Profit on paper doesn't pay the bills. Learn the best practices for designing payment terms and invoicing cadences to create a smooth, predictable cash flow.
In this episode, Peter Kang and Sei-Wook Kim tackle one of the most critical yet misunderstood aspects of running an agency: cash flow management. They break down the dangerous gap between your P&L's accrual-based profitability and the real money in your bank account, explaining why even "profitable" agencies can face insolvency.
Peter and Sei-Wook share hard-earned lessons from their own journey, including how much cash reserve is ideal, when to use a line of credit, and the emotional calculus of using reserves to protect your team during a downturn. For any agency owner who wants to sleep soundly knowing their business is financially durable, this episode provides the essential framework.
Key Moments
1. The critical difference between accrual accounting and your actual bank balance.
2. How common payment terms (like 50/50) can create massive cash flow gaps.
3. Best practices for invoicing cadence to match revenue with work completed.
4. The recommended cash reserve for project-based vs. retainer-based agencies.
5. The emotional and strategic dilemma of using reserves to weather a storm.
6. The power of a detailed cash flow forecast for making clear-eyed decisions.
7. The role of insurance and lines of credit as financial safety nets.
Real Talk Takeaways
1. Cash is the lifeline of your business; profitability on paper means nothing if you can't make payroll.
2. Design your invoicing to get paid as you do the work, not long after it's completed.
3. A retainer model with upfront payment creates the healthiest cash flow dynamic.
4. Hold 1-3 months of expenses for retainer-based agencies and 3-6 months for project-based agencies.
5. Too much cash in the business can lead to complacency and poor financial discipline.
6. A detailed, rolling cash flow forecast is your most powerful tool for avoiding crises.
7. Insurance isn't just an expense; it's a critical protection against catastrophic risks that cash reserves can't cover.
Timestamps
00:00 – Introduction: The Agency Cash Flow Dilemma
00:44 – Accrual Accounting vs. Cash Reality: Why They Rarely Match
01:55 – How Project Payment Terms Create Cash Flow Gaps
03:48 – Best Practice: Designing Your Invoicing for Consistent Cash Flow
05:48 – The Retainer Advantage: Getting Paid Before You Do the Work
07:48 – How to Handle Large Upfront Payments Responsibly
09:27 – How Much Cash Reserve Should Your Agency Hold?
11:22 – The Emotional Toll of Using Reserves to Protect Your Team
13:43 – The Power of a Detailed Cash Flow Forecast
15:53 – Managing Cash Flow Across Multiple Agencies (The Barrel Holdings Model)
18:02 – Beyond Cash Reserves: The Role of Insurance and Lines of Credit
21:42 – Final Recommendation: The 1-to-6-Month Cash Reserve Rule
22:48 – Conclusion: Keeping Your Business Financially Durable
Notable Quotes
"If you are a more retainer-based business where cash comes in a very consistent cycle, then [your reserve] could be lower. If you're project-based, you may need to keep a lot more cash in the business." — Peter Kang on determining your cash reserve
"Too much cash in the business can make you too comfortable... and you may start burning down your cash reserves running a not-profitable business." — Peter Kang on the risk of over-capitalization
"Cash is ultimately the lifeline of your business. Can you run your business day to day? Do you have enough on hand to pay your team members, pay your expenses, and then continue to keep the lights on?" — Sei-Wook Kim on the purpose of cash flow management
"A line of credit is a tool for an emergency. In terms of order of operations, it's almost always better to use your cash because it's a lot cheaper." — Sei-Wook Kim on using credit vs. cash reserves
Links & Resources
Peter Kang on LinkedIn: https://www.linkedin.com/in/peterkang34/
Sei-Wook on LinkedIn: https://www.linkedin.com/in/seiwookkim/<
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