Simple ways to sharpen up your agency’s cash flow management

Talking about cash is part of our mission to help you build a beautiful business. With the right habits, you can improve forecasting, get invoices paid quicker and ensure you have the cash in place to achieve your agency’s purpose.

Every stage of an agency’s journey brings unique financial challenges. If you’re struggling to win work, it can be stressful to see cash draining out of the business. If you’re growing quickly and winning big clients, it can be tough to manage longer invoicing terms. And even if you’re somewhere in the middle, it’s often hard to feel secure amid ongoing economic uncertainty.

Wherever you’re at, you are not alone. We’ve spent over 20 years helping agencies just like yours to sharpen up their cash flow management and get the cash they need to thrive. Here’s our step-by-step guide to better cash flow.

Seven steps to improving your cash flow 

1. Measure your cash security 

Start by assessing your company’s cash position. This formula is a great place to begin: Take the number of months of overheads (including business costs and the cost of paying yourself) as cash in the bank. You can then use this to measure your cash security:

• At risk: Less than one month
• Okay: Two to three months
• Good: Four to five months
• Secure: Six months

Our BenchPress data shows that smaller agencies are typically more at risk here. Of those earning under £1m, 16% were at risk and 21% were secure, compared to £1m+ agencies where just 10% were at risk and 30% were secure.

Once you’ve worked out this number, ask yourself: what’s your line in the sand? What’s the point you won’t go beyond in terms of cash in the bank?

From there, you can start setting some targets around cash flow. For example, one agency owner told us that they’d gone through a round of redundancies because the three-month mark was their line in the sand. However painful the redundancies were, three months was their “sleep at night” figure that they wouldn’t slip below.

2. Track cash flow on a weekly basis

How often are you tracking your cash flow? It’s a good idea to monitor it weekly (if not daily) so you can identify trends and pinch points in the future. Weekly monitoring will also help you stay on top of debtors. It’s easy for these to get out of hand, so regular nudges (and occasionally firmer action) will avoid this happening. 

A typical month of activity for agencies will have several spikes and dips, as invoices come into the business and payroll and other costs come out. But one of the first things to check is whether your cash flow dips below your acceptable line in the sand at any point.

We’ve created a free cash flow tool that allows you to track when you expect cash to come in and out. It’s a simple but useful framework that will help to put key finances into perspective, without getting bogged down in the details. 

3. Build forecasts around real-life behaviour 

When you’re creating forecasts, make sure you look back at customers’ real-life activity to make more accurate predictions. This includes:

• Customer payment history: Is your customer on 30-day payment terms but they actually pay closer to 60 days? Factor in customers’ actual behaviour rather than just the agreed terms
• Seasonal habits: Look at your profit and loss from the last few years and see if there’s any seasonality to your business, e.g. August is always quiet and January is consistently your busiest month
• Time to kick off new deals: Every agency is optimistic about how quickly new deals will kick off, but beware of forecasting new deals into your cash flow. Allow a sensible amount of time to engage with the procurement team, sign contracts and have kick-off meetings. Track this if possible, so you can factor it into future forecasts

4. Create multiple forecasts

If you’re facing a cash flow crisis or finding it hard to predict customer spend amid economic uncertainty, there’s no need to tie yourself to a single forecast. Create three forecasts:

• An optimistic forecast
• A realistic forecast
• A pessimistic forecast

Once you’ve done this, you can build a plan for each of the paths and see exactly what you need to do for each situation. It’s a liberating exercise – even if the pessimistic forecast involves some difficult choices, it can be a relief to have clarity over your options. 

It also means you can seek out the advice you need early. For example, if the pessimistic forecast shows that you’d need to significantly cut costs and your main cost is staffing, you can reach out to an HR advisor in advance.

5. Manage cash going out of the business

If your cash flow is hit hard at the same time each month, see where you can manage the money going out. If you’re paying VAT, corporation tax and personal tax bills at a time when cash is at its lowest, it might be sensible to change when each payment is coming out.

At the same time, think about the timing of big payments like rent, rates and other annual renewals. If you can spread payments across the month as much as possible, you’ll be less likely to be caught short if you suddenly face an unexpected outgoing.

Don’t forget to assess your personal situation too. You might have personal expenditures coming up that your business needs to fund, so think about when you will need to draw extra money and how that will impact your cash flow.

6. Get invoices paid quicker

Managing long payment terms and chasing late invoices are common headaches for agencies. The good news is that there are lots of easy ways for you to speed up payments.

Here are a few changes to get your invoices paid faster:

• • Reduce your payment terms to seven days: We all know that blue-chip companies won’t accept seven-day terms, but you can negotiate from a much stronger point if you start from seven instead of 30

• • Build in a financing cost for longer payment terms: If a company is going to take 60 days to pay, you’re effectively going to be funding the work because you have to pay your team after 30 days. A built-in financing cost would cover the interest on any additional funding 

• • Invoice more upfront: The start of projects is where all the time and energy is, from the pitching process to discovery and initial meetings. BenchPress shows us that top agencies will invoice an average of 33% upfront for projects ranging from £10k to £250k

• Pre-chase important invoices: Build relationships with the purchase ledger departments and check they’ve received your invoice. Ask them to confirm that all the information is correct to avoid delays further down the line

• • Invoice regularly: Invoice smaller amounts throughout the project so you keep the cash flowing, rather than leaving huge chunks to the end. Keep some work back as leverage for the final payment too
  • Add charges for late payment: Have a formal process if a client falls behind on payment and make this clear upfront. Decide how long you’ll continue working without payment and draw a line if it happens (e.g. payment is 14 days overdue) 

7. Assess your funding options

Finally, any good cash flow strategy involves knowing when to seek funding (and when not to). 

There are plenty of good reasons for you to secure funding for your agency, whether you need investment to grow or cash to plug a short-term gap (say you’ve lost a big client but have a strong pipeline of committed revenue). 

However, it’s vital not to use funding to support an unprofitable business model. Be realistic and pragmatic when you’re looking at the numbers, and ask yourself whether you need to rethink your service offering before getting finance.

Make the most of government support measures first, though bear in mind that it can take weeks or even months for the cash to land in your bank account. You can also defer your tax payments to HMRC if you’re facing a cash shortage.

Otherwise, alternative finance for agencies include bank overdrafts, business loans, credit cards and R&D tax credits. 

If you need support making sense of the options, we’ve teamed up with Swoop to help you compare products and rates.

Get more help with your cash flow

Looking for more ideas about how you can improve your cash flow and put the right habits in place? We can provide tailored advice that fits the context and position of your business, as well as useful resources to help you track key metrics. Get in touch with us here.