Financial health check guide for PR agencies balancing retainers and campaign bursts

Key takeaways

• Conduct a quarterly health check to see the real picture of your agency's finances, beyond just the monthly bank balance.
• Balance is everything – your mix of retainer income and project revenue directly impacts your cash flow stability and growth potential.
• Monitor your liquidity ratio monthly to ensure you can always cover short-term bills, especially before committing to a big campaign.
• Your balance sheet tells a story – reviewing assets, liabilities, and equity reveals your agency's true financial strength and risk.
• Spot cash issues early by tracking warning signs like consistently late client payments or dipping into tax reserves.

Running a PR agency is a constant juggling act. You have the steady rhythm of retainer clients, which pays the team and the rent. Then you have the exciting, but unpredictable, bursts of campaign work. A big product launch or crisis comms project can bring in fantastic revenue, but it also demands upfront costs and can strain your cash flow.

This unique rhythm makes a regular PR agency financial health check essential. It's not just about knowing if you're profitable on paper. It's about understanding if your financial structure can handle the swings from steady retainers to intensive campaigns. Without this check, you're flying blind, risking cash crunches just when you need resources most.

This guide walks you through a practical health check framework. We'll focus on the specific financial dynamics of PR firms. You'll learn how to assess your retainer versus campaign balance, monitor your cash position, and spot trouble before it derails your plans. Think of it as a routine service for your agency's financial engine.

What is a PR agency financial health check?

A PR agency financial health check is a structured review of your agency's key financial metrics and operational patterns. It goes beyond checking your bank balance to assess your profitability, cash flow stability, and overall financial resilience, specifically tailored to the mix of retainer and project-based income that defines the PR industry.

For a PR agency, this check has a special focus. It examines how well your predictable retainer income supports your fixed costs, like salaries and office space. It then looks at how you fund and profit from campaign work, which often requires spending money before you get paid. The goal is to see if your financial model is sustainable and strong enough to support growth.

You should do a quick version of this check monthly when you review your management accounts. A more thorough PR agency financial health check should happen every quarter. This quarterly deep dive lets you spot trends, like a gradual decline in retainer margins or a lengthening in the time it takes clients to pay for campaigns.

This process gives you control. Instead of reacting to financial surprises, you can make proactive decisions. You might decide to adjust your retainer pricing, change your payment terms for project work, or build a larger cash buffer before pitching for a major, resource-heavy campaign.

Why is the retainer and campaign balance so critical for PR agencies?

The balance between retainer and campaign income is critical because it dictates your cash flow predictability and risk. Retainers provide a stable financial floor to cover fixed costs, while campaigns offer growth and profit potential but introduce cash flow volatility and resource strain that must be carefully managed.

Think of your retainer income as your agency's salary. It's predictable. You know roughly how much is coming in each month to cover your core team, software subscriptions, and rent. This stability is your foundation. A strong base of retainers, typically representing 60-70% of revenue for healthy agencies, allows for confident planning and reduces financial stress.

Campaign work is like a bonus or commission. It's less predictable but often where you make your best profit (your gross margin). A big media launch or influencer programme can deliver a significant chunk of revenue. However, these projects usually have upfront costs. You might need to pay for event space, freelance designers, or media monitoring tools before your client's invoice is even due.

Getting the balance wrong creates problems. Too reliant on campaigns? Your cash flow becomes a rollercoaster, making it hard to pay your team consistently. Too reliant on low-margin retainers? You might be stable but lack the profit to invest in growth or give team bonuses. Your PR agency financial health check should analyse this mix first.

How do you start a basic financial health check?

Start your basic financial health check by gathering three key documents: your profit and loss statement (P&L), your balance sheet, and a detailed aged debtors report. Review these to calculate your core retainer margin, identify your major campaign costs, and see how quickly clients are actually paying you.

First, look at your profit and loss statement from the last quarter. Separate your retainer revenue from your project or campaign revenue. For each category, subtract the direct costs. For retainers, this is primarily your team's time cost. For campaigns, include any freelance fees, direct media costs, or event expenses. This shows you your gross margin for each type of work.

A healthy PR agency often targets a gross margin of 50-60% on retainers and 40-50% on campaigns, after accounting for all direct costs. If your numbers are significantly lower, it's a red flag. Your pricing might be too low, or your costs (like team overtime on a campaign) might be creeping up unseen.

Next, open your aged debtors report. This shows which client invoices are overdue. For PR agencies, a major warning sign is campaign invoices being paid late. Since you've often spent money upfront, late payment directly hurts your cash flow. Note the average time it takes clients to pay. If it's creeping over 45 days, you have a collections or terms issue to fix.

Finally, glance at your balance sheet. We'll dive deeper later, but for a basic check, look at your cash balance. Compare it to your average monthly running costs (rent, salaries, etc.). Do you have less than one month's worth of cash? If so, your agency is vulnerable to any unexpected delay in income. This simple first step often reveals immediate priorities.

What is liquidity ratio monitoring and why does it matter?

Liquidity ratio monitoring is tracking how easily your agency can pay its upcoming bills with the cash and assets you have available right now. It matters intensely for PR agencies because campaign work requires spending on resources before client payment arrives, making short-term cash availability a constant concern.

Your liquidity ratio, often called the current ratio, is a simple calculation. You divide your current assets (cash, money clients owe you, and any short-term investments) by your current liabilities (bills you need to pay within the next year, like supplier invoices, taxes, and short-term loans). The formula is: Current Assets ÷ Current Liabilities.

A ratio of 1.5 or higher is generally considered healthy for a service business. This means you have £1.50 in available assets for every £1.00 of short-term debt. For a PR agency, you should monitor this ratio monthly. Before you take on a large campaign with big upfront costs, check your ratio. If it's already low, say 1.1, taking the project could be risky.

Liquidity ratio monitoring gives you an early warning. A declining trend, even if you're still profitable on paper, signals that cash is getting tighter. It might mean you're using cash to fund too much campaign work, or that clients are taking longer to pay. Catching this trend early lets you adjust – perhaps by requiring a deposit on your next big project or chasing overdue invoices more aggressively.

Specialist accountants for PR agencies often help clients set up dashboards to track this ratio automatically. It's one of the most important numbers for an agency leader to watch, as reported in commercial finance analyses of service businesses.

How do you conduct a meaningful balance sheet review?

A meaningful balance sheet review for a PR agency involves analysing three sections: assets (what you own), liabilities (what you owe), and equity (the owner's stake). You're looking for strength in your cash and debtor positions, manageable debt levels, and growing retained earnings, which together show your agency's capacity to fund its own growth.

Start with assets. Look at 'Debtors' (also called Accounts Receivable). This is money clients owe you. Is the total growing faster than your revenue? This could mean you're winning work but not collecting cash efficiently. A high debtor number weakens your true financial position, no matter what your P&L says.

Next, review liabilities. Key items are 'Creditors' (bills you need to pay) and any bank loans. A healthy balance sheet review will compare these to your assets. Do you have enough cash and near-cash assets to cover these short-term debts? This links directly to your liquidity ratio. Also, check if you have a looming tax bill (like Corporation Tax) that hasn't been provisioned for. That's a common pitfall.

Finally, look at equity, specifically 'Retained Earnings'. This is the cumulative profit you've made and kept in the business. Is it growing steadily over time? Growing retained earnings means your business is genuinely creating wealth and building a financial buffer. If it's stagnant or falling while you're taking director salaries, it suggests the business itself isn't as profitable as it seems.

This balance sheet review reveals your agency's foundation. A strong balance sheet with good cash, low debt, and growing equity means you can confidently invest in a new hire or a marketing campaign. A weak one, even with good monthly profits, means you're vulnerable. It's the difference between being busy and being financially robust.

What are the early warning signs of cash issues in a PR agency?

The early warning signs of cash issues in a PR agency include consistently dipping into your tax reserve to pay bills, paying essential suppliers late, having less than one month's operating cash in the bank, and an increasing gap between completing campaign work and receiving client payment.

The most dangerous sign is using money set aside for VAT or Corporation Tax to cover day-to-day costs. This creates a future crisis. The tax bill always comes due, and HMRC charges interest and penalties. If you find yourself doing this, your cash flow is fundamentally broken and needs immediate attention.

Another clear sign is stretching payments to your freelancers or key suppliers. In our experience working with agencies, this often starts subtly. You might pay a freelance journalist in 45 days instead of 30. Then it becomes 60 days. This damages relationships and your reputation. It's a symptom that your client income isn't arriving in time to cover the costs of delivering your work.

Monitor your 'cash runway'. How many months could you pay all your fixed costs if all client payments stopped tomorrow? If the answer is less than four weeks, you have no room for error. Any client loss or delayed campaign payment becomes an emergency. A healthy agency aims for 2-3 months of runway to handle normal business volatility.

Finally, watch your debtor days. Calculate the average number of days it takes from issuing an invoice to getting paid. If this number is rising, it's a major early warning sign of cash issues. It means you're effectively giving your clients an interest-free loan for longer, starving your business of the cash it needs to operate. Tools like our financial planning template can help you track this trend easily.

What key metrics should PR agencies track every month?

PR agencies should track these key metrics monthly: gross margin by service line (retainer vs. campaign), utilisation rate (percentage of billable team time), debtor days (average time to get paid), liquidity ratio (cash coverage), and monthly cash runway. These five numbers give a complete picture of financial health and operational efficiency.

Gross margin tells you if you're pricing correctly. Calculate it separately for retainers and campaigns. If your retainer margin is falling, your team might be over-servicing the client. If your campaign margin is low, your project scoping or cost control might be weak. Aim for the benchmarks mentioned earlier.

Utilisation rate is critical. It's the percentage of your team's paid time that is billable to clients. For PR agencies, a good target is 70-75%. Lower than 70% means you have too much non-billable time (like pitching, admin, or training), which eats into profit. Higher than 80% often leads to burnout and limits time for business development.

Debtor days and liquidity ratio are your cash flow vital signs. Track them relentlessly. A rising trend in debtor days requires action on your payment terms or collections process. A falling liquidity ratio means you need to focus on converting work into cash more quickly, perhaps by taking deposits on large campaigns.

Monthly cash runway is your safety net. Recalculate it each month: (Current Cash Balance) ÷ (Average Monthly Operating Expenses). Seeing this number drop from 3 months to 6 weeks is a powerful signal to slow discretionary spending or accelerate invoicing before you hit a problem.

How can PR agencies improve their financial health quickly?

PR agencies can improve financial health quickly by implementing three actions: tightening payment terms for new campaign work (e.g., 50% deposit), conducting a retainer profitability review to adjust pricing or scope, and running a focused campaign to collect all overdue invoices older than 45 days to boost immediate cash.

First, fix your campaign cash flow. For any new project over a certain value, require a deposit. This is standard in many industries but often overlooked in PR. A 30-50% deposit on signature covers your initial outlays and de-risks the project for you. It aligns client commitment with your cash needs.

Second, review every retainer. Are you delivering more than the agreed scope? Is the team spending more time on it than you budgeted? If so, you have two choices: politely re-scope the work to match the original agreement, or have a conversation about increasing the fee. Retainers are your foundation; they must be profitable.

Third, launch a one-week collections blitz. Get your account managers or a senior leader to personally call every client with an invoice over 45 days old. Often, a direct conversation resolves delayed payments caused by internal client processes or simple oversight. The cash from this exercise can transform your short-term position.

These are tactical fixes. For lasting health, build the habits of a regular PR agency financial health check into your management routine. Dedicate the first Monday of every month to reviewing your key metrics. This discipline turns financial management from a reactive firefight into a strategic advantage. For ongoing support, consider working with a specialist like Sidekick Accounting, who understand the unique rhythm of agency life.