Bookkeeping and accounting for marketing agencies may not be the most exciting or glamorous aspect of the business, but they are essential for your agency’s success. Proper financial management can help you make informed decisions, identify areas for improvement, and avoid costly mistakes. From tracking profit margins to monitoring budget constraints, bookkeeping offers insight into the financial health of a digital marketing agency’s operations.
Every digital marketing agency should have a proper bookkeeping system in place to manage their preferred cash flow, whether that’s cash and accrual accounting, single-entry, or double-entry bookkeeping. This becomes critical when clients can come from various sectors, such as healthcare and finance, and may have different payment practices or requirements that can make your accounts receivable complicated.
For example, maybe you’re providing excellent service to a local hospital, and they’re providing your agency with regular, steady work while you’re other contracts are more piecemeal. Naturally, you’d prioritize your work for the hospital, but every month you discover that your income is less than the month before. With bookkeeping, you can get a better idea of the steps you need to take:
- Is your work for the hospital taking up too much of your billable time?
- Should you cut back on the contracts you take from the hospital to chase smaller clients?
- Should you raise your fees for the hospital? If so, how much?
Good bookkeeping can help you make data-backed decisions that serve both your agency and your clients better. Let’s explore the different types of bookkeeping systems used by marketing agencies, their benefits and drawbacks, cash versus accrual accounting, and single-entry versus double-entry bookkeeping.
Types of Bookkeeping Systems for Marketing Agencies
It’s essential for marketing agencies to keep accurate records and track finances effectively to establish growth and longevity. By using appropriate accounting tools—even just a simple ledger—any marketing agency can track income, and expenses, monitor profit and loss and make effective business decisions. Digital marketing agencies must have a well-defined bookkeeping system in place to determine their profitability and financial health.
The two types of bookkeeping systems most often used by marketing agencies are cash and accrual accounting. When an agency is calculating its income, cash accounting considers the revenue received at that moment. Accrual accounting calculates the income when the invoice is generated, regardless of when the payment is received. Marketing agencies should choose their bookkeeping system based on their preference and accounting needs.
Single-Entry Bookkeeping vs. Double-Entry Bookkeeping
Single-entry bookkeeping is a simple method of bookkeeping that involves a one-sided entry of financial transactions to keep track of your basic financial activities, such as sales, expenses, profit, and loss.
For example, a single-entry ledger might look like this:
On October 1, you spend $400 on a product photo shoot, which you record as a negative integer against your running bank balance. If your balance was $1,000, you adjust the running balance to $600. On October 7, you receive payment from your client of $800, so you record the positive integer and adjust your balance to $1,400.
This method of accounting gives you an idea of your overall cash flow as money is spent and earned, but not much else.
Double-entry bookkeeping, on the other hand, considers that every financial transaction affects both the debit and credit sides of an account. This means that every transaction is recorded as either an expense or credit, and takes less fluid assets and liabilities into account, such as equity, loans, tax burden, etc. With double-entry bookkeeping, it’s easier to detect errors and identify areas for improvement in the general ledger.
For example, if your agency takes out a $5,000 loan, the cash (asset) account is debited to $5,000, and the outstanding debt (liability) account is credited $5,000. A deficit on either side of the column indicates an imbalance of either revenue or expenses, meaning you have a more accurate idea of your ROI for business expenses, total revenue, etc.
Marketing agencies should choose their bookkeeping system based on their accounting requirements, future projections, and what they can afford.
Benefits and Drawbacks of Each System for Marketing Agencies
Marketing agencies that use cash accounting have advantages in paying lower taxes when their expenses are high, as it considers revenue at the point of sale. However, it can be limited in giving an accurate picture of agency finances. Accrual accounting provides a consistent view of cash flow, ensuring accurate tracking of receivables and payables. The downside of this system is the complexity associated with calculating and aligning future payments.
In terms of bookkeeping and accounting for marketing agencies, double-entry bookkeeping provides a thorough check of financial records due to its checks and balances nature—but it can be expensive and may require advanced technical know-how. Single-entry bookkeeping is quite straightforward and may be more affordable, but it may not offer extensive records like its counterpart.
Essential Bookkeeping Practices for Marketing Agencies
Regardless of what kind of overall accounting process you choose for your accounting agency, there are a few essential practices that can make bookkeeping more practical and efficient for any creative business looking to handle its accounting in-house.
1. Keep Accurate Records
Accurate record-keeping is critical for bookkeeping and accounting. Keep track of all expenses, invoices, and receipts, as they can be used for tax purposes or audited by the bank when applying for loans. Moreover, it is advisable to keep separate records for different projects to better understand how much time and resources are allocated to each project.
See related: Business tax services
2. Adopt Cloud-Based Accounting Software
Cloud-based accounting software like QuickBooks for accounting agencies or Xero can help streamline your bookkeeping and accounting processes. Specialized accounting software can help you stay organized and track your finances in real time, as well as automate tasks such as invoicing, billing, and payroll management. Investing in cloud-based accounting software can significantly cut down on the tedious data entry of manual accounting.
3. Develop a Budget
Create a budget to help you plan and manage your finances. Determine your monthly revenue, expenses, marketing agency payroll, and variable costs. Understanding your company’s finances is the first step toward better decision-making.
4. Track Your KPIs
KPIs, or Key Performance Indicators, are essential metrics that help you evaluate your agency’s financial performance. Keeping track of data such as monthly revenue, profit margin, and return on investment (ROI) will help you spot growth opportunities and identify areas where you need to cut costs or make changes to your services. It can also provide you with insights on how to boost cash flows and profitability.
5. Hire a Bookkeeper or Accountant
Consider hiring a bookkeeper or an accountant to help manage your finances if you are not proficient in accounting or you are finding it difficult to keep up. An expert will ensure that your books are balanced, tax filings are in order, and you are adhering to regulatory requirements, saving you time and money while you focus on building client relations and improving your quality of service.
6. Use a CRM
Customer Relationship Management systems digitize client contacts, campaigns, customer service issues, and other important data about your client base. CRMs essentially give you a snapshot of your relationship with a specific client, and they can be very important to make sure you have an accurate picture of billings, time tracking, and profitability. Appletree is well-versed in the most popular CRM systems like Hubspot, Zoho, Pipedrive, and others.
Challenges of Bookkeeping and Accounting For Marketing Agencies
Bookkeeping for digital marketing agencies is often a combination of traditional accounting tasks and understanding the financial implications of digital media—such as cost-per-click advertising. It’s essential to have a solid understanding of the various revenue and expense streams associated with digital marketing activities, such as social media campaigns and website analytics. Without this base of industry knowledge, in-house bookkeeping can quickly become overwhelming and inefficient. With the right tools and resources in place, however, these challenges can be easily managed and can even help to optimize the effectiveness of your digital marketing efforts.
The right bookkeeping system or accounting for digital marketing agencies largely depends on factors like their size, industry, and accounting preferences. Still, regardless of the bookkeeping and accounting system they use, every marketing agency needs to keep accurate records and track finances effectively to build a stable and profitable company. By employing the tips and best practices discussed above, digital marketing agencies can position themselves for growth and success by leveraging the power of proper bookkeeping practices.
For more information about the best practices and tips marketing agencies can use to keep their books in check, or what bookkeeping services for marketing agencies can do to help your bottom line, call Appletree business services today. Our CPAs and experienced business consultants have been serving small businesses nationwide, including bookkeeping services for marketing agencies, for over 40 years. We’re ready to help your agency take the next step into accounting consistency and business growth. Call today to schedule a meeting!