Check the Pulse of Your Business

Strategic planning is one of the most critical factors to the success of your business. Before you started your business, you likely put together a plan for your start-up expenses and projected monthly revenues and expenses. Now that your business is up and running, your plan will need to be adjusted regularly to match your actual performance.

If you’re like most business owners, time is your most scarce resource. Conducting a monthly or minimum quarterly financial health checkup with your certified public accountant (CPA)/ Trusted Advisor can provide a substantial return on your financial planning time because it allows you to leverage the expert training and experience of a CPA who advises many startups and small business owners.

By reviewing the following aspects of your business, your CPA Trusted Advisor can help you identify and correct problem areas before they become crises.

Here are some of the things you need to think about when you conduct a periodic checkup on your business: 

KEY PERFORMANCE INDICATORS (KPIs) KPIs vary for each type of business. Your CPA Trusted Advisor can help you develop KPIs most relevant to your business, formulate them into a dashboard and review them with you on a regular basis. Most CPAs can also provide you with comparative data based on their extensive experience with other businesses as well as other industry sources. 

STRATEGY AND PLANNING Some business owners don’t have the luxury of a strategic planning department, and daily operations consume most of your time. Your CPA Trusted Advisor can serve as your strategy adviser and help you boil your strategy down into measurable goals and review your progress on a regular basis. For a more established business if the function is in place is always a good idea to review current process and revamp them to make sure you stay aligned with the latest appearances in the area while leveraging technology.   

SALES FORECASTING In the beginning, your sales forecast was based on market research, your sales and marketing plan and your best estimates based on experience in your industry. Even the best start-up sales forecasts need to be reworked considering new information you’ve learned from actual operating performance. Because your CPA Trusted Advisor advises many small businesses, s/he has extensive experience with sales forecasts and can perform a periodic checkup to see whether your sales forecast is realistic considering your specific circumstances. 

GROSS PROFIT MARGIN Amid frequently changing costs and pressure to make sales, many small business owners find it challenging to keep up with whether they’re maintaining adequate profit margins to sustain their business. Your CPA Trusted Advisor can help you calculate and track gross margins by product or service, by customer (or customer group) or by job. Most importantly, your CPA Trusted Advisor can help you identify causes of margin erosion and recommend changes you can make to get your margins back on track. 

CASH FLOW FORECASTING Cash flow management makes the difference between success and failure for most businesses. Your CPA Trusted Advisor can provide you with the kind of professional cash flow forecasts an in-house finance department would provide to management in a larger business. Your CPA Trusted Advisor can help you answer the questions: What will our cash balance look like during our slow season? Will we need to borrow to cover shortfalls? Do we have a large enough line of credit? 

ACCOUNTS RECEIVABLE (A/R) Accounts receivable can be difficult to forecast until you have enough history to identify trends. In many cases your CPA has access to trend and benchmark data for other businesses like yours and can help you forecast seasonal fluctuations and compare your A/R performance to industry benchmarks. Your CPA Trusted Advisor can also help you identify needed adjustments to your credit and collection policies. 

ACCOUNTS PAYABLE (A/P) Sometimes an accounts payable problem arises suddenly. But more often problems develop over time and can be corrected before they become crises. Your CPA Trusted Advisor can review your accounts payable and help you develop a plan to resolve payment issues and prevent them from occurring. Asides from avoiding problems and crisis implementing efficiencies through automation while leveraging the latest technology in the market is an area the CPA Trusted Advisor has the expertise to guide business owners.   

INVENTORY For many businesses, inventory is a major draw on operating capital and cash flow. If your business has seasonal fluctuations, inventory forecasting can be difficult. Your CPA Trusted Advisor can help you forecast your inventory needs and evaluate inventory financing options from suppliers, local banks, and commercial lenders. 

PAYROLL For most businesses, payroll is a major expense. Your CPA Trusted Advisor can help you locate industry benchmarks and develop a scorecard for you to monitor. CPAs can also provide an objective checkup on your health care expenses, retirement plan and other employee benefits costs.  

BANKING Most lenders include certain loan covenants in their lending agreements such as a requirement to maintain certain types of insurance coverage, to meet a certain debt to income ratio and so on. Failure to maintain these requirements could result in penalties or even worse — having your loan called. Your CPA Trusted Advisor can help you develop a scorecard to monitor and stress-test your loan covenants considering your financial forecasts. If a loan covenant breach is likely, your CPA/ Trusted Advisor can help you develop a plan to bring your business back into compliance or to renegotiate covenant requirements with the lender. 

TAXES You don’t want a big surprise tax bill when you file your annual return, but you don’t want to tie up more capital than necessary in your estimated quarterly tax payments. Your CPA Trusted Advisor can check your performance and projections against your estimated tax payments to help you avoid surprises at tax time.

 REGULATORY COMPLIANCE Laws, regulations, and financial reporting standards change frequently. Failure to comply can result in costly penalties from state and federal authorities or place you in technical default of loan covenants with your bank. Your CPA Trusted Advisor can help you identify regulatory changes that could impact your business and assist you with compliance.

 Preventing crisis is one of the benefits of scheduling regular checkups with your CPA Trusted Advisor. But you can’t predict some situations such as the loss of a major customer, a lender unexpectedly calling a loan, a personal health problem or other unpredictable event. When you’ve been meeting with your CPA/ Trusted Advisor on a regular basis, your CPA Trusted Advisor knows your business and is in a better position to help you when an emergency arises. Because your CPA Trusted Advisor is specially trained and advises many small businesses, your CPA Trusted Advisor is uniquely qualified to advise you on your financial options in a crisis.”

Adapted from 2017 American Institute of CPAs. All rights reserve 16733-312