How to Start an Advertising Agency

Start an advertising agency by following these 10 steps:

1. Plan your Advertising Agency
2. Form your Advertising Agency into a Legal Entity
3. Register your Advertising Agency for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Advertising Agency
6. Get the Necessary Permits & Licenses for your Advertising Agency
7. Get Advertising Agency Insurance
8. Define your Advertising Agency Brand
9. Create your Advertising Agency Website
10. Set up your Business Phone System

We have put together this simple guide to starting your advertising agency. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Advertising Agency Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening an advertising agency?

Since advertising agencies provide services rather than products, the startup costs of starting an agency are minimal. Ideally, agencies should have an office for meeting clients, computers for working on projects, an internet connection and a printer for printing any physical marketing collateral. Agencies also need a website.

There are ways of keeping rent, computer costs, internet access and utilities, and printer costs extremely low, though. Business owners who are operating on a tight budget can:

• Rent an office on an as-needed basis
• Work in coffee shops that offer free Wi-Fi
• Use a personal computer they already own
• Outsource any printing to a local print shop
  

If necessary, business owners can even meet clients in coffee shops -- thus limiting the startup costs to little more than a website and a few lattes. (Any printing costs can be paid after a client has made a deposit for a project.)

What are the ongoing expenses for an advertising agency?

The ongoing expenses for an advertising agency include rent for an office (if the agency has one), computer costs, internet access fees and employees’ salaries. Employees’ salaries are typically the largest ongoing expense for an agency.

Who is the target market?

Advertising agency's clients are most often other businesses, corporations or non-profit organizations. A particular agency’s ideal client will be one that is within an agency’s marketing niche and needs ongoing work. Often, such a client will ask to place an agency on retainer. (A retainer is an arrangement where a client pays an agency a consistent amount each week or month and, in exchange, the agency sets aside a certain number of hours each period to work on the client’s campaigns.)

How does an advertising agency make money?

An advertising agency makes money by charging clients for creating and planning advertising campaigns. In most situations, an agency will pitch a potential client without being compensated. If the client likes the pitch, the agency is contracted to execute their proposed campaign.

How much can you charge customers?

Advertising agencies often charge clients either an hourly fee or a commission. According to Two Hats Consulting & Web Design Services, hourly fees are typically calculated by dividing the annual salary of the person (or people) who will work on a project by 1,500 (the number of billable hours a typical person might work in a year). Commissions are traditionally 15 percent of all media and production charges.

How much profit can an advertising agency make?

As mentioned above, advertising agencies can bring in billions of dollars annually, but most have much lower annual revenues. Many agencies bring in tens or hundreds of thousands annually, depending on their niche and distinctives. It’s not unheard of to achieve millions in annual revenue, though.

How can you make your business more profitable?

An advertising agency can increase its profitability by offering services in addition to traditional marketing. For example, an agency might provide clients with public relations or social media consulting services if either of these are needed.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your advertising agency is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

Federal Business Licensing Requirements

Known as “truth-in-advertising” laws, these regulations protect consumers by requiring advertisers to be truthful about their products and to be able to substantiate their claims. All businesses must comply with advertising and marketing laws, and failure to do so could result in costly lawsuits and civil penalties.

The Federal Trade Commission (FTC) is the main federal agency that enforces advertising laws and regulations.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate an ad agency. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Services Contract

In business where services are provided on an extended basis, a services contract is often put in place outlining terms and conditions of service. You may wish to require clients to sign a services agreement before starting a new project. This agreement clarifies client expectations and minimizes risk of legal disputes by setting out payment terms and conditions, and service level expectations. Here is an example of one such services contract.

Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your advertisement business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.

Certificate of Occupancy

An advertising agency is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO).  A CO confirms that all building codes, zoning laws and government regulations have been met.

• If you plan to lease office space:
• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an advertising agency.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

• If you plan to purchase or build office space:
• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for you business’ location to ensure your advertising agency will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

People who are both creative and have a mind for business may be well-suited for running an advertising agency. Creating pitches for clients requires great creativity, but this must be balanced with a business sense that considers the agency’s financial viability.

What happens during a typical day at an advertising agency?

An advertising agency owner is responsible for managing their agency, finding clients and producing campaigns for clients. On any given day, a business owner might:

• Search for leads or follow up with leads on potential new clients
• Prepare pitches for prospective clients
• Work on campaigns for clients
• Present pitches or completed projects to clients in meetings
• Manage employees

The work of preparing pitches, designing campaigns and meeting with clients is often done with other business partners or employees. Even after an agency grows, however, business owners usually remain involved in these activities.

What are some skills and experiences that will help you build a successful advertising agency?

In order to successfully run an advertising agency, business owners must have knowledge about advertising. It helps to have a degree in marketing or a related field. Business owners who don’t have a four-year degree in the field should at least consider taking some classes and reading publications on the industry. The American Association of Advertising Agencies offers several training programs. Inc.com has a list of 16 trade publications and high-quality blogs. MarketingProfs, Business Insider and The Knowledge Bank lead the list.

What is the growth potential for an advertising agency?

Advertising agencies can grow to be internationally recognized companies that receive accolades and land clients from all over the world. Advertising Age published the estimated 2014 revenues of the world’s five largest advertising agencies:

• WPP Group (in London) had an estimated annual revenue of $19 billion
• Omnicom Group (in New York) had an estimated annual revenue of $15.3 billion
• Publicis Groupe (in Paris) had an estimated annual revenue of $9.6 billion
• Interpublic Group (in New York) had an estimated annual revenue of $7.5 billion
• Dentsu (in Tokyo) had an estimated annual revenue of $6.0 billion
  

In many cases, agencies are able to become national or multinational businesses with offices in just one or a few cities because they offer services rather than physical products.