My first contact with a potential client is usually a quick introduction call. On this call, I love to learn more about the owner and their business. I pepper them with questions to learn how I might be able to help them most. Small businesses are fascinating to me and I love hearing owner’s stories.
From time to time, I run into someone that I know just isn’t ready for my help. It’s not that their business is bad or too small. I know that they have progress to make before they need my expertise. When I inform them of this, the questions I always get is “How will I know when I need to hire someone like you?”.
The answer is tricky. There is not a certain amount of revenue that I look for in a business. Similarly, there is not a certain number of employees or any other size-based criteria. Rather, I am looking at what stage the business is in, what are the owner’s goals, and how much value can I add. These are all quantitative items. With that said, there are a few signs that a small business needs an accountant.
Let me take a step back and tell you what I mean by an accountant. I don’t mean the person that does your taxes once a year. I don’t mean someone that compiles your financial statements every January. I don’t mean someone that you meet for coffee a few times a year to discuss your financial results. What I do mean is someone who will regularly visit you, helps you grow your profit, and takes ownership over helping you achieve your goals. This can’t be accomplished in one yearly meeting.
Here are 6 signs your business is ready for a high level, financial accounting professional.
1) Your Past Survival Goals
Let’s face it when you first open a business your initial goals are just to survive. Sure, we all have dreams of building a multi-million-dollar company, but realistically, we want to survive the first 12, 18, or 24 months. At some point, however, a small business owner changes their goals from merely surviving to growing their business. At this point, a different level of financial expertise is required to help you meet your goals.
Once a small business owner has more growth-oriented goals, they start to develop systems and strategies to obtain this growth. Most, if not all, of these strategies, have some sort of a financial implication. As someone who has gone through this before, this can be a lonely process. Often, the business is still at a point where they have not made their first key hire yet. They may have employees, but those employees are more entry-level. As a result, the business owner is left to make and execute much of their financial strategy themselves. An accountant (the type I described) is the perfect person to help you achieve your goals and understand the financial ramifications of certain strategies.
2) Your “Profit” Frustrated
The most optimistic statistics say that 70% of business owners realize little to no profit. The vast majority of these businesses operate essentially on a break-even basis. While most of these owners don’t like to admit it, they don’t know why their business is not profitable. They are stuck in this middle ground of being just successful enough to stay in business but not successful enough to enjoy their business.
I have written extensively on the topic of profitability. I have talked about how to budget for profit as well as how to determine your profit formula. The fact is, most of these business owners need a financial root canal that can only be provided by an accountant. They need someone that has a background and is comfortable with interpreting the numbers to help them come up with a strategy.
I firmly believe that a huge amount of those 70% of businesses that struggle with being profitable just need a little help. If you are in that group or not happy with the amount of profit your business is generating, then you should be reaching out to an accountant.
3) Your Accounting Takes Up Too Much of Your Time
Unless you started an accounting or bookkeeping practice, you probably didn’t start your business to do accounting. As your business grows so will all of the functions that go with it. You’ll need to market more, sell more, do more accounting, train more employees, and provide more service to customers. Inevitably, because you don’t have the time, one or more of these areas will start to suffer and there will be consequences.
At a certain point, you have to realize where you are most valuable in your business. Having a background in public accounting, I have always known what my hourly rate is. As such, I have always been trained to think if something is worth my time. Now come years later as I run my own small business on the side, I often ask myself if the activity I am doing is the best use of my time. As a small business owner, is accounting the best use of your time?
4) Your Bringing in An Investor
Whether you are thinking about bringing in a friend, family, or professional investor, you need to know your numbers. At best, you may be making a bad deal since you don’t know your real numbers. At worst, you are unintentionally lying to your new partner about your numbers. I always tell small business owners, bringing in an investor changes everything. All of the sudden those Frappe Mochas from Starbucks you have been expensing become a big deal.
In my experience, investors get very cranky when they receive inaccurate, late financial reports. They also expect a certain level of professionalism within the business that includes well-functioning accounting, marketing, and sales processes. Unless you have the time to implement processes and oversee these areas yourself, you’ll need to hire a professional who that can oversee those.
The problem with this is that most small business owners still can’t afford and don’t need full-time help. A full-time controller or marketing manager would be overkill. This his where finding an accountant that can provide the expertise you need on a limited basis comes in handy.
5) Your Expenses are Increasing
Let me paint a quick scenario. You start your business and like most owners, you take advantage of offers. For instance, your internet/phone/TV provider gave you a new customer discount that saved you $100/month. You also started to use an outside vendor to clean your bathrooms once a week. You knew your costs of products at the beginning, but lately, with increases, you have lost track. For marketing, you signed up for a few services that you no longer use, but haven’t had time to cancel.
This is how businesses grow. They are so concerned with growth that the owner begins to rationalize that they just need a little more growth and then the profit will come. Meanwhile, they begin to lose an eye on costs. The sad truth (as 70% of businesses are finding out) is that expenses will keep increasing with revenue without someone keeping a watchful eye on them.
I work with my clients to develop their profit plan, which includes going through a process of identifying which expenses are vital to their business. A vital expense is one that enhances the customer experience. For example, one of my businesses was paying for DirecTV for our waiting room where customers typically only spent less than 5 minutes. This was not adding to their experience at all and was costing our business $1800 per year. This is an example of an expense to eliminate.
All small businesses have expenses that have grown. I know that my side businesses surely did. Having an accountant evaluate your expenses and help you determine a plan is the first step in making sure your expenses stay under control.
6) You Struggle With the Complicated Questions
What is your typical customer profile? Where are they coming from? How should you be compensating your employees?
There are a lot of complicated questions that will come up with running your own business. Questions that have a direct financial impact or require interpretation of data are right in the wheelhouse of your accountant. Many people think of an accountant as only someone that can compile and interpret the numbers. However, most professional accountants are capable of providing so much more value.
Sometimes as a business owner, you might not know the questions to ask. This is another valuable place where your accountant should be able to provide some input. The best accountants are proactive in identifying potential issues and helping you determine solutions.
Does your business fall in one of these categories?
When I am on the phone with a potential new client, these are the items I am looking for. All of these issues represent a certain level of accomplishment. In each of the scenarios presented, the business has grown. This is great news!
However, in each scenario, the business owner is starting to realize they can’t do it all. It’s not just accounting help they need. They most likely will require help in other areas such as sales or marketing. What the owner now needs to do is find professionals who are the right fit for their business. Not all professionals are the same.
Krieger Analytics is a unique accounting practice that is looking to provide financial clarity for the business owner so they can accomplish their goals. We aren’t the typical accountant as we want to provide a high, more comprehensive level of service to you. We help you understand your past results and plan more for the future. Unlike most accountants, I am also a small business owner so I understand the issues you are dealing with. If you would like to discuss your business and see if we may be the right solution, contact us now.