Accounting for agency and consulting firms

An agency sells time and judgement: no inventory, few assets, a balance sheet of receivables and deferred revenue. That is why the accounting slips. With nothing physical to anchor it, revenue recognition and cost classification are judgement calls.

Related: Accountant for photographers, videographers and designers.

What is different about agency and consulting accounting

An agency bills for work that spans months and passes a large share of what it collects straight through to suppliers. Both facts distort the two figures everyone reads first — revenue and profit — unless the books separate earning from being paid, and pass-through spend from fee income.

Being paid is not the same as earning

A retainer invoiced on the first for that month’s work is deferred revenue until the work is done; a project billed at signing is deferred until milestones are met. Conversely, a phase delivered in December and invoiced in January is December revenue. Recognizing revenue on invoice produces strong and weak years purely from billing rhythm, reversing whenever a large retainer starts or ends.

Pass-through costs distort everything

Media, print, production, licensing and subcontractors often pass through an agency’s account without being its revenue. Gross reporting inflates revenue and crushes margin; net understates activity. Principal or agent decides it; apply it consistently. Recharged costs usually carry sales tax, whether or not the supplier charged it.

Your delivery team is a classification question

Agencies scale through contractors. Fixed hours, agency systems, daily direction and no other clients look like employment, and a reassessment brings retroactive source deductions with penalties. A consultancy reliant on one client faces the personal services business analysis.

Clients are often not in your province, or your country

Place-of-supply rules set the rate by client location, so a BC agency charges Ontario and Alberta clients different rates. Services to non-residents are often zero-rated, so firms with US clients usually get refunds.

Unbilled work and bonus timing

Unbilled year-end work in progress belongs in the period earned. Bonuses declared to cut corporate income must be paid within a set window to be deductible that year, so they are cash decisions too.

The guides and pages for this vertical

Grouped around the two things that distort an agency’s numbers: revenue and timing at one end, and the services that keep the books straight at the other.

Revenue, timing and year end

• Cash versus accrual accounting — why a retainer business cannot read its performance off its bank balance.
• Prepaid expenses at year end — software, subscriptions and insurance paid ahead, and how they are split.
• Accrued bonuses and the payment window — the rule that decides whether a declared bonus is deductible this year or next.
• Bonus or dividend at year end — the annual decision about how profit leaves the corporation.
• Writing off bad debts — for the client that stopped paying halfway through a project.
• Choosing a fiscal year end — why a services firm may not want a December year end at all.

Your team and how it is engaged

• How CRA classifies a worker — the factors weighed when a contractor looks like an employee.
• Employee or contractor, for the hiring business — the commitments each model creates. Read it before the next hire.
• Personal services business risk — the assessment a single-client consultancy needs to understand.
• Slip filing deadlines — the T4A obligations that follow paying contractors.
• Payroll services — what changes when the roster moves onto payroll.
• Hiring your first employee — the accounts and obligations triggered by the first hire.

Sales tax across borders

• Place of supply rules, which rate applies to a client in another province.
• Exports and non-resident clients — why services to a US client are often zero-rated.
• GST/HST registration — the $30,000 threshold, which a first large retainer can cross on its own.
• Input tax credits — recovering tax on software, subcontractors and equipment.
• Quick method calculator — compares filing methods — often relevant to a service firm with low input tax.

Deductions, structure and service pages

• Advertising and promotion — your own marketing spend, and the tax on ads bought from non-residents.
• Cellphone and internet — splitting a bill that is genuinely both personal and business.
• Business travel — client visits and conferences, and what has to be documented.
• Home office through a corporation — for a firm whose people are distributed rather than housed.
• Agency accountant, Toronto — framed for Ontario agencies and studios.
• Consultant accountant, Ottawa — for independent consultants, including those working with public-sector clients.
• Fractional CFO — forecasting, pricing and utilization analysis once the firm is past its first few people.
• What a fractional CFO does — the plain-English version of the service above.
• Virtual CFO across Canada — the same work delivered remotely, wherever the firm is based.

Who this fits

This hub suits incorporated marketing, creative, digital and PR agencies, studios, management and IT consultancies, technical consultants without a professional corporation, recruiters and solo consultants with a company. The link: revenue from client work, delivered by people whose time is the cost. Consultants with one dominant client should read the classification material first.

How this runs remotely

EverStone CPA is a fully virtual, one-CPA firm. Agencies are already distributed: ledger, project tool and contractor invoices online, meetings by video, corporate, GST/HST and personal returns filed electronically. A Toronto studio and a Fraser Valley consultancy get the same service, and mid-year retainer questions are answered as they arise.