The Cash Flow Mistake Most Agencies Make

You've just landed a big client. Revenue is up. The P&L looks great. But somehow, you're still scrambling to make payroll. Sound familiar? You're not alone, and you're making the same cash flow mistake most agencies make.

The Problem: Confusing Profit with Cash

Here's the issue: your profit and loss statement shows revenue when you invoice a client, not when they actually pay you. Meanwhile, you're paying your team, your software subscriptions, and your office rent in real time.

This timing mismatch is what kills agencies. You can be profitable on paper while running out of cash in reality.

Why Agencies Are Especially Vulnerable

Agencies face unique cash flow challenges:

• Long payment terms: Clients often pay 30-60 days after invoicing
• Upfront costs: You pay your team and tools before clients pay you
• Project-based work: Revenue is lumpy, but costs are consistent
• Scope creep: Extra work eats into margins without extra payment

The Solution: Cash Flow Forecasting

The fix isn't complicated, but it requires discipline. You need to forecast your actual cash flow alongside your revenue. (For a complete step-by-step guide, check out our simple forecasting framework for agency growth.)

Here's what that looks like:

• Track when invoices are actually paid: Not when they're issued
• Map out your expenses: Know exactly when payroll, rent, and other costs are due
• Build a rolling 13-week forecast: Update it weekly to stay ahead of cash crunches
• Identify danger zones: Spot periods where cash will be tight before they happen

Practical Steps to Improve Cash Flow

Once you're forecasting, here's how to improve your cash position:

• Shorten payment terms: Move from 30 days to 14 days where possible
• Invoice promptly: Don't wait until the end of the month
• Require deposits: Get 30-50% upfront on new projects
• Chase late payments: Have a system for following up on overdue invoices
• Build a cash buffer: Aim for 2-3 months of operating expenses in reserve

For more detailed strategies on improving agency cash flow, read our complete cash flow survival guide for small agencies.

Warning Signs You're in Trouble

Watch out for these red flags:

• You're constantly checking your bank balance
• You delay paying suppliers to make payroll
• You're using a credit card or overdraft to cover operating expenses
• You can't predict whether you'll have enough cash next month

The Bottom Line

Cash flow management isn't glamorous, but it's essential. The good news? Once you have a system in place, it becomes routine. And the peace of mind that comes from knowing you can make payroll every month? Priceless.