Do you really need funding for your agency?

If your agency is on its knees, desperate for cash in order to settle overdue creditors or pay the staff then you may well have no other option than to apply for funding or sell some equity. If you’re not so desperate but considering seeking funding, is funding really the answer to your cash flow issues?

Agencies are very organic businesses. Unlike technology businesses that require high upfront investment in developing a platform before any revenue can be made, agencies provide services in exchange for revenue from brands who save money or get better results by outsourcing their digital and marketing needs to you.

A business generally only needs funding to cover one of three cash requirements:

1. Capital investment e.g. Buildings, machinery, office equipment

2. Trading Losses

3. Working capital.

Capital Investments

Most agencies lease their buildings and have little more office equipment than a computer for each member of staff, some printing equipment and some desks and chairs.

Trading Losses

You’ll only make losses if you’re not recovering your staffs time. This happens if your rates are too low or your clients aren’t willing to pay for the time you spend on their account. In all other circumstances you will be profitable.

Working Capital

So that leaves working capital. Working capital is the difference between the profit that you make and the profit that is actually in your bank account. It is the cash tied up in work that you have delivered that hasn’t yet been paid for or in goods and services that you have paid out for but not yet received the benefit from.

Next Steps

Which one of these 3 areas are consuming your cash and what can you do to fix the route cause so that you don’t need to rely on funding?

Your balance sheet will tell you where your cash is being tied up and if reading balance sheets is not your thing, ask your accountant to talk you through it!

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