Knowing your business’s vital statistics can be compared to driving a car. The rear-view mirror is helpful, but what drivers really need is a clear view of what is ahead of them. Even if your financial data and management information will tell you what has happened in the business so far, the bigger value resides in what the figures imply that will happen in the future, particularly for most small and medium-sized enterprises. We could say that the effectiveness of this information will depend on how you look at them or perhaps how your accountant perceived this data.
That, however, is far easier said than done. Small and medium-sized enterprises (SMEs) frequently lack specialist finance teams to turn raw data into business insight; they may be led by executives who are juggling both operational responsibilities and the ability to think strategically, and they may not always have access to third-party advisers who can help them paint the bigger picture while also paying attention to the finer details.
This is where you should ensure that your company is in compliance with all applicable laws and regulations, your accountant should also be able to provide value to your business. The following are a few examples of how a good accountant can help you in strategically moving your company ahead.
1. Cash Flow Analysis
Based on your prior cash flows, your accountant should be able to detect potential vulnerabilities and work with you to rectify the issues before they become more serious – for example, by developing daily cash flow projections so that you can recognize a crisis well before it occurs. Cash is king for most SMEs, even successful businesses have gone out of business as a result of short-term cash flow problems.
It is not only the day-to-day operations that must be taken into consideration. The amount of cash available in your company will be a critical determinant in its potential to expand. For example, does your company have the buffer time it needs to expand into new areas, introduce new products and services, or create new retail locations?
2. Risk Management
Successful firms are aware that good times may not last eternally, and they put forth significant effort to identify and understand the factors that may cause them difficulties. Understanding where your company’s exposures reside – and whether any of those exposures is excessive – is a critical component of anticipating future risk.
Consider the size of your customer base, for example. You may have broadened your consumer base by expanding into other segments of the market, but do you have a sufficient number of customers? If you become overly reliant on a single customer, the difficulties of that customer will very quickly become your problem. That may not be evident until after you’ve analyzed the numbers.
3. Creating Future Projections
What your company aspires to achieve is a top-down picture of the future of your company. The bottom-up approach considers how the organization’s objectives might be achieved. Take this case: you want to expand into a new international market. In this case, the things to consider will be distribution, the supply chain as well as sales and marketing.
As part of their work, good advisers develop financial models that map out the future in accordance with your objectives; they then sensitize the finances of these models by adjusting for factors such as the current economic climate, market dynamics, the nature and scale of your ambitions, and so on.
4. Grinding the granular
Creativeness, ambition, passion, and commitment are just a few of the traits that come to mind when thinking about what it takes to be a successful entrepreneur. But they must swiftly learn the in and out of running a growing company, and in particular, they must become familiar with financial concerns despite having no formal training or previous expertise in accounting.
The danger is that they will lose sight of the finer points – the headline figures may make sense, but what lies beneath them may not. Good advisers are aware of and anticipate these limitations in their knowledge.
5. Creating new opportunities
Good advisers should have enough expertise dealing with developing firms to be able to advise their clients on how to take advantage of the chances that lie ahead of them – and which specific prospects are worth taking advantage of in the first place. How, for example, do SMEs make the transition to the digital world, given the possibility it provides to scale up quickly and without the need for significant infrastructure expenditure in the process?
It’s possible that you’ve never had to deal with these issues before – in which case, dealing with advisers who have dealt with them in the past could be really beneficial.
6. Adapting to the Agenda
Good advisers present the most comprehensive picture possible of what lies ahead – including any external circumstances that may have an impact on your company’s operations. This group will inform you about what is occurring in your industry – and what it might mean for you – as well as on the issues that will face all small and medium-sized enterprises in the future. For example, assistance on government pension programs or the specifics of the new tax regimes may be required.
If you are unsure of what your company’s vital statistics are telling you, try asking your accountant or book a consultation with IDM Professional Corporation CPA.
