Insights
What are the 5 main types in a chart of accounts for your agency?
A chart of accounts has five main types: assets, liabilities, equity, income and expenses. Your agency needs the last two split further. Separate fees from pass-through billing, and delivery costs from overheads, or your books cannot show what your work earns.
Mohammad Azam, Aprecity Consultants · 6 min read
Why the standard chart tells you so little
Your accounting software gave you a chart of accounts on day one. It was built for any small business, so it fits none of them well.
It puts all your income in one line and all your costs in a long alphabetical list. You get a profit figure and no way to see where it came from.
So you cannot tell whether a thin month was a pricing problem, a staffing problem or an overhead problem. You guess, and you cut the wrong thing.
The five types, and where an agency splits them
| Type | What it holds | What an agency adds |
|---|---|---|
| Assets | Cash, unpaid client invoices, prepaid costs | Work done but not yet invoiced |
| Liabilities | Bills to pay, cards, loans, payroll taxes | Retainers paid in advance |
| Equity | What you put in, took out and kept | A draws account for each owner |
| Income | What you bill | Fees apart from pass-through billing |
| Expenses | What you spend | Delivery costs apart from overheads |
The first three types describe what your agency owns and owes. The last two describe what it earned. The splits that matter for decisions sit in those two.
What the split shows
Delivery margin = (fee income - delivery costs) / fee income
Run the numbers on a branding agency. In one month it bills $100,000, of which $30,000 is print and media billed at cost.
Its delivery team and freelancers cost $42,000. Rent, software, admin and the owner's salary cost $20,000.
| Line | Standard chart | Agency chart |
|---|---|---|
| Income | $100,000 | $70,000 of fees |
| Pass-through costs | Inside expenses | $30,000, shown apart |
| Delivery costs | Inside expenses | $42,000 |
| Delivery margin | Not shown | 40% |
| Overheads | Inside expenses | $20,000 |
| Profit | $8,000 | $8,000 |
These figures describe a branding agency chosen to show the arithmetic. They are not a client result.
Both charts report $8,000 of profit. Only one shows that the work earns 40% before overheads, and that overheads take $20,000 of it.
Now a thin month has an address. If delivery margin fell, look at pricing and hours. If it held, look at overheads.
Set yours up
- ( 01 )
Split income into fees and pass-through
Give retainers and projects their own fee accounts. Keep billed-back media, print and software in a separate income account.
- ( 02 )
Group delivery costs together
Put delivery salaries, freelancers and client software above the overheads. Your report then shows a delivery margin by itself.
- ( 03 )
Keep overheads short
Rent, admin, your own marketing, software and professional fees. A dozen accounts you read beat sixty you skip.
- ( 04 )
Add the two agency balance sheet accounts
One for retainers paid in advance, one for work done but not invoiced. Without them, profit lands in the wrong month.
- ( 05 )
Track clients with tags, not accounts
Use your software's client or project tracking. An account per client makes the chart too long to read.
What changes
Your monthly report answers the question you ask of it. You see what the work earned, what it cost to deliver and what it cost to run the agency.
Change the chart at the start of a month, and re-code the months before it if you want to compare. Then leave it alone, because a chart that keeps changing cannot show a trend.