Bookkeeping for Marketing & Creative Agencies: Stop Bleeding Profit

Running a creative agency is a balancing act. On one side, you have the chaotic brilliance of the creative team; on the other, the rigid deadlines of client deliverables. But in the middle, many agencies are bleeding cash without realizing it.

We often see agencies with high revenue but low cash flow. The culprit is usually poor Project Accounting. Here is how to fix your books to ensure every campaign is actually profitable.

1. Move to Project-Based Accounting

Standard bookkeeping just tracks "Income" and "Expenses." For an agency, this is useless.

You need to track profitability per project. If you charge a client $10,000 for a rebrand, but you spend $6,000 on freelancer fees, $3,000 on internal staff hours, and $500 on software, your margin is razor-thin.

The Fix: We set up "Tracking Categories" in Xero so every expense is tagged to a specific client project. This lets you run a report at the end of the month to see exactly which clients are making you money and which are costing you.

2. The "WIP" Trap (Work In Progress)

If you bill a client a 50% deposit upfront for a 3-month project, that cash hits your bank account today. It feels like profit. It isn't.

That money is a liability—you owe the client the work. If you spend that deposit on rent or salaries before the work is done, you will face a cash crunch in Month 3.

3. Managing Contractors vs. Employees

Agencies love freelancers. They offer flexibility during crunch time. However, the ATO is cracking down on "Sham Contracting."

If you hire a freelancer who works regular hours, uses your equipment (even a laptop), and is paid an hourly rate rather than a result-based fee, the ATO may deem them an employee.

This means you could be liable for back-pay of Superannuation (currently 12%) and PAYG withholding. Ensure your contractor agreements are watertight.

4. Reimbursable Expenses

Are you buying stock photos, fonts, or paying for Facebook Ads on your own credit card? These "pass-through" costs often slip through the cracks.

If you don't bill these back to the client immediately, you are essentially giving them an interest-free loan. Use tools like Dext to snap receipts instantly and tag them as "Billable" so they are automatically added to the client's next invoice.

Summary

Creativity needs structure to thrive financially. By implementing project tracking and managing your WIP, you can stop guessing your profit margins and start controlling them.