Assuming Your Client Understands Their Financials?
America’s 30.7 million small businesses are the lifeblood of our country. However, most of them have a limited understanding of their financials.
As a small business owner, who may have a limited understanding of profits and cash flow, it will be next to impossible to achieve long-term business success without getting advisory help. A US Bank study reflected 82% of small businesses fail primarily due to cash flow management problems.
There are small business owners who believe that profit is the measuring stick to a successful venture. While it is true that profit is essential, clients need to understand all the mechanics of cash flow and why it must be tracked closely. Cash flow is one of the most critical metrics in assessing the health of a business.
For their business’s financial health, many clients need help to understand better where they stand, and accountants/advisors are vital in making that happen.
Accountants are the Watchers on the Financial Tower.
Being high on a wall or tower allows watchers to have a better view to warn against danger. So, it is with the accountant; they have the opportunity to raise a warning voice against financial danger.
It is the accountant who can best meet each client’s specific needs to maximize their business value. The accountant’s insight into each client’s financial performance will help them make valuable business decisions.
Offering small business owners financial clarity to make a more strategic decision could make all the difference in growing or turning around your client’s business. A customized approach to meeting their needs and ultimately impacting the value of their business is critical.
What do Clients Want?
According to the Journal of Accountancy, a survey of 1000 accountants conducted by Sage “found that 83% of clients are asking for more services and 42% of clients expect their accountant to provide business advisory services, over and above accounting, compliance, and tax services.”
Your clients want more from you.
They need more from you.
Training Clients to Manage Cash Flow
Here are five ways of the most common and useful ways to help your clients manage their cash flow.
Document and Closely Track Every Invoice
Record every business transaction as to what has been paid or not paid. Your clients should have a plan in place to address unpaid invoices and to pursue overdue payments.
Consider a small business with an overdue account receivable of $500 and a net profit margin of 5% to put it in perspective. It would take $10,000 more in sales to make up for the $500 not collected. Being proactive will have a positive impact on cash flow.
Have Emergency Cash Available
A study of 600,000 small businesses conducted by JP Morgan Chase gives us information on how the typical small business owner saves for an emergency.
- 50% of all small businesses hold a cash buffer of less than one month.
- 25% of small businesses have less than 13 days of a cash buffer.
- 25% of small businesses have over 62 cash buffer days.
Help your client prepare for an unexpected event where cash savings will provide a safe cushion. As a suggestion, begin by setting aside a small portion and work initially toward having 3-6 months of cash available. Then work toward 6-12 month savings of cash would put your client in a solid position to be prepared for almost any emergency.
Store Just Enough Inventory
In the State of Small Business Report by Wasp Barcode Technologies, 43% of small businesses with 11-500 employees do not track their inventory or use a manual
Maintaining just the right amount of inventory is a balancing act. Encourage your business owners to have only enough inventory to meet the demand necessary. Consider recommending an inventory management system that fits your client’s needs and will help reduce costs and improve profitability.
Avoid Taking on Too Much Debt/Be Careful Extending Credit to Your Clients.
A 2020 Report On Employer Firms by the Federal Reserve Banks state, “Loans, lines of credit, and credit cards are the most common types of external financing used by employer firms.”
Looking over your client’s business debt, interest rate, and how they are managing payments may give insight into how you may advise them. How are they extending credit to their clients? Discuss setting up an approval process to minimize bad debt. Extending credit, which is often unavoidable to be competitive, can promote cash flow challenges.
Meticulously Analyze Costs
An accountant who reviews and makes recommendations to encourage wise spending and saving practices will be helping their client better manage their company finances. Having that critical eye allows the business owner to assess whether specific spending practices help or hinder growth.
A Clear Understanding of Financial Health
The accountant’s role is critical in providing the advisory analysis many business owners need to keep their businesses thriving. As an accountant, you cannot assume that each business owner truly understands the standard financial reports.
Justin Hatch, CEO of Reach Reporting, tells the story of an accountant who had a client earning millions in revenue, yet he was not making any gross profit. The business owner believed he just needed to ramp up more sales. However, his real problem was not understanding each unit’s actual cost. His variable expense was greater than his cost of goods sold. Finally, this patient accountant explained his costs to the business owner and got him on a financially solid footing to successfully make the needed changes to grow the business.
Lastly, let Reach Reporting help you deliver to your clients beautiful, easy-to-understand financial reports. Reach Reporting reduces costs, increases productivity, and quickly provides proactive insights. Financial professionals can attract tomorrow’s clients by moving into an advisory role today. Book a free demo today!