Mid Year Financial Review: Checks Every Agency Owner Should Make

Many agency leaders find themselves consumed with day-to-day operations to step back, reflect and properly evaluate their financial performance. Yet this time of year is the ideal time to check in with strategies and financial performance to see how things are performing vs the goals we set at the beginning of the year. A mid-year financial review isn’t just a box-ticking exercise, it’s a critical practice that separates thriving agencies from those constantly battling cash flow challenges and profitability issues. I don’t just say it, we see it every day working as finance support and advisors to agencies. 

Let’s explore the four essential components of an effective mid-year financial review and how they can transform your agency’s performance.

1. Revenue Performance Analysis

When reviewing your agency’s financial health, the natural starting point is revenue. However, a surface-level glance at total income won’t reveal the strategic insights needed to guide your business forward. A comprehensive revenue analysis should include:

• Client revenue distribution: Are you overly dependent on a few large clients? Industry benchmarks suggest no single client should represent more than 20% of your total revenue. This can be very challenging to achieve, particularly for project-based agencies. 
• Service line performance: Compare each service line against its year-to-date targets. Is your social media management growing while content production declines? Understanding these patterns enables you to reallocate resources to high-growth areas.
• New business efficiency: Calculate your new business conversion rate and average client acquisition cost. If you’re pitching more but winning less, or spending increasingly more to acquire each client, these are red flags and require immediate attention.

In our work with agencies, we’ve repeatedly seen how revealing this analysis can be. One of agencies we’ve been working with, discovered during their mid-year review that while overall revenue was up 18%, project extensions from their five largest clients have been declining. 

This early warning sign allowed them to implement additional client growth initiatives that reversed the trend before it impacted their annual results. They’ve invested time in additional training for their Account Directors to help them “extract” more opportunities and ultimately revenue from existing client accounts. 

2. Resource Utilisation Assessment

Unlike product-based businesses, agencies sell expertise, creativity and time. Your team’s capacity is your inventory and how effectively you monetiae it directly impacts profitability. Research from the Agency Management Institute shows that the average agency utilisation rate hovers around 60%, while high-performing agencies maintain rates closer to 70%. This difference alone can represent a 15-20% increase in billable capacity without adding staff. Your resource utilisation assessment should look at:

• Billable utilisation by role: Different positions should have different utilisation targets. While creative directors might target 50-60% billable time to allow for team leadership, designers and developers should typically achieve 70-75%.
• Project profitability and recovery: Compare estimated hours versus actual hours on recent projects. Agencies often discover particular project types consistently run over budget, indicating either pricing problems or process inefficiencies.
• Realised rate analysis: Calculate your effective hourly rate by dividing actual revenue by hours worked across all billable employees. This reveals whether your pricing strategy translates to real-world profitability.

Realised Hourly rate = Total Project Revneue ÷ Total Hours Workd on the Project

For example, if a project generated £12,000 in revenue and required 150 hours to complete: Realised Hourly Rate = £12,000 ÷ 150 hours = £80 per hour.

If your target rate was £95 per hour, this immediately shows a 16% gap between your pricing model and actual delivery efficiency. We’ve seen agencies with target rates of £125/ hour only realising only £75-85/ hour once all hours (including unbilled time). In many cases, this single insight led to improved scoping processes and ultimately, profitability improvements.

3. Profitability breakdown: Making revenue count

Revenue growth means little if it doesn’t translate to bottom-line improvement. Industry data shows that roughly 30% of growing agencies actually see declining profitability due to cost structure issues that go unaddressed. Your profitability analysis should include:

• Gross Margin Trends: Has your gross profit percentage remained consistent as you’ve grown? Declining margins often indicate pricing pressure or increasing direct costs that haven’t been addressed.
• Overhead Ratio: Calculate your overhead as a percentage of revenue and compare it to previous periods. As agencies scale, this percentage should typically decrease, not increase.
• Departmental P&L Review: Break down profit and loss by department or service line. This reveals which areas of your business generate the most value and which might be subsidised by more profitable divisions.

When conducting departmental P&L reviews with our clients, we often uncover surprising insights. It’s not uncommon to discover that highly-visible service lines with substantial revenue are actually operating at much lower margins than expected, while less prominent services are driving disproportionate profitability. 

One important point here is how profitability is measured. Make sure that you you’ve got revenue recognition processes in place (ie. you report revenue based on what’s delivered and not on invoices issued). Additionally, ensure you’ve included owner’s market value salary when calculating your operating or net profit. This is crucial to understand “true” profitability of your agency. 

4. Cash flow position review and prepaing for what’s ahead

Perhaps the most critical yet overlooked component of a mid-year financial review is forward-looking cash flow projection. A study by Jessie Hagen, formerly with U.S. Bank, found that 82% of small business failures are due to poor cash flow management or a lack of understanding of cash flow. Your cash flow projection should address:

• 13-Week rolling forecast: Update your projections with actual first-half data to create an accurate view of the upcoming quarter.
• Scenario planning: Model how your cash position would be affected by events like losing a major client, a market downturn affecting 20% of projects, or a significant new business win requiring upfront investment.
• Working capital analysis: Calculate how many days revenue is tied up in accounts receivable. If this number is increasing, you’re effectively financing your clients’ operations. 

Calculate your “Days Sales Outstanding” (DSO) to see how long your cash is tied up in unpaid invoices.  Here’s the simple formula:

DSO = (Accounts Receivable ÷ Annual Revenue) × 365

For example, if you have £150,000 in unpaid invoices and annual revenue of £1,200,000:

DSO = (£150,000 ÷ £1,200,000) × 365 = 45.6 days

If this number is increasing over time, you’re essentially acting as a bank for your clients, lending them money interest-free while you cover your own expenses. Many agencies we work with target a DSO of 30-35 days, implementing stronger payment terms and follow-up processes to keep cash flowing.

Cash runway: What exactly is cash runway? It’s dead simple: how many months could your business operate at current expense levels before the bank account hits zero? The calculation is straightforward:

Cash Runway (in months) = Available Cash ÷ Monthly Operating Expenses

For example, if you have £180,000 in the bank and your monthly expenses average £60,000:

Cash Runway = £180,000 ÷ £60,000 = 3 months

Most financial experts recommend agencies maintain at least 3-6 months of runway. During periods of economic uncertainty, extending this to 6-9 months provides additional security. We see agencies underestimating their monthly burn rate all the time, resulting in a much shorter runway than they believed they had.

In our experience, a thorough cash flow analysis often reveals potential issues that aren’t apparent on the P&L statement. Many agencies we work with have avoided significant cash crunches by identifying periods where project timing creates temporary but significant cash flow gaps.

Next Steps and Actions

The true value of a mid-year financial review isn’t in the insights gained, it’s in the actions taken as a result. Companies with planning agility are 3/ 4 times more likely to adapt successfully to disruptions, emphasising the importance of actionable strategies post-financial reviews.

For many agency owners, finding time for deep financial analysis seems impossible amid client demands and team management. However, the investment pays significant dividends.

At CFO for Growth, we’ve helped dozens of agencies implement structured monthly or quarterly review processes. The consistent feedback we receive is that these dedicated financial reviews quickly become very valuable time investment for leadership teams.

Is your agency due for its mid-year financial checkup? If yes, please get in touch with the team to see how we can help, the insights waiting to be discovered might just transform the second half of your year.