According to the US Small Business Administration, half of all small businesses launched in the US will fail within the first five years, regardless of the economy. The leading cause of death? Poor financial management.
Designers, developers and digital innovators collectively represent one of the fastest growing business segments in America today. They create brands, build websites, deliver marketing campaigns and invent software. And they don’t really fit into an easily identifiable category. Alternately referring to themselves as agencies, firms, studios or groups, they are professional services businesses that don’t sell retail goods, hold physical inventory or rely on a conventional manufacturing process.
By subverting the classic advertising agency structure and largely ignoring the organizational principles of traditional technology companies, modern digital agencies have found huge profits and exciting culture and creativity benefits. But in doing so, many have failed to modernize or even really manage their bookkeeping and accounting. The typical digital agency struggles with past due accounts, is penalized for basic tax filing errors and utterly fails to leverage the strategic power of their own balance sheets.
In part, that’s because they fall victim to all the same traps and misconceptions as any start-up or small business venture. It’s also because they often don’t identify as part of a particular industry or collective where best practices are codified and shared.
As an outsourced bookkeeping and accounting firm, we believe that accounting is an important and necessary piece of every company’s strategic framework – including digital agencies. Accounting is more than balancing books and making sure you’re ready for next year’s taxes. It’s planning for future growth and success.
When researchers delved into the reasons for business mortality, they determined the primary cause of failure was “incompetence” and identified root causes within that definition—all of which were accounting-related. No experience in record-keeping, living beyond the means of the business, lack of planning, non-payment of taxes, no knowledge of financing requirements and conventions, etc.
Faced with this dilemma, most agency founders and leaders believe business accounting is something they must do themselves, delegate to a low-cost bookkeeper, hand over to a traditional accounting firm or hire someone in-house to manage. All of these choices are common and each one offers serious risks.
Here are the digital agency pitfalls we see most often as well as the steps you can take to right the wrongs and set yourself on a proper path for growth.
Stay ahead of the power curve. Tell us your needs as a business owner so we can talk out a good plan to work for everyone.