As a growing agency cash flow is often a major issue.
The facts are you’re probably employing people ahead of actually having the regular work there for them, you’re dealing with clients much larger than yourself who push the boundaries in terms of paying you AND your suppliers are relatively small and so rely on your payments to survive.
Furthermore, the tax man doesn’t help matters! Once you reach a certain size you need to switch to paying VAT over before you’ve even received payments from clients. This often leads to large quarterly VAT bills that decimate cash flow.
With all of this working against you it’s imperative that you treat cash flow with the respect that it deserves. Without cash the agency you’ve always dreamed of running simply isn’t a possibility. Here’s just a few suggestions for improving your cash flow:
Improve your billing cycles
Retained work is the utopia in terms of cash flow – fixed regular billing that gets paid straight away as clients can see the tangible benefits of what you’ve done for them. However, most agencies are still heavily project-led.
Ideally you’d like the whole project fee up front every time (what a world we’d live in if that was the case!) but in reality you’ll build in an invoicing schedule based around agreed deliverables.
Where most agencies fail with projects is two-fold; firstly they leave too much of the total project value on the table until later in the project and secondly they don’t build in any Terms & Conditions to cover them in case of delays. This often leads to projects being put on hold with payment taking several months to hit your account. Build in invoicing and collection schedules to benefit you and make sure you’re covered in case of dreaded project delays!
Speed up getting paid
Some agency owners believe that there’s simply no possibility that their bigger clients will pay them an earlier. I’d really dispute this based on experience more than anything. There are great bits of software to help you with credit control; if you’re using Xero there’s an in built invoice reminder system or you can use add-on products such as Satago.
However, there’s simply no substitute for actually establishing great relationships with your clients. This is where a great in-house Finance Manager is worth their wait in gold. Having regular contact with the finance departments of your clients really does work! It means that any disputes are settled quicker and ultimately means that your client ends up prioritising your payment ahead of others.
Get a bank on board that understands digital!
Most banks are still pretty old school, they like working with businesses that create something tangible. You can physically see the stock and finished product and therefore can secure against it. However, agencies don’t physically create anything (print aside!), so it becomes a little more difficult to understand exactly what’s being created. There are a few banks who do understand digital. They get where the world is going and to some extent where it already is. Getting a bank that understands your agency can be vital – debt funding and increased overdrafts are absolutely essential for any growing agency in the modern world to allow you to have the confidence to grow in your own direction. You might never need a large overdraft facility but in my experience it certainly helps agency owners sleep at night knowing that it’s there!
At My Accountancy Place we work alongside business owners to help build profitable and sustainable agencies. If you’d like a free consultation please give us a call on 0161 667 9911.
