10 Key Financial Reports to Manage Your Advertising Agency
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What accounting or billing features do you need to properly manage your advertising agency? In this article, we’ll show you some key financial reports that can assist creative folks with agency financial management and project profitability, including profit analysis, staff utilization, efficiency, and WIP reports.
Before we jump directly into agency financial reports, we need to consider that many ad agency owners have been using accounting systems such as QuickBooks® and Simply Accounting for many years and they don’t want to switch accounting systems when shopping for agency management software. Creative directors are keen to see all the key job financial indicators within their agency management software. In order to accomplish this task, I would recommend selecting an agency management software that can be integrated with, let’s say, QuickBooks®, Simply Accounting or any other accounting system in the marketplace. By doing so, you will have the flexibility to integrate invoices and expenses directly within your favourite accounting system.
At Function Point, our clients have the ability to create invoices and expenses in our system and seamlessly integrate with different accounting packages so their accountant or bookkeeper doesn’t need to double enter invoices into their accounting systems.
Below is a list of financial reports that are used by our clients to improve overall productivity and profitability of your advertising agency.
1. Profit Analysis Report
This report allows you to compare estimated to actual costs, billable and invoiced amounts to give you a clear understanding of how profitable your work or agency is. You can apply filters while creating the report to show specific information such as client name, project, job, date ranges, and job statuses, to name a few.
The profit analysis report provides an overview of your revenue, expenses, and net income over a specific period of time. It allows you to identify patterns in your earnings and expenditures to make informed decisions about budgeting and resource allocation. For example, if your revenue is declining, you may need to cut costs, modify your pricing strategy, or boost your sales efforts. Alternatively, if your expenses are increasing, you should investigate the reasons and find ways to streamline your operations.
2. Staff Utilization Report
This agency utilization report summarizes available staff hours, hours worked, and billable hours organized by role and staff. It also displays the total available hours for staff in a given date range, their target billable hours (set on the staff details page), the total hours worked and the amount of those hours that were billable.
This report shows how efficiently your ad agency’s staff is being used. It helps you optimize the staffing levels and identify where you should reallocate resources. For example, if you notice that some employees are underutilized, you should consider assigning them to new projects. Alternatively, if certain team members are consistently overutilized, you should redistribute workloads to prevent stress and burnout.
3. Efficiency Report
This advertising agency report provides information on the efficiency of your active staff. Information includes the number of billable and non-billable hours, as well as the values of the billable hours versus the payroll cost of the individual. The number of jobs worked on by the individual is also included.
With this efficiency report, you can determine high-performing employees and those who may need additional training or support. For instance, if some employees generate more revenue than others, you may want to study their working styles and replicate them across your agency.
Additionally, this report can help you detect inefficiencies in your workflow and take action to address them. By improving employee productivity, you can increase your agency’s revenue and profitability.
4. WIP – Work in Progress Report
This report displays job-level details and agency financial information, such as a breakdown of actual, estimated, variance, invoiced and unbilled values.
These are some of the reports that will help you manage projects at your ad agency and avoid project overruns. The purpose of using ad agency project management software is to give you a clear understanding of what jobs are profitable, look at your staff utilization, scheduling, timelines and anything directly related to your day-to-day activities. Keep in mind that you still need to use your accounting system, such as QuickBooks®, to generate balance sheets and cash flow statements.
The WIP tracks your ongoing projects and shows how much revenue you have realized for each project. It helps you understand your project progress and foresee any issues that may affect your revenue recognition. For example, if a project takes longer than expected, you should adjust the project timeline or communicate with the client to manage expectations.
Having all project information readily available lets you quickly identify projects that may exceed their budget. From there, you can proactively mitigate financial risks and avoid potential cost overruns.
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5. Balance Sheet
The balance sheet provides a snapshot of your agency’s financial health at a specific time. It details your agency’s assets, liabilities, and equity, showing how they are balanced. With this report, you can understand your agency’s financial position to better allocate resources, manage debts, and maintain a healthy financial standing.
For instance, if your liabilities are increasing faster than your assets, you can seek methods to reduce expenses and improve cash flow. On the other hand, if you see an increase in your equity, you may consider reinvesting some of your profits in new projects or expanding your operations.
6. Cash Flow Statement
The cash flow statement demonstrates how cash is flowing in and out of your agency over a specific period of time. Your cash inflows can come from client payments, investments, and loans, while your cash outflows can include payroll, rent, and other expenses.
This report offers you insights into your agency’s liquidity and spot potential cash flow issues. For example, if your cash reserves are reducing rapidly, cutting costs or finding new revenue sources can be the right way to go. By understanding your cash flow, you can make better data-driven decisions about a new project investment or additional staff recruitment.
7. Job Profitability Report
This report records the profitability of individual projects, determining the most profitable jobs and the ones that need to be re-evaluated. For example, if there is a disparity in profitability among projects, you should review and revise your pricing or scope of work for the jobs that bring in low value. Alternatively, if certain clients are always more profitable than others, you may allocate more resources to maximize their benefits to your agency.
By analyzing the revenue breakdown by clients, you can prioritize building stronger relationships with your high-value customers while considering parting ways with clients that are not as profitable. This allows you to optimize your time and resources by focusing on the top few customers that bring in the most revenue and have the highest growth potential.
8. Budget vs. Actual Report
This report compares your agency’s budgeted expectations to your actual financial performance. By highlighting any discrepancies between the two, the report enables you to adjust your budget or your business operations to improve financial performance.
For example, if you frequently deal with expenses higher than your budgeted amounts, try to reduce costs or modify your pricing structure. In contrast, if your revenue consistently exceeds your projected earnings up to a worthwhile amount, you may think about expanding your agency with more projects and a bigger team.
9. Accounts Receivable Aging Report
This report lets you know how much money clients owe your agency and how long those invoices have been pending. It gives you insights into possible cash flow concerns; thus, you can seek remedies to collect overdue payments. For example, you can follow up with clients to ensure they pay on time or implement a letter of credit (LC) for future projects to guarantee cash flow security. Furthermore, this report can help you identify clients that might be at high credit risks, allowing you to take appropriate measures to minimize potential losses.
10. Accounts Payable Aging Report
In contrast to the above, account payable aging report shows how much your agency owes to contractors and suppliers and for how long. By regularly tracking this report, you can gain greater visibility into your agency’s financial obligations and address any late payments or inaccurate billing issues. This is also an important part of cash flow management. If you pay your bills on time, you can foster collaboration with your vendors and negotiate better terms for future projects.
Improve your financial reports with technology
These are some of the reports that will help you manage projects at your ad agency and avoid project overruns. However, when it comes to managing your advertising agency’s finances, technology can be a game-changer, providing powerful insights and facilitating your financial reporting processes. The purpose of using ad agency project management software is to clearly understand what jobs are profitable, and look at your staff utilization, scheduling, timelines, and anything directly related to your day-to-day activities. Keep in mind that you still need to use your accounting system, such as QuickBooks®, to generate balance sheets and cash flow statements.
Let us show you how we can integrate ad agency accounting and ad agency management software for your organization. That’s all for now if you found this blog interesting be sure to share with your friends and coworkers!
