Accurate financial statements and tax returns are both important, but they only tell a story of your business as it was – not where it could be going.
What most business owners tell me they really need is a combination of big-picture strategic thinking combined with detailed financial expertise.
They want business growth options explained to them in a straightforward manner so they can make sound decisions. They want access to reports they can easily read and digest.
That’s why it is so beneficial, given the limited time and resources available to most growing businesses, for you to utilize the financial analysis and planning capabilities of your accountant. He or she is one of the few people outside your management team with knowledge of your business challenges and is in a position to help. Here are a few ways you can better use your accounting professional:
1. Test growth options with a break-even analysis.
Your accountant can help you set up budget and forecast reporting. Begin by setting up goals to achieve in the next 12 months, and use simple charts and graphs to see if your assumptions pan out. It doesn’t have to be complex reporting, and you can identify how you have done in previous periods (month over month, etc.) to make better growth decisions.
Within the reports, you will see how fixed costs (rent, administration, etc.) and variable costs (inventory, shipping, manufacturing, labor, etc.) compare with sales volume at different periods. This leads into determining whether seasonality, market conditions or other factors would have an impact.
Once you have an idea of your period expenses and revenue over time, you can use this information to create a break-even analysis. All of this together can give you a better sense of the market conditions you need for profitable growth.
2. Help you find the key performance indicators in your business.
Start with a few key performance indicators, or KPIs, that really matter to your business type and build from there. If you’re in retail, you might use inventory turnover. In construction, it might be job costing.
In manufacturing, reviewing your direct costs can identify opportunities to focus on more profitable products. In our service business, revenue per hour or billable hour realization percentage is important to understand.
In every business, there are key performance indicators and in most cases your accountant has this knowledge and vocabulary from working with other clients. Your accountant can advise on methods to set up KPI reporting and allows you to see how they perform over time so you can make better decisions.
3. Understand cash flow projections.
Create financial reports right out of your accounting software to help plan for what KPIs you would need to understand in order to manage cash flow. It is important to know how expanding product lines, increased direct costs, adding employees or a new location can impact cash flow so you can mitigate surprises.
4. Use industry benchmarks to compare your numbers.
For some of our clients, we use a number of different subscription-based sources or financial benchmarking analysis tools and offer them a report to see how they compare to other companies in their field.
Knowing what the industry-specific standards are for your KPIs is a good starting point. Are you performing better or worse? Are your cost ratios too high or within the norm? Why is that?
Asking these questions with your accountant opens up a conversation as to whether changing one thing could make a big and positive difference to the bottom line. In many cases, you can find one or two quick wins and go from there.
5. Know the value of your business today.
As a business owner, you no doubt have a passion for what you do. Even if you think you are many years away from retirement or selling out, knowing the value of your business today is important so you can plan for the future you want to have.
Opportunities or life events can happen fast; be ready for it with the appropriate valuation consulting so you have an estimate of how much your business is worth given market conditions.
You can then begin some degree of business succession planning to build up the people who may eventually take over key parts of the business
. This will help you maximize the value and eventual sale price of the business. Plus, you should have a few strategies to minimize your tax liability.
6. Create an advisory board with your accountant.
To me, there is nothing more valuable than a business advisory board. Your accountant is likely a connected individual who knows other top professionals who serve clients like you but have diverse areas of expertise.
Being a part of these discussions will be like “renting” the C-suite.
Many growing businesses just can’t afford to “buy” C-level expertise in legal, finance, operations or other functional areas to have in-house as employees. Advisory boards are a cost-effective way to bounce ideas off of professionals in a safe environment.
Look for the right mix of professionals that you will need depending on the stage/size of your business. I also recommend finding peer groups with other business owners.
Just the same as you, I need other business owners who have had similar growth challenges and can be objective, trusted business advisors for me.
Business owners want their accountants to help them in similar ways that a trusted adviser would. They want someone to guide them on budgeting, forecasting, cash flow management and analysis so their business can be more competitive in their industry, fiscally strong and healthy.
The most successful client relationships are those that go beyond accounting and taxes.
The best part is having an in-depth discussion with clients to understand their business direction and then create proactive solutions together for profitable business growth, cost savings and succession planning.
Contact: Sean Boland is managing principal of DS+B, CPAs + business advisers, in Minneapolis: 612.630.5076; firstname.lastname@example.org; www.dsb-cpa.com