Vlad Rusz is a CPA at Centaur Digital Corp, helping busy business owners efficiently manage their accounting system.
It’s not uncommon for someone who starts a marketing business to have limited accounting knowledge. After all, marketing and accounting are often seen as having opposite functions—the former dealing with creating work and the latter with meticulous number crunching. Unfortunately, unlike a marketing employee, a marketing agency business owner must address the accounting side of the business along with providing marketing services to clients.
There are some simple systems that marketing agency owners should put in place to ensure a basic understanding of their company’s financial health. The first is a basic bookkeeping system to track all the money going in and out of the company. An extension of this system is to further identify two to three key performance indicators (KPIs) to help with proactive managerial decision-making. The second system a company should establish is a reliable way to manage clients’ advertising spending funds and ensure there is enough cash on hand to meet payroll. The following four tips will expand on these two essential systems for marketing agency owners.
1. Set up a basic bookkeeping system.
To accountants, it might seem impossible to operate a business without a bookkeeping system. But as long as the determined business owner can pay their bills, accounting can, at least initially, take a back seat when a company is small. However, a lack of good accounting becomes increasingly problematic as a company grows since it becomes difficult for the owner to track or understand what is happening in their business.
Setting up a formal bookkeeping system is an easily outsourced task, and the most basic bookkeeping system should provide the owner with at least a top-level view of the company’s sales and expenses. This should also be sufficient to ensure all transactions are properly tracked and enough financial data is compiled to file taxes at year-end.
2. Identify important KPIs.
While a basic bookkeeping system will provide a high-level view of income and expenses, it might not produce the most relevant data for daily operations. Data relevant to management can include nonfinancial information such as the number of clients acquired, which can be combined with financial data to get KPIs like client acquisition cost.
However, business owners can get overwhelmed when deciding what to track or by trying to track too much and reaching analysis paralysis. In this regard, identifying two to three KPIs will focus the company on tracking data that will provide valuable information to help drive growth and profits.
3. Separate client ad spend.
Marketing agencies generally handle advertising spending for clients. While some work within the client’s vendor accounts—and thus don’t need to account for the spend—others use their own corporate accounts. It’s important to accurately track these funds whether they are prepaid or reimbursed. One way to do this is to set up a separate bank account for client funds. This ensures that there is no commingling of company and client funds. In addition, reimbursed expenses allow those transactions to be separated out from the rest of the business operations so there is no ambiguity for what needs to be reimbursed.
4. Use a payroll account.
For most marketing agencies, payments for contractors and employees are a significant expense. Failing to pay people on time can be a sure way to lose good workers and diminish the value you can provide to clients. To avoid a cash crunch and potentially jeopardize the ability to pay people, a marketing agency can set up a separate payroll account to which a percentage of sales can be devoted. This ensures that funds are always budgeted for this important expense line. A business is not limited to one checking account, and it’s generally good practice to set up separate accounts for important expenses like payroll and client funds.
Starting a business without an accounting system is a common practice among many small-business owners. After all, when you bootstrap your business, you first need to make some money before you can hire a bookkeeper. While setting up a bookkeeping system can seem a monumental task, it can be broken down into smaller steps that are easy to implement. Start by setting up a basic bookkeeping system with only a few KPIs. Use multiple checking accounts to separate out funds for important expenses. Following these tips will have you well on your way to building a robust accounting system for your marketing agency.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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