[IMGCAP(1)]Ask any accountant in the country about “client service,” and you’ll be hard pressed to find one who does not consider it to be important.
However, when we speak about placing emphasis on serving our business clients, the conversation tends to be very rudimentary and filled with platitudes. This article is an attempt to convey what it’s really like to be a business owner, based on my own experience running companies and working with entrepreneurs across the country. My hope is that this accurate portrayal might provide some insights into how accountants can use their expertise to truly help their business clients.
People who run businesses are usually very good at a few things: They tend to very good at generating revenue and sales, very good at serving customers and retaining business, or both. Good entrepreneurs focus, rightfully so, in an almost monomaniacal way on getting customers and, once they’re in the door, serving them exceptionally well. Outside of driving revenue and serving customers, entrepreneurs and business owners also usually know their products and services cold.
What they are very rarely good at, however, is understanding finance and accounting. This is understandable. As a business owner, it is crucial to sell and to serve customers day in and day out.
However, there isn’t the same type of demand, on a day-to-day basis, to analyze and dive deep on your business’ finances. In my experience, I’ve seen that most entrepreneurs have an almost instinctual handle on their products and services. For example, if a business has lapses in its products and services or weaknesses in its sales model, most business owners know almost immediately. However, most business owners don’t have the same instinctual knack for identifying problems related to accounting and finance.
Many financial problems tend to be hidden; they lay latent for a period of time, only to come crashing suddenly down with great effect. And while some financial issues that businesses face are relatively simple and easy to diagnose, most entrepreneurs simply don’t have the technical expertise or background to recognize them.
I want to be careful not to give the impression that business owners are unsophisticated; it’s just that they’re not trained in these specific areas and their attentions are, necessarily, focused elsewhere. This is where your role as an accountant is absolutely vital to a business. By sitting with your business clients once a quarter, reviewing their financial performance and helping them to understand their finances, you can help them avoid pitfalls and uncover ways for them to make more profit.
So what are some specific areas that you might talk through with your business clients?
Here’s an example that seems almost self-evident on the surface, despite being a trap that many smart business owners fall into: Every entrepreneur knows, on some level, that they should be turning a profit. However, I’ve seen many business owners (and even people trained in finance) fall into the trap of equating profits with cash flow.
While it’s often true that net profits will eventually yield positive cash flow, this is definitely not always the case, particularly in the short run. How many times have you run into clients who grow their account receivables at such a rapid pace that they cannot pay their bills on a timely basis? I’ve seen extremely smart entrepreneurs get caught on this one. In fact, when I look back on my consulting experience, I estimate that a huge number of business failures are directly attributable to issues with their cash flow cycle.
Another example of what you might emphasize with your business clients is the importance of margin performance over dollar performance. Let’s assume for simplicity purposes that a dollar of profit equals a dollar of cash flow. If this is the case, while it’s true that more dollars of profit are always a good thing, you have to watch the gross margins and net margins as a business to be sure that the business has a reasonable, operational safety net, which is measured by margin performance. This is certainly obvious to you as a trained financial professional, but it’s a trap that many entrepreneurs fall into. And often they won’t bring these issues up without prompting. It might fall on you, as the finance person, to bring these points up proactively.
Business owners rely on you as a trusted business advisor to help them succeed. These concepts and potentially hundreds like them can help your clients succeed and, importantly, differentiate your practice from other accounting firms that don’t provide this type of guidance.
Brian Hamilton is chairman of the financial information company Sageworks.
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