The 4 Cash Flow Tools Every Agency Needs To Have In Place

Revenue is vanity, profit is sanity, cash is reality. With 95% of costs in an agency being paid either straight away or exactly when they fall due and clients who insist on stretching payment terms, the ability to manage and predict cash flow is absolutely essential to survive.

Here are the 4 tools that we recommend to ensure that you’re forecasting accurately:

Sales Forecast

Ideally, an online shared document accessed by your sales & delivery team along with management and finance. A month on month outline of confirmed work plus pipeline for both existing and new clients, showing what needs to happen for the business to hit the target. The sales forecast should also include any direct spend (specific freelancers and 3rd party spend) therefore showing the Net Revenue figure (Revenue less Cost of Sales).

Finance Forecast

Linking to the sales forecast, the finance forecast starts with net revenue and then details out the overheads of the business (salaries plus other committed running costs), getting you to net profit. The finance forecast should also contain a high-level Balance Sheet & Cash Flow statement, outlining the forecast cash balance should you hit the numbers in your sales forecast and spend what you think you will. You should also be comparing your forecast to your annual budget allowing you to make decisions ahead of time to ensure you hit your budgeted profit target.

Running Cash Flow

A more detailed daily running balance of committed spend plus actual and confirmed payments from clients. This should show you ideally a 2-3 week running picture of your forecasted daily cash balance, meaning that you can identify any shortfalls and do something about this before it’s too late.

Aged Debtor Dashboard

An overview of progress with each debtor, with a history of notes and next action points. The idea being that debts are constantly being discussed internally and ultimately getting clients to pay earlier through consistent chasing.

Over the coming few months we’ll be writing a series of blogs going into the above tools in more depth.

Watch this space!


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