Accounting for marketing agencies is extremely important.
Without the right set up, it can become a major frustration for your time and mental game.
Good thing we’ve written this article just for you!
My name is Connor Gillivan. I’m a 10+ year Entrepreneur.
I currently run 3 B2B companies and have scaled multiple businesses online to 6, 7, and 8 figures with an exit in 2019.
I’ve also been the CMO for all of my companies so I understand how marketing agencies work and exactly what you should be looking for when handling the accounting for your marketing agency.
TL;DR – Primary Keyword / Title
In this article, I’ll break it all down for you.
Here’s what we’ll cover:
- What Makes Accounting for Marketing Agencies Different?
- 7 Steps to Get Accounting for Your Marketing Agency Set Up
- Step #1: Separate Business & Personal
- Step #2: Choose Cash or Accrual Accounting
- Step #3: Purchase an Accounting Software
- Step #4: Connect Your Banks, Credit Cards, & Payment Processors
- Step #5: Categorize Transactions & Reconcile Bank Accounts Monthly
- Step #6: Create Your Financial Statements Monthly
- Step #7: Track Key Financial Metrics for your Marketing Agency
- Bonus: Outsource Accounting for your Marketing Agency
While these 7 steps are significant for streamlining your accounting, they can be tedious.
Solution? Our bookkeeping experts have extensive experience handling the bookkeeping needs of marketing agencies. We can help you record transactions, track your cash flow, and budget.
Get your free month of bookkeeping services today and achieve total peace of mind knowing that your books are always correct.
Role of Accounting in Scaling a Marketing Agency
As your marketing agency scales, you need accurate financial management to ensure you have control over your finances and consistent records that support growth.
Check out the top key roles accounting plays in marketing agencies:
Managing Cash Flow
Accurate bookkeeping provides real-time insights into your company’s finances.
It allows you to effectively monitor the business’s cash flow in (retainer fees, project-based fees, affiliate marketing) and out (media fees, equipment, taxes). With precise cash flow records, you can also understand patterns and predict financial situations.
Budgeting
Creating a marketing budget requires meticulous planning.
Accounting involves detailed financial records, such as income and cash flow statements, that help allocate resources. With these data, you can create budgets that align with your financial goals, improving your profitability while maintaining spending within limits.
Tax Compliance
As a marketing agency, you are subject to several legal and tax obligations—sales and income taxes— that can attract fines. Practical accounting allows you to pay your taxes on time, avoid penalties, and maintain a positive brand reputation.
Additionally, clear and transparent tax records can boost credibility with stakeholders and investors, giving your business access to capital, which can fuel growth.
Business Expansion
Financial records give you the necessary data to make informed decisions like resource allocation.
Accurate data can help you identify trends and opportunities, guiding your strategic investments. Accounting also involves forecasting and budgeting, allowing you to effectively plan for the capital required for expansion.
Expenses Tracking
Bookkeeping provides in-depth information about expenses and revenue, including client fees, performance-based fees, contractor fees, and office rent.
When you track expenses, you can identify cost-effective strategies to improve your spending habits and align with your financial goals.
Collaborate with us, and let us simplify your financial management.
Receive timely and accurate monthly reports (with expert bookkeeping insights) by the 15th or 20th of each month, freeing up time to grow your business.
Book a free bookkeeping consultation with our founders and prep your financial records for the tax season.
What Makes Accounting for Marketing Agencies Different?
Every business is unique when it comes to accounting and bookkeeping. Marketing agencies are no exception.
Here are 4 ways that accounting for marketing agencies is unique:
- Complex revenue recognition: Marketing agencies often have complex revenue recognition models, such as retainer-based billing or project-based billing, which can make bookkeeping a challenging task. It’s crucial to have a solid understanding of your revenue recognition model to ensure accurate financial records.
- Fluctuating revenue and expenses: Due to the nature of marketing services, revenue and expenses can fluctuate significantly from month to month. This requires careful monitoring of cash flow and expenses to ensure that your agency remains financially healthy.
- Diverse expenses: Marketing agencies often have to juggle various expenses, from payroll to software subscriptions. It can be challenging to keep track of everything, which is why having a solid accounting system in place is essential.
- Tax planning: As with any business, tax planning is essential for marketing agencies. However, marketing agencies often have unique tax considerations, such as taking advantage of deductions for advertising expenses. It’s important to work with a tax professional to ensure that you’re maximizing your tax savings and avoiding any potential penalties.
By recognizing these differences and implementing effective financial strategies, you can confidently manage your marketing agency’s finances and set your business up for continued success.
7 Steps to Get Accounting for Your Marketing Agency Set Up
Now, let’s dive into 7 steps to getting the accounting and bookkeeping set up for your marketing agency.
Note that you can do this yourself, hire a freelancer from a platform like Upwork, or outsource it to a reliable accounting and bookkeeping company like AccountsBalance.
Step #1: Separate Business & Personal
The first step to getting accounting for your marketing agency set up is to separate your business and personal finances. Mixing personal and business finances can make it difficult to track business expenses and can lead to inaccurate financial records.
To separate your finances, consider opening a separate bank account and credit card for your business. This will help you keep track of your business expenses and make it easier to reconcile your accounts.
It’s also important to establish a clear system for reimbursing yourself for any personal expenses that you may have paid for out of pocket. Keeping detailed records of all business expenses and regularly reconciling your accounts will help ensure that your financial records are accurate and up to date.
Step #2: Choose Cash or Accrual Accounting
The second step to setting up accounting for your marketing agency is to choose between cash or accrual accounting for your bookkeeping.
Cash accounting is the simplest method and records revenue and expenses when money is physically received or paid out. This method is often used by small businesses with straightforward accounting needs.
Accrual accounting, on the other hand, records revenue and expenses when they are earned or incurred, regardless of when the money is received or paid out. This method can be more complex, but it provides a more accurate representation of a company’s financial health.
Choosing the right method for your marketing agency depends on several factors, such as the size and complexity of your business and your revenue recognition model. For example, if your agency works on retainer-based billing, accrual accounting may be a better fit.
Consulting with a skilled accountant can help you determine the appropriate method for your business and ensure compliance with accounting standards.
Step #3: Purchase an Accounting Software
The third step in setting up accounting for your marketing agency is to purchase an accounting software to use for your bookkeeping and accounting.
There are many accounting software options available, each with their own features and benefits. When choosing a software, consider factors such as cost, ease of use, and integration with other software your business may use.
Popular accounting software options for small businesses include QuickBooks, Xero, and Wave. These software options offer features such as invoicing, expense tracking, and financial reporting.
Using accounting software can save time and reduce the risk of errors in bookkeeping. Additionally, many software options allow for real-time collaboration with your accountant, which can help streamline your accounting process.
It’s important to take the time to properly set up your accounting software to ensure accurate financial records. This includes entering all transactions, connecting bank accounts and credit cards, and creating a chart of accounts.
We’ll dive into this in Step #4.
Step #4: Connect Your Banks, Credit Cards, & Payment Processors
The fourth step in setting up accounting for your marketing agency is to connect your bank accounts, credit cards, and payment processors to your accounting software.
Connecting your financial accounts to your accounting software can save time and reduce the risk of errors in bookkeeping. Many accounting software options offer automatic syncing with financial accounts, which can streamline the bookkeeping process.
To connect your accounts, follow the instructions provided by your accounting software. This typically involves entering login information for your financial accounts and allowing the software to access your financial data.
Step #5: Categorize Transactions & Reconcile Bank Accounts Monthly
The fifth step in setting up accounting for your marketing agency is to categorize transactions and reconcile bank accounts each month.
Categorizing transactions involves assigning each transaction to the appropriate account in your chart of accounts. This ensures that your financial records accurately reflect your business’s financial activity.
Reconciling bank accounts involves comparing your financial statements to your accounting software and making any necessary adjustments. This can help identify errors or discrepancies in your financial records.
It’s important to complete these tasks each month to ensure that your financial records are accurate and up to date. This can help you make informed decisions about your marketing agency’s finances and improve your financial management.
Additionally, regularly categorizing transactions and reconciling accounts can help you identify areas where you may be overspending or can cut costs.
Step #6: Create Your Financial Statements Monthly
The sixth step in setting up accounting for your marketing agency is to create your financial statements each month.
Your financial statements provide an overview of your business’s financial activity, including income, expenses, assets, and liabilities. By creating these statements each month, you can track your business’s financial performance and identify areas where you may need to make adjustments.
Your financial statements typically include a balance sheet, income statement, and cash flow statement. Your accounting software should be able to generate these statements for you automatically.
Reviewing your financial statements each month can help you identify areas where you may be overspending or can cut costs. It can also help you make informed decisions about investments or other financial decisions for your marketing agency.
Here’s a free Monthly Finance Meeting Agenda you can use as you grow your marketing agency.
Step #7: Track Key Financial Metrics for your Marketing Agency
The seventh and final step in setting up accounting for your marketing agency is to track key financial metrics.
Key financial metrics can provide valuable insights into your business’s financial health and performance. Some common metrics to track for marketing agencies include revenue, profit margins, customer acquisition cost (CAC), monthly recurring revenue (MRR), and lifetime value of a customer (LTV).
By tracking these metrics, you can identify areas where you may need to make adjustments to improve your marketing agency’s profitability and growth potential. For example, if your CAC is high compared to your LTV, you may need to reevaluate your marketing strategy to improve customer retention or reduce acquisition costs.
Your accounting software should be able to generate reports and provide insights into your business’s financial metrics. Additionally, you can create custom reports to track specific metrics that are important for your marketing agency.
Accounting Software for Marketing Agencies
Accounting software lets you streamline your agency’s finances, reduce errors, and keep your books accurate.
Check out our top 3 picks for accounting software:
1. FreshBooks
FreshBooks is a cloud-based accounting software, great for small businesses and agencies to manage their finances.
Key Features:
- Automatic Expense Tracker: Monitor your business expenses by simply scanning receipts on your mobile phone and importing expenses from your bank to your account
- Accounting Reports: Create detailed reports that provide valuable insights into the costs of running your agency
- Collaboration Tools: Invite your accounting team and give them access to file returns and update journal entries to help you make vital business decisions.
Pricing: Starts at $4.75 per month
2. Sage Intacct
Sage Intacct is a cloud-based software built for advertising and marketing agencies. Its features simplify accounting, save time by automating manual processes, and provide real-time insights, allowing you to focus on what matters — growing your marketing business.
Key Features:
- Online Invoicing: Automatically create and send professional invoices and manage them on the go.
- Enhanced Data Security: This feature provides top-tier security for your financial data and backs everything up to the cloud, ensuring you never lose important data.
- Detailed Reporting: Access the financial dashboard and analyze different reports side by side
Pricing: Pricing is provided upon request
3. QuickBooks Intuit
QuickBooks Intuit is an accounting solution that provides agencies with real-time financial data. The software stores financial information in the cloud, allowing users to access their data anywhere and anytime.
Key Features:
- Time Tracking: Allows you to track billable time records on all your devices
- Payroll Management: Automatically calculates complex payrolls and allows you to create customized payslips
- Reporting and Analytics: Generate detailed reports, such as income statements, on your marketing agency’s performance with a single click.
- Automatic Invoicing: Streamline invoices by allowing you to create and send unlimited and custom invoices
Pricing: Starts at $17.50 per month for small businesses
Key Accounting Practices for Marketing Agencies
Without proper bookkeeping tips, keeping your marketing agency profitable might be challenging. Check out the best practices to streamline your financial management and drive long-term success:
Practice Proper Tax Planning
Taxes can be complicated when dealing with multiple revenue streams, freelancers, and employees.
So, take advantage of expenses you can claim, such as software subscriptions and travel expenses, to free up cash for your business. Also, tax documents like Form W9 must be collected before making payments.
Remember to set aside tax savings to avoid last-minute rush.
Use Invoices to Bill Clients
The best practice is to receive payment or settle a bill only when your clients (or vendors) send an invoice. The invoice should also have a reference number so you can match the payments.
Remember to close your invoices in the accounting system; match the payments to the bank deposits.
Integrate Third-Party Apps
If you use third-party apps like payroll software like Gusto or a time-tracking tool like Hubstaff, ensure they connect with your accounting software.
Ultimately, it should streamline your bookkeeping efforts (save time and minimize errors), especially when the alternative is to manually import data into your accounting software.
Have Short and Long Term Cash Planning
You must be forward-thinking about your marketing agency’s finances.
To better plan for finances, have a short-term cash forecast, ideally for 6 to 12 weeks, of your cash inflows and outflows. For example, how would a client’s missing payments affect your cash position?
Also, have a long-term cash forecast—1 to 5 years—to understand how events or decisions, such as hiring additional staff, would impact your cash flow.
Common Accounting Mistakes to Avoid
An error in your bookkeeping could be catastrophic to your business, providing the wrong information about its financial health.
Check out these 10 common accounting mistakes you should avoid to remain profitable:
- Replacing Reconciliation with Real-Time Data: Tracking and updating accounts in real time is great, but it should not replace reconciliations. Therefore, regularly compare your books with bank statements for accurate cash flow.
- Data Entry Errors: When you enter inaccurate figures and duplicate entries, you can affect the integrity of your data. So, implement a double-entry system and automate your accounting to reduce these errors.
- Failing to Back Up Financial Data: You could harm your reputation or experience financial losses if you don’t back up your accounting data in secure locations.
- Not Hiring a Professional: Marketing agencies have complex accounting needs that you might be unable to handle efficiently. Instead, hire a bookkeeping service like AccountsBalance to minimize errors and ensure your books are updated on time.
- Mixing Business Accounts with Personal Finances: Blurring the line between business and personal finances might make it challenging to sort business transactions and result in missed tax deductions.
- Not Planning for the Tax Season: As a marketing genius, you likely handle a range of clients, from corporates to freelancers, resulting in fluctuating revenues. Without proper planning, you might be in complex situations, such as substantial tax payments that you are unprepared to pay.
- Inconsistent Categorization of Expenses: Your business has multiple expenses, some directly related to the cost of supplies and others projects. Misclassifying expenses might confuse the agency’s financial performance, affecting its long-term growth.
- Ignoring Receipts and Small Transactions: If the ending balances in your accounting system and bank accounts are to match, every penny should be accounted for. On the other hand, keeping receipts is excellent for reference if a client wants to review each transaction.
- Neglecting Cash Flow Management: If you do not know how much money is coming in and out of your business, it becomes hard to maintain enough liquidity to meet your obligations.
- Using Inadequate Accounting Software: Even when trying to save money, compromising your accounting system is never a good idea. When looking for an accounting platform, ensure it has all the essential features to help simplify bookkeeping.
Bonus: Outsource Accounting for your Marketing Agency
Managing your marketing agency’s accounting and bookkeeping can be time-consuming and complex. As your business grows, it may become increasingly difficult to handle these tasks on your own. Outsourcing your accounting and bookkeeping can be a great solution to help you manage your finances more efficiently.
Here are some tips for outsourcing your marketing agency accounting and bookkeeping:
- Find a reputable accounting firm: Look for a firm that specializes in bookkeeping and accounting for marketing agencies and has experience working with businesses of your size and industry. You can ask for referrals from other business owners, search online, or check out a service like AccountsBalance.
- Assess your needs: Determine what tasks you need help with, such as bookkeeping, tax preparation, financial reporting, or budgeting. Make a list of the services you need and share it with potential accounting firms.
- Review their services and pricing: Make sure the accounting firm offers the services you need at a price that fits your budget. Consider the value of the services you’ll receive and the potential cost savings from outsourcing.
- Set clear expectations: Communicate your expectations for the services you’ll receive, including timelines, frequency of reporting, and communication channels. Make sure you and the accounting firm are on the same page before signing a contract.
- Review regularly: Check in with your accounting firm regularly to review financial reports, ask questions, and ensure everything is on track. Stay engaged in the process to ensure the best results.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
Frequently Asked Questions (FAQs)
Got questions about bookkeeping for marketing agencies?
We’ve got answers.
What Financial Reports Are Most Useful for Agencies?
Marketing agencies must review financial reports to make informed financial decisions and drive growth.
These reports include:
- Income statement
- Profit analysis report
- Cash flow statements
How Often Should Financial Reports Be Reviewed?
The frequency at which your marketing agency should review reports can depend on several factors, such as regulations, company size, and microeconomic factors.
However, reviewing monthly financial statements (like the cash flow and profit and loss statements) is ideal. You also perform a comprehensive review at the end of the calendar year.
What Are the Benefits of Outsourcing Accounting to Marketing Agencies?
Check out the 3 benefits marketing agencies can get from outsourcing their accounting from AccountsBalance:
- Get accounting insights from our team of bookkeeping experts.
- Access monthly financial reports and get insights into your agency’s success.
- Frees up your time spent keeping your books up to date and focusing on growing your business.
Conclusion
Still wondering if accounting for your marketing agency is important?
Or how you can handle the accounting and bookkeeping?
I hope not!
If you have any questions, reach out to us at [email protected].
No more struggling to keep your marketing agency’s books up to date.
Partner with our experts at AccountBalance to keep your agency’s financial records accurate, track your expenses, and receive financial statements for strategic planning.
Schedule a call with our CEO and get bookkeeping services tailored to your agency’s unique needs.
