5 tips for managing your agency finances

Managing finances effectively is critical for the success and sustainability of any agency. A staggering 44% of small businesses fail because they run out of cash, underscoring the vital importance of cash flow management for business survival and growth.

An agency model is naturally cash-rich from the start. Unlike SAAS or eCommerce brands, it doesn’t require upfront investment to generate income. Therefore, by managing your finances wisely, you can accumulate a substantial amount of cash in your bank account. This cash can provide peace of mind when scaling your agency or be reinvested to fuel its growth.

As a general rule, it is recommended to have enough cash in the bank to cover at least 3-4 months’ worth of expenses. This ensures that you are prepared for late payments, bad debt, and unexpected circumstances such as COVID, Brexit, or recessions (I have successfully navigated my agency through all 3 of these!).

Here are five tailored tips for agencies to efficiently manage their finances, ensuring a steady cash flow and long-term financial stability​

1. Prompt Invoicing for Projects: A key financial management strategy for agencies is to invoice as soon as a project begins. It’s common for service-based agencies, especially in B2B, to invoice upon completion of work. However, this can lead to significant delays in payment. For instance, if a project takes 30 days to complete with an additional 30-day payment term, the agency might not receive payment for over 60 days. Invoicing at the project’s commencement ensures an earlier start to the cash inflow process, aiding in maintaining a healthier cash flow.

2. Instalment Payments for Services: Agencies should consider negotiating instalment payments for their services. While not always possible, when suppliers agree, it can be highly beneficial. For example, splitting a large service fee into smaller, monthly payments can ease the financial burden and assist in managing the agency’s cash flow more effectively. If you get an invoice for £3k as the provider if you can pay in 3 instalments of £1k instead.

3. Selecting the Right Bank: For newly established agencies, online-only banks such as Starling, Tide, and Monzo offer quick account setup, typically within a week. This is in contrast to the months it might take with traditional banks. However, as an agency grows, it may encounter limitations with these accounts in terms of third-party integrations and advanced banking needs. Transitioning to a traditional bank account may become necessary to accommodate the agency’s evolving financial requirements.

To provide some examples from my experience, when we initially started NOVOS, we attempted to use Metro.

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