the rest of your accounting system. You can get additional features, such as payroll and receipt management, for an upcharge.

QuickBooks Online

Love it or hate it, QuickBooks is the standard in cloud accounting software. 

It offers all the features a marketing agency needs to develop a mature accounting function. The most basic QuickBooks plan offers invoicing and project-based accounting is available with an upgrade (there’s no free plan).

It’s also rich with integrations. If a software developer is making an accounting software integration, QuickBooks is likely the first integration they’ll develop, so there’s a good chance the software you’re already using integrates with QuickBooks.

FreshBooks

Freshbooks is popular with service-based businesses, including marketing agencies.

It’s similar to QuickBooks, but unlike QuickBooks it can double as a project management and client collaboration software in addition to being your agency’s accounting software. Not only could this cut costs, it also allows you to seamlessly join the financial side of your agency with the operations side for enhanced project reporting.

As a lesser-known competitor, FreshBooks offers fewer third-party integrations than QuickBooks does, but it does offer all the integrations you’ll need to run your agency.

Xero

Xero is a solid alternative to QuickBooks. It’s more widely used outside the United States but is gaining popularity in the United States. It offers project tracking and integrates well with other tools.

Zoho Books

Part of the Zoho suite of business tools, Zoho Books provides solid accounting features, including project-based accounting, time tracking, and a client portal where clients can view and pay their invoices. It’s an attractive option for agencies already using other Zoho apps.

Sage Intacct

Sage Intacct is designed for larger businesses with more complex needs. It provides comprehensive project accounting features, financial reporting, and integrations with other systems. 

Setting up your marketing agency’s accounting software 

Your accounting software will be generic when logging in for the first time, so to make it more useful for your agency you’ll need to customize it.

Review company settings

The very first thing you should do is review your company’s information within the accounting settings menu. This information includes the tax ID, addresses, contact information, accounting method, and other information.

If your agency bills back expenses, consider enabling the billable expenses setting.

You might also want to enable other settings, such as business segment tracking, or add custom fields to invoices forms. 

Take a look around in the settings to get a feel for other features your agency might need.

Customize the chart of accounts

The chart of accounts is the list of categories to which transactions will be coded. You’ll use these categories when filing taxes, preparing budgets and other aspects of financial management.

Here are some common chart of accounts adjustments:

  1. Add income sub accounts for the agency’s various service lines.
  2. Add sub accounts for expense categories (e.g. contractor types).
  3. Hide accounts irrelevant to your industry.
  4. Enable account numbers.

As a general rule, less is more when it comes to the chart of accounts. If you start adding too many sub-accounts, your financial statements will be messy and hard to understand. Best practice is to stick with general accounts and build custom reports that slice and dice financial data as needed.

Connect to third-party apps

Integrations can simplify your agency’s accounting when the alternative is to manually import data into your accounting software. 

If you use any third-party apps, such as timekeeping or payroll software, you should connect it to your accounting software. If you’re not sure whether an app connects to your accounting software, take some time to review the app’s documentation just in case.

Create products and services

Product and service items are the lines that appear on client invoices. You’ll need to set up product and service items before invoicing clients through your accounting software. 

When setting up product and service items, you’ll associate each item with an income account. For example, the “hourly rate” item might be linked to the consulting income account you set up earlier, and the “billable expense” item might be linked to a billable expense income account.

Build the agency’s client list

Adding your agency’s client list in the accounting software allows you to populate invoices with client information, such as email and physical addresses, point of contact information, notes, etc. 

The data you import into your accounting software depends on whether your agency uses a third-party software for invoicing. 

If your client data lives in a CRM or project-management software, which you also use for invoicing, then you don’t need to duplicate data between the two systems. You should still sync basic clients and invoices between software, if possible, but you can get by with syncing as little information as possible.

On the other hand, if you plan on invoicing through your accounting software, then you should develop the client list in your accounting software with as much information as needed to prepare the invoices.

Get ready for project-based accounting

If your agency will use project-based accounting, then you should make sure that the feature is enabled in your accounting software. Look in the company settings menu. Familiarize yourself with how project-based accounting works once you enable the feature.

Bookkeeping Basics for Marketing Agencies

Once you’ve set up the accounting software, you need to feed it with live financial data on a regular basis. That’s when bookkeeping comes into play.

Bookkeeping is the process through which a business maintains accurate and up-to-date financial records. It’s a necessary first step in filing business tax returns, preparing budgets & forecasts and making informed decisions.

Let’s review the bookkeeping process in detail.

Select the method of accounting: cash or accrual

First, you should decide whether your agency will maintain its books under the cash or accrual method of accounting.

To perform advanced accounting tasks such as preparing budgets and cash flow forecasts you’ll need to use the accrual method. The accrual method matches income and expenses with the period in which they were earned or accrued, providing predictability and comparability around financial metrics. 

Predictability and comparability facilitate advanced financial planning, such as budgeting and forecasting, hence why the accrual method is preferable for large agencies.

If you’re a smaller agency, with no or only a few employees, using the cash method will save time due to its simplicity. You’re simply categorizing transactions as money enters or leaves the bank account.

Determine the frequency of bookkeeping tasks

As another preliminary step, you’ll need to select the frequency at which your agency maintains its books. 

Timely bookkeeping prevents issues from recurring in the following month. 

For example, if a client fails to pay multiple invoices, you’ll catch this sooner if you’re reviewing client payments weekly as opposed to monthly, preventing a large receivables balance from accruing and avoiding cash flow issues.

Smaller agencies can get by with maintaining their books on a monthly or even quarterly basis. Larger agencies should maintain more timely financial records because there are more opportunities for issues to arise. 

Here’s a potential cadence for a basic bookkeeping process.

Weekly tasks

  • Input and pay vendor bills.
  • Record client payments.
  • Import and categorize bank transactions.

Monthly tasks

  • Run payroll and sync to accounting system
  • Reconcile bank and credit card accounts.
  • Make month-end adjustments.
  • Review financial statements.

Close out client invoices

The first step of your agency’s bookkeeping process should be to close out invoices in its accounting system. This step involves applying client payments to invoices and matching the payments to bank deposits. 

Frequently closing out invoices (weekly, if possible) will thwart cash flow issues caused by non paying clients, since you can more quickly follow up on unpaid invoices.

The exact process for closing out invoices depends on how your agency bills and collects payments, but a general process looks like this:

  1. Invoice your client and create the invoice in your accounting system.
  2. Collect payment through a payment processor.
  3. Apply the payment to an open invoice(s) in the accounting system.
  4. Match the payment to a corresponding bank deposit.

Your agency might use a third-party billing system, such as Honeybook, that both invoices and collects payments from clients. If so, you’ll need to import invoices from the billing system into your accounting system, whether manually or automatically through an integration.

Steps three and four will be completed simultaneously if your agency’s payment processor deposits client payments one-by-one (i.e. multiple payments aren’t batched in one deposit). If that’s the case then you can close out invoices by matching bank deposits to client invoices.

Create payroll journal entries

If your agency has employees, then you’ll need to create a payroll journal entry for each pay run, since there will be a corresponding cash withdrawal on your agency’s bank statements and the withdrawal needs to be coded to multiple accounts (salaries, benefits, taxes, etc.). 

A payroll journal entry splits the transaction into the applicable accounts, helping you maintain more detailed records and reconcile the accounting system to tax filings and other source documents.

Fortunately, some payroll software, such as Gusto, integrates with accounting software and automatically syncs the payroll journal entry.  However, you must first correctly configure the integration so that accurate information gets pushed to your accounting software.

Import & categorize transactions

To prepare accurate financial statements, transactions must be imported from your bank and credit card statements. Once imported, you then need to code each transaction to the appropriate income or expense account.

Most cloud accounting software integrate with banks, allowing you to automatically import transactions without the need to manually import transactions to the accounting software. Automatic imports are a huge time saver so you should take advantage of them as much as possible.

If your agency reports purely on a cash basis, this step is very simple. You’ll simply categorize bank deposits as income and cash outflows as expenses. Credit card transactions are typically considered a cash transaction even though no cash outflow has been made, unless you want to be super strict about reporting under the cash method. 

The accrual method, on the other hand, requires more effort. You’ll need to match bank deposits to client payments or a batch of client payments. You’ll also need to match vendor bill payments, whether those are cleared checks or electronic payments, to open bills in the accounting system.

Input and pay vendor bills

Assuming your agency’s vendors don’t automatically collect payments, you’ll need to set up a recurring bill pay process in order to keep vendors happy and maintain an accurate accounts payable balance.

A weekly bill pay process might look like this:

  1. Receive the bill from the vendor.
  2. Input the bill to the accounting system (automatically or manually).
  3. Review open bills and remit payment (check, ACH, wire, etc.).
  4. Review uncleared checks and follow up with vendors. 

Best practice is to make payments only when you’ve received a bill or invoice document from a vendor. The document should have a reference number so that you can match payments with bills in the event of a dispute.

You should also collect a signed Form W-9 from vendors prior to remitting payments. Form W-9 provides the tax information necessary to file accurate 1099s at year-end and keeps your agency compliant with the IRS. 

Reconcile bank & credit card accounts

Account reconciliations, perhaps the most important bookkeeping step, involve verifying account balances in your accounting software to source documentation pulled from your bank. 

Account reconciliations are important because they validate the accuracy of your agency’s financials. By frequently reconciling your agency’s accounts, you’ll catch small errors as they happen and prevent larger ones later on.

The basic steps in the account reconciliation process are:

  1. Pull account statements from the bank or other financial institution.
  2. For each account, input statement balance to the reconciliation tool in your accounting system.
  3. Confirm that the balances match and resolve any discrepancies.

Any cash, credit card, and loan accounts should be reconciled on a monthly basis. Accounts with no activity or minimal activity can be reconciled less frequently. At a minimum, you should reconcile any account once per year at year-end.

Advanced Agency Accounting: KPIs, Budgeting, & Forecasting

Regular bookkeeping will keep your agency’s books accurate and up-to-date, providing a solid foundation for advanced financial analyses. 

However, bookkeeping is backwards-looking. It won’t provide answers to questions about the future condition of your business, questions such as:

  • How much cash are we burning per month?
  • For how many more months can we continue to operate?
  • In which projects or services should we invest resources?
  • How much tax will we owe next year?

To be forward thinking about your agency’s finances, you’ll need to add a few additional steps to your agency’s accounting cycle. Let’s walk through them.

Make month-end adjustments

Agencies that use the accrual method of accounting might need to make adjustments to their financial statements to reflect certain non-cash items that will impact cash flows in future months.

For example, the agency might recognize revenues associated with projects for which work has been started but not yet billed to the client. This would be called “WIP” revenues. It’s revenue earned in the current period but not yet invoiced.

On the expense side, you might accrue a liability for expenses incurred in the current period but not yet paid by the agency. Payroll expenses incurred but not yet paid are one example.

The benefit of posting adjustments is that the financial statements more accurately reflect the activities of the current period. By not recording WIP and accrued expenses, the following period might look particularly good even though most of the revenues were earned in the current period.

Analyze financial statements

When the agency’s financial statements are ready, you should analyze them to find anomalies or issues that require action. Here are a few items to include in your review: 

  • Review aging of unpaid invoices.
  • Review aging of unpaid vendor bills.
  • Review large expenses.
  • Identify personal transactions.
  • Find gaps in recurring expenses.
  • Analyze fluctuations in revenues and expenses.

If you’re not reviewing the agency’s statements on a regular basis, then you’re not making adequate use of the accounting system you’ve worked hard to build. 

Remember, the goal of accounting is to be proactive, not reactive. Therefore, you should use the financials for real-time decision making and course correction.

Update financial KPIs

Key Performance Indicators are calculations that, when tracked over a period of time, indicate progress toward the agency’s financial objectives. Here are KPIs that your agency might track using information from its accounting system:

Revenue Growth (RG)

The current period’s gross revenues compared to the prior period’s. Positive numbers indicate that the agency is expanding its client base or capturing additional income from existing clients. Negative numbers indicate the opposite.

Client Acquisition Cost (CAC)

The agency’s cost to acquire a new client, whether through advertising or another channel. A downward trend indicates that the agency is spending less to acquire clients.

Customer Lifetime Value (CLTV)

The total revenues that a client is expected to generate over the course of its tenure with the agency. For a sustainable agency, CLTV should exceed CAC and trend upwards.

Monthly Recurring Revenue (MRR)

The revenues that the agency will generate in a month for recurring contracts. MRR indicates how well the agency retains clients and is a baseline for the following month’s gross revenues. 

Revenue per Employee (RPE) 

The agency’s gross revenues divided its employee headcount. It indicates the agency’s efficiency at generating revenues on a per employee basis. A higher RPE indicates that the agency is getting more value from each client.

Manage an operating budget

The agency’s budget will show what it expects to spend on overhead expenses, such as software and office expenses. On the income side, it will include revenue forecasts based on recurring and one-time projects.

You’ll typically develop a budget in advance of the current fiscal year and monitor it throughout the year, making changes as realities in the business unfold.

The goal of your agency’s budget is twofold.

First, the budget is a mechanism for controlling cash flows. By routinely reviewing the budget and identifying variances, you can quickly resolve issues as they appear.

If revenues are lower than anticipated, you might need to consider cutting costs to avoid burning through cash reserves. Or if expenses are higher than anticipated, you can investigate why and either cut the expenses or revise your budget as appropriate.

Second, the budget is a planning tool. You should use it when deciding to allocate resources in executing the company’s strategy. 

You wouldn’t want to go on a hiring spree if the budget shows the agency’s overhead is already too high. However, if the company needs to make a strategic hire, by referring to the budget, in conjunction with other information generated by the agency’s accounting infrastructure (KPIs, project profitability, etc.), you can find opportunities to bring in more cash.

Get help with your marketing agency’s accounting

Accounting isn't a one-off project. It's an ongoing process of implementation and refinement. But the rewards—financial clarity, better information for decision-making, improved profitability—are well worth the effort. If the prospect of building an accounting system for your agency seems daunting, start small and make improvements as you go. 

Alternatively, you could work with a professional to build a streamlined accounting system for your agency, saving you the time and stress of figuring everything out on your own. Get in touch using the contact form below. We’ll discuss your current setup and identify next steps in building a system that works for your agency, no matter where it is in its development.

This content is for informational purposes only and does not constitute legal, business, or tax advice. You should consult your own attorney, business advisor, or tax advisor regarding matters mentioned in this post. We take no responsibility for actions taken based on the information provided.

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