Accounting for creatives and advertising agencies: What you need to know

Creative agencies and other service-based businesses often require similar accounting services. For creatives, however, accounting teams should consider these factors specific to the creative world.

In the simplest terms, creative agencies need someone to invoice and collect money from their clients, pay their vendor bills, run their employee payroll, and keep the accounting books so they're ready for management and tax reporting. But creative agencies also need their accounting team to pay particular attention to:

Income types

Most creative agencies have two types of income:

1. Client retainer work they generally bill monthly or quarterly, with internal costs (e.g., staff time) but typically no direct costs against it

2. Project-based work, typically with certain direct costs, and with or without a mark-up (or profit margin). Project accounting requires you to match specific income and costs to manage the results of individual projects. Unless your accounting is set up to manage projects, tracking project performance will be very challenging. Without strong project accounting that accounts for all project-related costs, you run the risk of losing money on projects without knowing it

Overhead cost tracking

Agency overhead is usually pretty straightforward, with employee payroll and benefits typically incurring the largest costs. To track your labor cost by client or task, you may want to use a time tracking tool-which may or may not be incorporated into the accounting books. However, it's important to be able to analyze staff time to determine your profitability by client and to plan capacity as your agency grows.

Development projects

Many principal players with creative agencies like to freely and creatively explore development (i.e., "side" or "passion") projects to see where they might go and develop IP (intellectual property) for the company. Ensure your accounting team understands these endeavors so they can properly account for the time and financial investments that may lead to future payoff.

As the owner of a creative agency, you don't only need accountants who know what you technically require for your accounting. You also need those who understand how to work with your income type, overhead costs, and development work, while explaining the business' performance clearly and concisely, and helping you to mobilize those financial results so that they support your vision for growth.

Looking for an accountant who understands your creative agency's specific needs? Reach out to an accounting team with deep knowledge on the creative world and how to help agencies grow. Contact Syzygy today.