Accounting for marketing agencies
How agency books should be set up so the P&L shows your real margin, and who owns which part.
- Cash or accrual picked for your agency
- QuickBooks Online closed monthly
- Your CPA files the return
Generic accounting setups get agencies wrong in the same places: retainers billed ahead of the work, pass-through costs that inflate revenue, and contractors sitting in overhead.
The short version
- Pick the basis on purpose. Cash works when you bill each month for that month's work. Accrual shows the real margin when retainers are prepaid or projects run across months.
- Keep pass-throughs separate. Media spend you rebill to clients is not agency revenue, so margin gets measured on what's left after it.
- Contractors on client work are delivery cost. They sit above gross margin, next to the team doing the work.
- Books and tax are separate jobs. We keep the books in QuickBooks Online and close them monthly. Your CPA files.
Want to know if your books are set up for an agency?
Thirty minutes, last month's P&L, and a straight read on what it's hiding.
Cash or accrual
The basis decides which month revenue and costs land in. For an agency, that decides whether your monthly margin means anything.
| Cash basis | Accrual basis | |
|---|---|---|
| Revenue lands | When the client's payment arrives | When the work is delivered |
| Costs land | When you pay the bill | When the cost is incurred |
| Fits when | You invoice monthly for the same month's work and pass-throughs are small | Retainers are billed in advance, projects span months, or media buys are large |
| Watch for | A prepaid quarterly retainer makes one month look great and the next two look broken | Profit and the bank balance stop matching, so cash needs its own view |
We set your books up on the basis that fits how your agency bills. The basis your CPA files the return on is a separate decision, and it's theirs to make.
Retainers billed in advance
When you invoice in March for April's work, cash basis books the revenue in March. April then carries the cost of the work with none of the income.
On accrual, that payment sits as deferred revenue until April, so the P&L shows the month you actually did the work. That's the only version of the month you can price a retainer from.
Pass-through costs
Media spend, printing and third-party production you rebill to clients pass through your books without being your income. Count them in revenue and the top line looks bigger than the agency is.
Track them in their own revenue and cost accounts, and measure margin on what's left after them: agency gross income. A dashboard can show billable pass-through spend against the income that covers it, so a client who's slow to pay for media shows up before it hits cash.
Contractors are delivery cost
Freelancers doing client work belong in cost of delivery, above gross margin, alongside the team members who deliver. Put them in overhead and gross margin looks better than it is, while overhead looks bloated.
It's also why the contractor line can swing month to month. Read inside delivery cost, a swing is a capacity question. Read inside overhead, it looks like a spending problem.
A chart of accounts built for an agency
The structure decides which questions your P&L can answer. A useful one separates five things.
- Revenue by service line, so you can see which offers carry the agency.
- Pass-through revenue and costs, kept apart from agency income.
- Delivery cost: the team and contractors doing client work.
- Overhead: everything that runs the agency.
- Owner pay, with W-2 wages and distributions split, so the owner pay benchmark compares like with like.
Fixing the chart of accounts is one of the first steps in installing a financial operating system.
Who does what
| Work | Who owns it |
|---|---|
| Setup | We do, with you: the basis, the chart of accounts and pass-through tracking |
| Monthly books | We do: categorization and reconciliation in QuickBooks Online |
| Close and P&L | We do, by the 10th business day on Growth and Scale, the 15th on Starter |
| CPA requests | We answer your CPA's data requests directly |
| Tax return | Your CPA: preparation, filing and planning |
We don't do tax work, and that's in every agreement. The bookkeeper vs CPA vs fractional CFO page covers where each role starts and stops, and bookkeeping for marketing agencies covers the monthly close in detail.
Questions
The ones people actually ask on the first call
Should my agency use cash or accrual accounting?
It depends on how you bill. Cash works when you invoice monthly for the same month's work and pass-through costs are small. Accrual gives a truer monthly margin when retainers are billed in advance, projects run across months, or media buys are large. We set the books up on the basis that fits, and your CPA decides the basis for the tax return.
What's the difference between bookkeeping and accounting for an agency?
Bookkeeping is the monthly work of recording, reconciling and closing. Accounting covers the rules those records follow, such as the basis, when revenue counts, and how costs are classified, plus the tax return built from them. We handle the books and the setup. Your CPA handles the return.
How should an agency account for pass-through media spend?
Keep rebilled media, printing and third-party production in their own revenue and cost accounts, separate from agency income. Then measure margin on agency gross income, the revenue left after pass-throughs, so a big media month doesn't make the agency look larger or more profitable than it is.
Where do freelancers and contractors go on an agency P&L?
Contractors doing client work go in cost of delivery, above gross margin, with the team members who deliver. Contractors who support the business itself, such as a freelance designer on your own brand, sit in overhead.
Do you file my agency's taxes?
No. Tax preparation, filing, planning and advising are excluded from every agreement. We keep the books clean through the year and answer your CPA's data requests directly, so the year-end handoff is short.
Next step
Thirty minutes, and you'll know where you stand
Bring last month's P&L. We'll tell you what it's actually saying about your margin, your owner pay and your next hire. If we're not the right people to fix it, we'll say so on the call.
You bring
Last month's P&L. That's it. No prep, no forms.
We do
Read it live and tell you what it says about margin, owner pay and your next hire.
You leave with
The two or three things worth fixing first, whether or not you hire us.