If you’d rather watch than read, check out our talk on why cash flow is one of the biggest stress points for agencies and service businesses.
For marketing agencies and other professional services firms, cash flow problems don’t usually come from a lack of work. They come from timing. Understanding when cash is expected to come in and when it has togo out can help agencies avoid falling constantly behind.
Here’s how to think about cash flow differently and manage it more intentionally.
Why Cash Flow Is So Tricky for Agencies and Service Businesses
Cash is the lifeblood of any business, but it’s especially critical for service firms. Unlike product-based businesses, agencies don’t have inventory sitting on a shelf. What they sell is time, expertise, and execution.
The highest cost for most agencies is payroll. And pay roll isn’t optional. While you’re servicing clients and waiting on project payments or retainer invoices to clear, your team still expects to be paid on time. That gap between doing the work and collecting the cash can be where problems start.
For small to mid-size agencies, forecasting that timing accurately is often harder than expected, which can make cash flow feel unpredictable and stressful.
The Most Common Cash Flow Mistake Agencies Make
One of the biggest issues we see in agencies is the failure to create a forward-looking forecast. Many owners can tell you what happened last month, but not what the next 30 days look like from a cash standpoint.
That usually means two things are missing:
Without both, agency owners are often flying blind, reacting to cash shortages instead of anticipating them.
Why Forecasting Cash Flow Is Harder Than ForecastingRevenue
Revenue forecasts feel familiar. Cash flow forecasts feel uncomfortable because they force you to confront uncertainty.
Agencies typically run semi-monthly payroll, creating two large, non-negotiable cash outflows each month. At the same time, client payments don’t always arrive on a predictable schedule. When collections slip, the pressure is immediately evident.
That’s why monitoring accounts receivable and actively managing collections is a critical part of cash flow management.
Managing Pass-Through Costs Without Breaking Your CashFlow
Beyond payroll, one of the most significant cash flow challenges agencies face comes from pass-through costs, especially media buying.
Media is often the largest non-payroll cash outflow for agencies, and it’s important to remember that it is not an agency expense. It’s a cost incurred on behalf of the client. When an agency purchases media, it is acting as an agent for the client, not as the end buyer. That distinction matters, both legally and financially.
When structured correctly, media should never be paid before the agency has collected the corresponding cash from the client. That expectation needs to be clearly reflected in client contracts, vendor agreements, and internal payment approval processes. Once that paper trail is established, everyone involved understands that the agency is simply passing the cost through and is not responsible for fronting the cash.
What many small to mid-size agencies overlook is that relationships with production vendors should be structured the same way. Production partners are often treated like internal expenses when, in reality, they can be positioned just like media vendors: engaged transparently on behalf of the client, with payment tied directly to client collections.
When agencies fail to set these expectations up front, they often end up paying vendors out of pocket while waiting on client payments, creating unnecessary cash flow strain. When they get it right, cash flow forecasting becomes more accurate, stress levels drop, and the agency avoids acting like an informal bank for its clients.
The simple rule is this: when you’re making purchases on behalf of your client, enter those arrangements clearly as an agent on behalf of your client. And do not pay until you’ve been paid.
What Agency Owners Should Monitor Weekly or Monthly (andWhen Daily Matters)
If cash is tight, agency owners should not be reviewing cashflow once a month and hoping for the best. In some situations, daily visibility is necessary. At a minimum, cash should be reviewed weekly to avoid surprises.
Agency owners should always know:
To stay ahead of potential issues, two reports should become part of a regular rhythm:
This is also where seasonality comes into play. Most agencies experience predictable ebbs and flows throughout the year, even if they don’t always label them as such. Slower quarters, client budget resets, and delayed approvals can all impact when cash arrives. Regularly monitoring cash flow allows agency owners to spot patterns early and adjust before a shortfall becomes a crisis.
The goal isn’t to eliminate seasonality. It’s to understand it well enough to plan around it. When agency owners can see timing issues coming weeks or months in advance, they gain options. Without that visibility, decisions become reactive and far more stressful.
How to Build a Simple Cash Flow Projection (and When toWatch It Daily)
Tools like QuickBooks or Xero are solid accounting systems, but they are not designed to produce meaningful forward-looking cash flow projections.
They do a good job recording history. They do not tell you what will happen next.
Cash flow forecasting requires taking expected inflows and outflows and laying them out over time, often in a simple spreadsheet. That process forces clarity around timing, which drives better decisions.
A cash flow projection doesn’t need to be complicated to be effective.
A practical starting point looks like this:
That ending balance becomes the starting point for the next period. Rolling this forward month by month creates a clear picture of where cash is headed, not just where it’s been.
When cash is comfortable, reviewing this projection weekly or monthly may be sufficient. When cash is tight or uncertain, agency owners may need to look at it daily. Daily monitoring doesn’t mean panic. It means awareness. It allows owners to spot issues early, prioritize collections, delay nonessential payments, and avoid last-minute scrambles to cover payroll or taxes.
The objective isn’t perfect precision. It’s control. A simple, consistently reviewed cash flow projection gives agency owners the clarity they need to make smarter decisions with confidence.
Why Cash Flow Management Pays Off Long-Term
Strong cash flow management leads to smarter decision-making and long-term stability. It allows owners to:
One simple rule matters more than almost anything else: when you’re making purchases on behalf of your client, structure them clearly as an agency relationship; and do not pay vendors for client costs until you’ve been paid.
Cash flow will never be perfectly smooth. But it can be predictable. And predictability is what gives agency owners control.
If you want help building cash flow forecasts, tightening up contracts, or creating systems that align with how agencies operate, HeathAdvisory works with agency and service-based business owners to turn cash flow into a strategic advantage.
If this feels familiar, it’s a good time to reach out and start getting ahead of it instead of reacting to it.
