If you run a marketing firm, accounting may not be one of the jobs you enjoy. Likely, you often work on your books. Regardless of whether you are doing accounting for marketing agencies for the first time or have been doing this for several years, certain mistakes made when working with finances can cause serious problems.
In this article, we will discuss the basic elements of bookkeeping in the marketing area and give some recommendations on keeping capital under control to prevent economic disaster.
Why Is Accurate Record-Keeping Critical?
Accounting is the basis of the economic activity of advertising organizations. It gives a precise picture of the firm’s current situation, enabling you to make the right decisions without violating tax standards. Let’s take a closer look at the main ways organized, accounting can be profitable:
- Monitoring capital movement: Income and expense tracking enable you to define the structure of capital flows, anticipate economic difficulties, and make insightful decisions regarding the distribution of funds.
- Assessing profitability: if you regularly study financial papers, you can calculate the profitability of your advertising campaigns, determine the most cost-effective services, and adjust performance to maximize earnings.
- Ability to make data-driven decisions: accurate economic papers provide the insights needed to make decisions based on information about budget allocation, pricing tactics, and investment potential.
There were 7,761 marketing firms in the United States at the end of 2022, up 17.4% from the year before. The popularity of such a business is associated with its relatively high level of profitability and digitalization. The estimated revenue of digital advertising agencies in the United States reached 55.7 billion U.S. dollars in 2023, marking a growth of over three times compared to the figures in 2017.
The Best Practices of How to Do Accounting in Marketing Firms
As an advertising firm, your primary focus is the introduction of compelling and unique advertising campaigns. Unfortunately, along with this comes the challenges of managing your economic information and keeping your books up-to-date. Below, we will tell you how to set up bookkeeping to save more time, capital, and valuable resources to solve other vital objectives.
Gains and spending observation
Ongoing monitoring of earnings and expenditures lets you comprehend where the capital comes from and where it goes. By keeping precise records, you can make logical decisions about allocating resources and guaranteeing maximum gains.
The primary revenue groups in a marketing firm are client services, retainer fees, commissions, and project income. At the same time, the main spending categories are advertising, market research fees, salaries, overhead, software subscriptions, office supplies, and taxes if applicable.
Below are several rules on how to control the proceeds and expenditures of your firm:
- Save all receipts and bills; this will make it simpler to monitor your spending and assist with tax planning.
- Utilize a particular program; this will help you in control the inflow and outflow of capital and draw up reports to understand where your firm is heading.
- Don’t forget to keep track of your invoicing: ensure you send payment documents on time and monitor late payments.
When controlling gains and spending, you need to evaluate your cash flow. It guarantees you have enough capital to cover all expenditures.
Dealing with capital movement and forecasting
When managing capital movement, it is vital to understand the current economic situation. It means precisely and continuously forecasting the budget’s inflows and outflows of capital.
Revenue forecasts evaluate your agency’s predicted earnings in the following months or years. You can make forecasts by researching past results, actual market conditions, and business potential. At the same time, budgeting demands evaluating how much you will have to spend on diverse activities. Forming a financial statement that monitors your progress is crucial when planning for an organization’s future.
Generation of financial reports
Creating financial reports forms a transparent picture of your business’s economic situation, enabling you to make informed decisions and plans. The most critical documents in the advertising field are the profit and loss (P&L) statement and the balance sheet. If the P&L document demonstrates the gains, expenditures, and net profit of the organization for a certain period, then the trial balance sheet gives an idea of the economic situation of the organization at a given moment in time.
Types of Accounting Structures in the Marketing Field
Marketing agencies typically utilize two categories of accounting structures: cash basis and accrual methods. When implementing cash algorithms, proceeds obtained to date are considered. Accrual accounting records revenue when invoiced, regardless of when the organization receives the money.
In addition, there is single-entry and double-entry bookkeeping.
- Single-entry is a simple accounting option that provides one-way operations entry to monitor your core economic activities, including sales, spending, gains, and losses. Consider this example: On November 8th, you spend $200 on a commodity photo shoot and record this as a negative number. If your balance is $1,500, you change it to $1,300. However, on November 16th, you obtained payment from the customer for $400; now you must adjust the balance to $1,700.
- Double-entry assumes that each operation affects the debit and credit of two accounts at least. In other words, any increase in income and expenses causes a respective change in assets and liabilities accounts. If your organization borrows $3,500, that amount debits the cash (increase the assets) account, and the obligations (increase the liabilities) account is credited by $3,500.
The single-entry system informs a user about the movement of capital as money leaves and enters accounts, but nothing more. At the same time, with double-entry bookkeeping, you can more easily spot errors and define sectors for enhancement. Each firm must choose its algorithm, considering personal accounting requirements, future projections, and what it can afford.
How to Evaluate an Advertising Agency’s Campaign ROI?
ROI, or Return on Investment, is one of the most popular options for calculating the success of a marketing agency’s campaign. In simple terms, ROI is the ratio of the revenue from a marketing performance or an individual campaign to its cost.
ROI = (Campaign Revenue – Campaign Expenses) / Campaign Expenses
Let’s look at a specific example:
Marketing firm QWE organizes a social media campaign at an estimated cost of $16,500. If a client receives $1000 per conversion and has 25 conversions, the entire conversion would be $1000*25 = $25000.
- Income: $25,000;
- Campaign expenditures: $16500;
- Campaign ROI: (25000-16500) / 16500 = 52%.
It is also necessary to identify qualitative ROI when analyzing a long-term effect of a campaign, primarily if it is aimed at growing brand awareness. When engaging clients, generating a true-to-life timeline to measure results is essential. Professional accounting software allows companies to build reports on ROI analyzes to track and measure the impact of their investments in various financial processes.
Common Bookkeeping Mistakes in Marketing Agencies
Since accounting for marketing agencies is sophisticated and time-consuming, there is plenty of room for errors. Even with the implementation of automated structures, inaccuracies or errors in capital management can occur, which may significantly worsen the economic situation of your firm. Let’s look at the most common mistakes:
- Avoid dividing individual and business money: when you mix individual and business capital, it complicates accounting, making it problematic to determine a business’s profitability level and actual economic status. Without proper financial management, you can quickly forget whether an operation was individual or business-like. Plus, this will make tax deductions difficult since you won’t have documents to back up every capital movement. Opening a separate account to manage business activities simplifies auditing and avoids problems with tax authorities.
- Ineffective cash flow: if the advertising agency does not ensure a proper handle of receivables and payables, it can lead to a lack of cash in the firm. The firm must have enough capital to cover unexpected costs and pay off debts to avoid fines and bad publicity. Optimization of accounts receivable and accounts payable requires stable control of repayment terms, associated expenditures, customer reputation, relationships with suppliers, etc. A company should monitor its spending to stay within budget.
Some marketing organizations do not take benefits from the tax deductions the government suggests. Mandatory payments are an essential element of your performance and demand the most precise calculation. However, you may decrease your liability by identifying certain expenditures as deductions.
Top Tips for Accounting in the Marketing Field
Regardless of which method you choose for accounting for marketing agencies, several useful tips will assist in making bookkeeping as practical and productive as possible in any creative sector:
- Save careful records of all economic activities, including gains, spending, bills, and receipts. Clear and organized records is the key element of efficient bookkeeping for marketing agencies.
- Set up a chart of accounts: create an exact chart of accounts that considers the specifics of your firm. Logically and consistently classify gains, expenditures, resources, and obligations to obtain precise reports and analyze economic insights.
- Regularly reconcile your bank statements: remember to reconcile your bank statements to guarantee that your records match your actual bank balances. It will detect discrepancies and ensure the correctness of financial reports.
Consider recruiting an accountant with experience in a digital marketing area or who has worked as a chief financial officer (CFO). Their knowledge and experience will assist you in understanding complex accounting issues and ensuring compliance with all economic regulations.
Advertising campaigns are based on deep analytics and a compelling narrative. Likewise, your financial activities require clear and strategic management.
Marketing agencies deal with different projects, expenditures, and revenues. BooksTime’s professional accountants ensure that all accounting activities are recorded accurately and on time. In addition to recording the data, they will provide with profitability data, handle cash flow, and help to build and track the campaign budget. Hiring professionals allows owners of advertising firms to concentrate on key business strategies while being confident and reliable on an economic basis, which is vital for development and stability.