The agency chart of accounts
The default small-business chart of accounts makes it impossible to answer the two questions every agency owner has. Restructuring it is a one-time job that unlocks everything downstream.
An agency chart of accounts separates pass-through costs from fee revenue, splits delivery cost from overhead, and tracks clients as classes or dimensions. Those three decisions are what make net revenue readable directly off the profit and loss, gross margin computable, and margin by client arithmetic rather than a project. The standard small-business template does none of them, which is why most agencies cannot answer basic questions about their own economics.
What should be in an agency chart of accounts?
Everything else is detail. These three determine whether the books can answer a question or only record history.
1. Pass-through gets its own accounts
Client media spend, recharged production and any third-party cost you front and recover must sit in dedicated revenue and cost accounts, distinct from fee income. This is what makes net revenue readable in any month without a spreadsheet.
2. Delivery cost is separated from overhead
Salaried delivery staff and project contractors are cost of delivery. Finance, operations, new business and management are overhead. Without this split, gross margin cannot be calculated and you cannot tell a pricing problem from a structural one.
3. Clients are tracked as classes or dimensions
Both QuickBooks Online and Xero support tagging transactions to a client without creating separate accounts for each. Once fee income and delivery cost both carry a client tag, margin by client falls out of the ledger instead of being reconstructed.
A working structure
Simplified, and deliberately shallow — a chart of accounts with 300 lines is a chart of accounts nobody codes to correctly.
| Group | Accounts | Note |
|---|---|---|
| Revenue | Retainer fees · Project fees · Consulting fees · Recharged pass-through | Pass-through recharge kept separate from all fee lines |
| Cost of delivery | Delivery salaries · Delivery contractors · Client-specific software · Client-specific production | Only people and costs attributable to client work |
| Pass-through costs | Client media spend · Client production costs · Client third-party licences | Mirrors the recharge line; nets to roughly zero |
| Overhead — people | Management salaries · Finance and ops · New business · Internal marketing | Everything not delivering client work |
| Overhead — operating | Rent · Software and subscriptions · Professional fees · Insurance · Travel | Standard operating costs |
| Other | Realised FX · Unrealised FX · Interest · Depreciation | FX on its own line if you bill in more than one currency |
The pass-through recharge line and the pass-through cost line should roughly offset. If they diverge materially in a month, you have either billed a client incorrectly or absorbed spend you never recovered. Both are worth catching in the month rather than the year.
What it lets you answer
With this structure in place, four questions become readable rather than researchable.
| Question | How the structure answers it |
|---|---|
| What is our real revenue? | Total revenue less the pass-through recharge line |
| What is our gross margin? | Fee revenue less cost of delivery, over fee revenue |
| Which clients make money? | Fee income by client class, less delivery cost by client class |
| Is this a pricing or an overhead problem? | The gap between gross and net margin |
Without it, each of those requires someone to rebuild the answer in a spreadsheet from a general ledger export — which is why they get asked once a year, at the point when nothing can be done about the answer.
Migrating an existing file
Restructuring a live ledger is a defined piece of work, not an open-ended project. The sequence that works:
- Map old accounts to new before touching anything. Every existing account gets a destination, including the ones that will be merged.
- Rebuild the current year at minimum, and ideally the prior year too, so you come out with a comparable trend rather than a discontinuity.
- Add client classes retrospectively to fee income and delivery cost. This is the tedious part and it is what makes the whole thing worth doing.
- Reconcile the restated periods back to the original bank balances. The bank reconciliation should be untouched by any of this — if it moves, something has gone wrong.
- Freeze the structure and write down the coding rules, so the next person to touch the file does not quietly invent a new account.
Expect it to take a few weeks of someone's attention for a year of history, more if the source data is messy. It is almost always done alongside a catch-up rather than separately.
Common questions
What should be in an agency's chart of accounts?−
At minimum: fee revenue split from recharged pass-through; cost of delivery separated from overhead; pass-through costs in their own accounts; overhead split between people and operating costs; and FX on its own line if you bill in more than one currency. Clients should be tracked as classes rather than as separate accounts.
How do you account for client ad spend in a chart of accounts?+
Give it dedicated accounts on both sides — a recharge line within revenue and a cost line within pass-through costs — so the two roughly offset and net revenue is readable directly. Do not code it to general revenue and general cost of sales, which is what makes gross margin uninterpretable.
Should clients be separate accounts or classes?+
Classes, or the equivalent tracking dimension in your ledger. Creating an account per client makes the chart unmanageable within a year and still does not let you report cost against them cleanly. Both QuickBooks Online and Xero support tagging transactions to a client alongside the account.
How many accounts should a chart of accounts have?+
Fewer than most people build. A chart with several hundred lines gets miscoded because nobody can hold it in their head. Depth should come from client and project dimensions, not from proliferating accounts.
Can you restructure a chart of accounts mid-year?+
Yes, and it is usually done alongside a catch-up. Rebuild the current year at minimum so you have a comparable trend, reconcile the restated periods back to original bank balances, and write down the coding rules afterwards so the structure holds.
The re-chart is the onboarding
Pass-through separated, delivery split from overhead, clients as classes. Once, properly.
Get a free books reviewGeneral information for agency owners and operators, not accounting, tax or legal advice. Figures shown are illustrative unless stated otherwise.