Many Digital Creative Agency owners worry about cash flow. But sometimes, what looks like a cash problem is really something else. Let’s break it down and see what might be going on with your business money.
What’s a Working Capital Cycle?
First, let’s look at how money moves through your business:
1. You get a job from a client and start work.
2. You work on the project for 30 days.
3. When you finish, you send the invoice.
4. The client takes another 30 days to pay you.
So, it takes 60 days from when you start work to when you get paid. During this time, you have to pay for things like:
– Your team’s wages (probably twice!)
– Freelancer fees
– Suppliers
– Overhead costs
This can create a cash squeeze because you’re spending money before you get paid.
Signs of a Real Cash Flow Problem
When we look at a Agency’s finances, we often see two things that point to a cash flow problem:
1. Very little money in the bank
2. A long list of unpaid client bills or a lot of unfinished work (Work in progress or WIP)
If we see either of these, it usually means there’s a cash flow issue.
When It’s Not Really About Cash Flow
Sometimes, agencies think they have a cash problem when that’s not the real issue. Here are some red flags:
- All work is done, but there’s no money
- Outstanding receivables aren’t very high
- There’s little or no Work In Progress
- Tax payments are late
- VAT and employee taxes aren’t paid on time
- There’s no money for business taxes
- Suppliers aren’t getting paid
If this is happening, the real problem might be that the business isn’t making enough money overall.
Looking Deeper: Is Your Digital Creative Agency Making Enough Money?
To find the real issue, look at your profit and loss statement. Ask yourself:
1. Do you have the right number of employees?
2. Are you charging enough for your work?
3. Are any of your costs too high?
4. Are the owners taking too much money out of the business?
These things affect how much money your business makes and how much is left to pay bills.
Why It’s Important to Know the Real Problem
If you think you have a cash flow problem when you’re really not making enough money, you might try to fix the wrong thing. For example, getting a loan might help for a short time, but it won’t solve the real issue of not making enough money.
Getting Help
If you’re not sure what’s causing your money troubles, we’re here to help. By looking at your numbers, in depth, we can:
1. Figure out what’s really going on
2. Help you make a plan to fix it
3. Show you how to keep your business healthy in the long run
Remember, having money in the bank is good, but making sure your business is profitable is even better.
If you need help figuring out your business money issues, don’t be afraid to ask for help. With the right advice, you can turn things around and make your business stronger.