The stories your clients’ financials tell about their business

A recent study discovered that only 32% of small business owners expect their accountant to help with financial projections; the remaining have either not acknowledged the need or benefit of accurate financial statements, or believe that it can be accommodated within their current role.

In my experience, small- to mid-size businesses are attracted to solutions more than products – anything that drives revenue growth and motivates them to buy. They are more attracted to services that promise scalability.

I tell my prospective clients that a business health checkup is as important as their annual physical, and that analyzing a business’ health is very similar to analyzing your personal health. In both cases, the number don’t lie. Just like lab reports, accurate financial statements contain significant information about a company’s financial health. They help determine the current state of the business to make calculated and informed decisions in order to achieve a company’s financial goals.

I make our engagements more attractive by offering an interactive and periodical review of a client’s financial statements at all phases of an engagement. After all, accounting records of a business have a very different purpose at different stages. Let’s review the need and use for financial data at each phase of our client engagement.

Analyzing financials in the discovery phase

Access to a client’s current financial statements is very important at the discovery phase to understand the project requirement and expand our service offerings. Some examples include the following:

• A lack of financial statements tells us that client may not be using any accounting software and will need our guidance.
• A balance sheet that shows no movement in the liability section may need a review of payroll and other current liability sections. It may also require accounting accuracy for all the financing activities.
• No movement in the inventory balance indicates that the client may need help with inventory and accounts payable (AP) management.
• An income statement that has just one income category, “sales,” may need help with income categorization, invoicing, sales tax, and overall accounts receivable (AR) management.
• Contractor and sub-contractor expenses categorized as an operating expense indicates the need for a chart of accounts restructure for proper gross margin evaluation.

I recall a recent onboarding of a new client. I asked for the current year’s financial statement as a standard document request. In return, I received an Excel file that had a list of bank and cash transactions. He did not have the software to provide financial statements, and a lack of an accounting application indicated that the client was hesitant to use technology or did not have access to it. In addition, the merchant deposit bank transactions signaled the need for monthly reconciliations, while recurring debit transactions to financial institutions suggested the need for asset management and reconciling financing activities.

In one of the conversations, the client mentioned long-term contracts. This also meant he should be using a billing application and would need AR management.

Based on my discovery, the client engaged me to providing these services:

1. Enable a QuickBooks® Online subscription.
2. Set up an industry-specific chart of accounts.
3. 3Rebuild the books of accounts for the last two years to help file taxes.
4. Provide a POS implementation that integrates with QuickBooks Online.
5. Deliver monthly bookkeeping services.
6. Provide monthly controller services, including cash, inventory, AR, and AP management.

Analyzing financials in the recurring service phase

Once successfully onboarded, you already have the client’s attention. In return, they expect the same attention from you. During this phase, your goal is to establish a positive financial habit of frequently reviewing financial statements. For all my clients, I insist on monthly joint reviews of financial statements. The month-end review feature in QuickBooks Online makes the process very smooth and ensures a shorter close period. In addition, with the help of the Performance Center, it is easy to review financial growth with clients.

Here are some of the key items to include in your monthly financial statement review with clients on monthly basis:

• Confirm cash on hand balance to ensure that there are proper internal controls, and if there is any overage or shortage, it is either minimum or accounted for.
• Confirm inventory balances to determine if there is any need for control over inventory management.
• Review aged AR balances with the client to suggest a tighter collection cycle.
• Review expenses larger than the threshold with the client to confirm the need for capitalization.
• Review any financing activities during the month to understand and properly account for a business transaction.
• Review outstanding sales tax and payroll liability to ensure adherence to compliance.
• Confirm transactions of a personal nature to ensure proper accounting treatment to the equity section.
• Review gap in recurring expenses, such as utility, rent, or insurance in case there is a lapse in the contract period or a vendor change.
• Review sudden fluctuations in the gross margin that may indicate possible categorization mistakes or flaws in inventory management.

Analyzing financials in growth phase

As you start understanding your client’s business model and goals more thoroughly, you also gain their trust. This allows you to expand your accountant role into an advisor role. Now you will be reviewing financial statements that help your client plan for their growth. Your scope will be now expanded from accounting activities to cash management, spend analysis, budgeting, forecasting, data analytics, and other controller/CFO services.

Here are some of the review points that will help you scale along with your client:

• Review revenue and earnings trends. Based on the client’s long- and short-term strategy, you can offer to help with financial planning, budgeting, and forecasting.
• You can help to determine the need for capital restructure and borrowing activities by analyzing the company’s current value and evaluating its growth plan.
• Your client may be adding multiple locations. It may be even operating in different countries. This may require class management, consolidated, and multi-currency financial statements. 
• There are many applications and tools to provide necessary KPIs and create reporting packages. However, it is very crucial to interpret those management reports. You can offer this as part of your expanded service offerings.

With each phase of engagement, a review of the financial statements provides an opportunity to expand your role from tax accountant to controller or outsourced CFO. As soon as your clients adopt the change and identify the importance of their financials, it will be an easy task for you to become their long-term trusted advisor.