Why a busy agency can still run out of cash
Profit is what your accounts say; cash is what your bank says. How a profitable Lagos agency struggled to pay salaries, and the monthly check that would have warned it.
Our connection: the Tallokin team builds ProfitMind, which is mentioned in this article.
It is the last day of March. Salaries have just gone out, and the agency’s account shows ₦4.1 million, not enough for April’s payroll of ₦6.42 million. Yet the accounts for the first three months of the year show a profit of ₦5.1 million.
Both figures are true. That is the uncomfortable part.
This is the same illustrative agency as in our article on which clients are costing you money. The business and the figures are an example, not a real company.
Profit and cash are not the same thing
Profit counts the work when you invoice it. Cash counts it when the money lands. In between sits a gap, and a business can be profitable for months while that gap quietly drains its bank account.
Our agency signed its big client, a consumer brand, in January, at ₦4 million a month. The contract says the brand pays within 60 days. In practice, between purchase orders, approvals and a finance team that pays twice a month, the money arrives after about 90 days.
Here is the first quarter:
| January to March | On paper | In the bank |
|---|---|---|
| Work invoiced / money received | ₦33,000,000 | ₦21,000,000 |
| Costs (salaries, rent, power, freelancers) | ₦27,900,000 | ₦27,900,000 |
| Result | ₦5,100,000 profit | ₦6,900,000 less cash |
The agency started the year with about ₦11 million in the bank. Three months of profitable work later, it has ₦4.1 million, and the brand owes it ₦12 million.
The money is not lost. It is sitting in the client’s approval queue. However, salaries cannot wait in a queue.
Three things that drain cash from a busy firm
- Slow-paying clients. Especially large ones, whose payment process is slower than their decision to hire you.
- Paying before you are paid. Freelancers want their money within the week. Software licences are paid upfront, often in dollars. Shoot costs come out before the client sees a single photo.
- Growth. The agency hired two people in January for the new account. It paid their salaries for three months before the first naira from that client arrived.
Is the agency failing? No. Is it profitable? Yes. Can it pay April’s salaries? That is the question that matters, and its accounts cannot answer it.
A 30-minute cash check, once a month
Do this on the same day every month, before payroll week.
- Add up the cash in every business account today.
- List what clients owe you, by age: under 30 days, 30 to 60 days, and over 60 days. Anything over 60 days needs a call this week, not an email.
- List what you must pay in the next eight weeks, with dates: salaries, rent, tax, suppliers, loan repayments.
- Go week by week. Starting from today’s cash, add the payments you are confident will arrive and subtract what must go out. Mark any week where the balance falls below one month of salaries.
- Act on that week now: chase a specific invoice, ask for a part payment, delay a purchase, or arrange an overdraft before you need it. Banks lend more readily to a business that is not yet desperate.
Had our agency done this in January, the March problem would have been visible ten weeks early.
Fix the terms, not only the chasing
Chasing helps, but the real fix is agreed before the work starts:
- Bill retainers at the start of the month, for the month ahead, not at the end for the month gone.
- Ask for a deposit on project work. Half upfront is common, and serious clients expect it.
- Learn a big client’s payment process before you sign. Who approves invoices, which purchase order number is needed, which days their finance team pays. Then invoice early enough to catch the next payment run.
- Agree a late-payment clause. You may never enforce it, but it moves you up the queue.
- Keep a buffer. Aim for one to two months of running costs in reserve, and treat it as untouchable.
With the retainer billed in advance and the brand’s process understood from day one, the same quarter would have ended with the cash and the profit roughly in step.
See it before the bank balance tells you
The warning signs were there from January. The agency just was not looking at the right numbers.
ProfitMind reads your bank statement and shows, client by client, what actually came in each month, so a client whose payments have gone quiet stands out long before payroll week.
Your next step: block 30 minutes in your diary for the same day next month, and run the five-step cash check for the first time.