Financial Red Flags I See in Almost Every Agency

Hey there,

Welcome back to Agency Finance Letters! This week is about spotting common mistakes that too many agency owners make, and how to address them. 

After working with dozens of agencies, I've noticed certain financial red flags that consistently appear before serious problems hit. These patterns show up across different agency types, sizes, and industries.

Here are the most common warning signs I see:

Client Concentration Risk
When one client represents >20% of your revenue, you don't have a business – you have a dependent relationship. I recently spoke with one agency who lost their largest client and instantly went from profitable to cash flow negative. The real danger? Your fixed costs don't disappear when that client leaves - your team, office, and tools all remain at full cost while your revenue takes a massive hit.

The fix: Map your client concentration and create a plan to diversify beyond any client that exceeds 20% of revenue.

Cash Flow Cycles Are Getting Longer 
If the gap between paying your team and getting paid by clients is increasing, you're heading for a cash crunch. One agency I worked with didn't realize their average payment time had crept from 14 to 37 days.

The fix: Track average days to payment and optimize your payment terms and follow-up processes. Ensure you have some form of invoice tracking system to ensure you’re on top of it.

Feast-or-Famine Sales Patterns 
When revenue graphs look like a rollercoaster rather than a staircase, your business is reactive, not strategic. This creates cash flow problems and makes hiring decisions nearly impossible.

The fix: Work out exactly how many leads you need to scale consistently, and how you can create a marketing budget that can help you achieve this.

Expenses Creeping Faster Than Revenue 
One of the most dangerous trends: when your monthly expenses grow at a faster rate than revenue. This shows up in gradually shrinking margins that most owners don't notice until it's serious.

The fix: Track your expense-to-revenue ratio monthly and investigate any upward trends.

Unexpected Expenses Crushing Performance 
I've seen too many agencies thrown into chaos by "surprise" expenses that were actually predictable: annual software renewals, equipment upgrades, or sudden hiring needs. These create a scramble for cash that disrupts everything else.

The fix: Maintain a rolling 90-day expense forecast that includes all recurring and anticipated one-time costs.

No Buffer for Tax Obligations 
Agencies that don't set aside money for quarterly/annual tax payments often end up borrowing or creating cash flow problems to cover these predictable expenses.

The fix: Automatically allocate a percentage of revenue to a separate tax account.

Delayed Financial Reporting 
When you're constantly waiting for financial reports or getting them weeks after the month ends, you're driving while looking only in the rearview mirror.

The fix: Implement a weekly financial dashboard that gives you leading indicators, not just historical data.

The good news? Each of these red flags is fixable before they become true problems. The key is spotting them early and addressing them systematically.

Do any of these warning signs resonate with you? 

Until next time, Joey

PS - For the next two weeks, I'm offering a FREE 30-minute Financial Health Check for agency owners. We'll examine your current numbers, identify potential profit leaks, and I'll share specific strategies that have worked for similar agencies. One recent call uncovered $700/month in unnecessary expenses that went straight to the bottom line. Only have a few slots available - reply to this email if you want one.