For many small-business owners, working with their accountant is something that only happens sporadically. Often, this contact will only involve the accountant providing an owner with a balance sheet for the business and a profit and loss statement.
In most cases, these documents might get a quick once-over but aren't given any follow-up. While this is common, it can also mean that you don't have the financial oversight your company needs in order to move forward.
The first step for a small-business owner is to actually take the time to really understand the balance sheet and profit and loss statement their accountant provides. Following this, owners actually need to have a conversation with their accountant and ask a few key questions that can help understand your company's financial position.
So what are these questions? Here are 10 that you need to ask and that can help start a strong dialogue between you and your accountant.
1) What is my break-even point?
Perhaps the most important point that you will need to establish for your company finances is the break-even point. Above this point means you are running a profit - below it and your business will be in the red.
Every company's financial strategy should therefore be grounded in staying above this point. The first step to achieving this? Ask your accountant where this point is and get some concrete advice on how to stay above it.
2) What is my gross profit percentage?
Calculating a gross profit percentage lets you understand exactly how much profit you are making off your sales. This lets you understand how your sales are tracking and gives a baseline figure for any efforts to boost your income.
3) How much net profit is my business making?
Once you know how much revenue you are making over your break-even point, it's important to understand how much profit you are generating, minus costs. That's where a net profit calculation becomes incredibly useful.
Average net profits can vary considerably based on industry and the size of an organisation. Talking this issue over with your accountant can also help to identify new areas where you can achieve future growth.
4) What strategies can I use to boost cashflow?
Cashflow is at the heart of a financially sustainable business - but it is also an area where many small companies struggle. Unpaid invoices can quickly stack up and undermine your profits.
Discussing your cashflow with your accountant is a good first start to get this under control. They may also recommend that you use a service like debtor finance to help streamline invoice payments.
5) What are my most profitable products?
Every company will have products and services that are more profitable than others, and in many cases these won't be the objects that are flying off the shelves most frequently.
The solution here is to identify which of your products are most profitable and then develop a strategy to boost sales of these items. The insight of your accountant will be invaluable here and can set you up to quickly start realising higher profits.
6) How is the cost of my products calculated?
Every product comes with costs and minimising these is an easy way to boost profitability. Again, this involves understanding which products are the most profitable - if some of your items have a high price and high associated costs, your profit margins will be slim.
Once you know your costs you might also be able to identify simple ways to save money. Finding a better supplier or moving to more cost-effective transport is much easier once you understand these expenses in detail.
7) Where can I cut expenses?
Every business-owner knows the value of cutting costs, but sometimes it can be hard to know where to start. That's why you should be asking your accountant for pointers on where you can reduce your outgoings.
An accountant will also have a good idea of the expenses your competitors are facing - if your commercial premises are costlier than your competitors for example, it might be time to find a cheaper alternative.
8) How much am I personally invested in the business?
Owning a small business is a dream of many people, but it's important not to let this cloud your judgement when it comes to financial decisions. If you are investing large sums of your personal money into the company and not seeing a strong return on that investment, it may be time to find an alternative financing method.
9) Will my company survive a downturn?
There's a common expression that a good business isn't one that is profitable when times are good - it's one that can be profitable even when economic conditions are bleak. For a small-business owner, this means thinking long term and looking ahead to a time when the economy becomes an obstacle for your company.
By working with an accountant you can establish a contingency fund that will see you through leaner times. They will also be able to help you analyse the financial risks your company faces and find a solution to these potential issues.
10) How does my business compare with similar companies in my industry?
Last, but certainly not least, is the question of understanding how your company is tracking against competitors. For each of the above questions, business owners need to ask how their competitors are faring and where they have room to improve. This can help to ensure that your business is keeping up with the competition and achieving strong growth.
These 10 questions cover the basic points that every small-business owner needs to discuss with their accountant. By using these as a starting point and focussing the conversation around the specific challenges your company faces, you and your accountant will be able to build a strong and constructive relationship.