The three pillars of finance management for agencies - and how to optimize them
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From increased demand to tightened margins, every business has faced new pressures over the past year, with agencies having been hit particularly hard.
Clients are continually looking for more transparent and cost-effective services from the agencies they work with, and it comes down to the agency’s finance team to ensure the company is meeting these expectations.
That’s why many agencies are adopting new technologies to help streamline their financial management and stay on top of fast-moving projects. But it’s about more than just finding the right technology to support your team—you also need to build the right finance processes to truly succeed.
In our Agency Best Practice Guide for Financial Management, we map the key responsibilities of the finance team to give practical advice on how to streamline and optimize everyday processes.
It’s available to read now—but as a preview, this blog will explore the three core pillars of finance management, and identify how agencies like yours can create a strong foundation of best practice processes.
Pillar one: Capital management
Capital management has always been at the heart of what agency finance teams do. While other team members are focused on ensuring clients are getting good value for their investment, it’s the finance team’s responsibility to ensure the agency is also getting the best return on the time it spends with clients as well.
But effective capital management isn’t just about managing the revenue coming in—it’s also about managing other teams within the agency. Finance leaders need to keep project managers accountable for their own KPIs, while ensuring other team members in the agency are also accountable for providing you with the most accurate financial information through regular timesheets and expenses.
Pillar two: Month-end reporting
Month-end reporting is crucial, as it gives the rest of the agency a clear idea of the company’s current financial profile, helping everyone make more accurate, insight-driven decisions.
It doesn’t have to be a lengthy process—instead, it can be condensed into as little as four days, with clear processes on each day:
- Day one: Employees get all their timesheets in, while the finance team accrues any outstanding costs. In the meantime, project managers should be evaluating the progress of each project.
- Day two: After starting to measure project progress on the first day, project managers now need to present the value of the agency’s overall work in progress. The finance team should be capturing all fixed costs and identifying the agency’s total revenue for the month.
- Day three: At this point, it’s down to the finance team to confirm the profit and loss for the business, make a final check of the balance sheet, and factor in tax costs if they’re applicable.
- Day four: On the final day of the month-end process, the finance team needs to create a clear, accurate, and easy-to-understand report that’s shared with the entire agency—so every team has an up-to-date view of the progress towards annual targets.
Pillar three: Cost management
Proactive cost management is essential for securing your agency’s bottom line and creating a true picture of the company’s financial profile.
As a finance leader, you know the fixed costs coming out each month—like office rental, internet and IT services, and salaries—so they should be easy to deduct from the overall revenue.
When it comes to variable costs, a lot of them are from freelancers, and you can make these costs easier to account for in advance if you use a clear PO process with approvals for every project you start with a freelancer. It’s also important to remember that agencies operate in a dynamic market that’s always changing, and your costs at the end of the year might not accurately reflect the costs projected at the beginning of the year. That means it’s important to regularly update your financial budget, and adapt when necessary.
Find out more in the full guide
We’ve only covered the foundations of a strong financial management profile here. In our full guide, you’ll learn more about the three core pillars of financial management, and gain detailed insights into how your finance team can build on these foundations to further optimize daily financial processes.
Agency Best Practice Guide
Discover the Three Pillars of Effective Financial Management
- Agency Workflow
- Architecture & Engineering Firms
- Business Intelligence
- Change Management
- Cloud ERP
- Consulting Firms
- Deltek Customers
- Financial Management
- Job Costing
- Legal Sector
- Marketing and PR Agencies
- People and Culture
- Professional Services Automation
- Professional Services Industry
- Project Information Management
- Project Management
- Resource Planning
- Scheduling And Planning
- Talent Management
- Time and Expenses
- Traffic Management
- Transformational Trends