In addition to the innovation, creativity, and bold design that drive creative agencies, financial planning is every bit as important. Agencies are highly focused on increasing productivity and profits, and many CFOs have started implementing simple, straightforward practices which are proving to make big impacts. Here are fundamentals of creative agency financial planning that high-performing agencies use to drive exceptional business performance.
They are tech-savvy – they accelerate productivity with a smart accounting tech stack
In addition to their cloud accounting software, Xero, creative agencies need to have their key business operational and financial software integrated with it. The benefit of having a great tech stack, and having it synced, means less administrative work for the agency team. Tech stacks normally expand as the agency grows, but here are the fundamental apps that will truly super-charge the agency’s accounting process.
- Xero cloud accounting software Hubdoc is an app that makes it easy to manage receipts and expenses, and it comes free with Xero
- Dext to electronically capture and store receipts, invoices and other supporting documents
- Fathom for KPIs and reporting
- Harvest for timesheets
They avoid gaps between projects – proper budgeting in a creative agency
It can be difficult for digital agencies to keep track of their budgets while working on projects, bidding on campaigns, and introducing them to prospects.
The biggest threat is If there are gaps between projects, and in this situation a reliable source of income provides a useful safety net. Budget planning and forecasting will help keep things smooth and carry out financial health checks all year round. It’s about using relevant business data to make reasonable forecasts about the future.
Their secret is that they have prepared for the absolute worst-case scenario, even if they are expecting a record year. Budgeting is required to combat unforeseen circumstances, for example, if the creative director quits, or a client walks away. This is a year-round process and the successful creative agencies are reviewing quarterly or monthly reports to keep track of where they are and adjust their financial plans accordingly.
They evaluate their financial statements at this crucial time
Successful CFOs of agencies start the performance evaluation of financial statements during the billing cycle, rather than after the end of the year. This is used to assess performance, calculate KPIs, and make strategic decisions. It also supports techniques such as analysis of variance to help identify and prevent problems such as poor employee performance or lower than forecast demand for a particular service provided by the agency. The most important KPIs used in a creative agency are:
- EBITDA – Earnings before interest, taxes, depreciation, and amortisation
- MRR – Monthly recurring revenue
- CLV – Client lifetime value
Based on detailed and thorough management accounting, KPI reports are an important persuasive force in borrowing from banks and persuading investors to invest. They can even help convince large organisations, government agencies, and other potential marketing clients that their marketing agency is stable, well-run, and liquid to do the contracted work.
As accountants with knowledge and expertise specific to the digital, creative, ad agency space, we can help you proactively keep your business ahead of the curve. Set up a free consultation with a Square Mile accountant, to assess your needs and considerations you should make for switching from your current provider.