In my daily conversations with accounting firm owners and managers I am often asked about ways that they can start working with owners and managers of SMEs that are relatively simple for them to implement with those clients. Here are five ways:
- Help them understand their numbers
At the risk of generalising, I believe that many SME owners and managers really don’t have a great grasp of their numbers and what they really mean. A great way to start this conversation with clients is when you have done their annual accounts. I suggest you prepare a summary P&L and balance sheet with the most recent and two prior years and slowly and simply talk about each of the following concepts: sales, gross profit and gross margin, overheads, net profit and net profit margin, inventory and/or work in progress, debtors and creditors. Add or take away from that list as you see fit for the circumstances of the client.
You look at each of these for each of the three years and how they have changed. And you link each to what that means in the business. It is all simple for you (or at least it should be!) but it is probably not for the client, and in my experience they will thank you when they truly start to understand their numbers. With EOFY not far away this is a great time to be planning these meetings with clients. You don’t need any additional software to do this, although later as your client’s financial literacy increases you might want to get more sophisticated.
- Help them manage cash
It is well understood that a major cause of SME failures is a lack of cash. I believe as an accountant you play an important role in educating SME owners and managers about how to manage cash. Some simple tips to share with your client might be along the lines of:
- Remember that profit does not equal cash;
- You need to put money aside for taxes, particularly GST;
- It is good practice to maintain a cash balance, separate to what is put aside for taxes, of say two months of your normal outgoings;
- Collecting debts quickly or not giving credit in the first place is a foundation for sound cash management;
- If you are making a loss you are most likely to see your cash diminish;
- Now is not the time to buy that flash new car; and
- You should review your cash position daily and talk to me if you don’t understand what you see.
These are just examples and I’m sure you’ll come up with more and have ways to explain the concepts to your client so they resonate with them.
- Help them increase revenue or profits
A natural progression from my example above is to talk about how the business can increase revenue or profits. You don’t need to be an expert on their business because they are. You just need to ask them some questions and explain some of the generic ways that revenue and profits can be increased. They will then apply that to the specifics of their business. For example, talk to them about the impact of increasing prices or finding ways to increase the volume or value of purchases by customers. Or on the costs side focus on a few of the larger costs and talk about any options to reduce them.
- Help them prepare a plan
Often the need for a plan arises when an SME seeks to borrow money from a bank or other financial institution. Not unreasonably, most such institutions will seek a business plan and budget to support the lending decision. I hold the view that every business needs a plan if it is to succeed and I don’t think it is difficult to convince most SME owners and managers of this.
There are a variety of templates available for this but even better, why not use what you use for your own plan? (Please tell me you have one.) Typically the plan is going to talk about what products and services are to be made/delivered/sold, who the customers will be and how the business will find those customers through marketing and sales activity. It will also talk about any people who will be employed and what technology and other infrastructure, including premises, will be deployed. And if the plan is for a lender the plan will include clear identification of how the funds will be used, which will in turn tie into the budget. A plan does not need to be long, but it does need to explain how the business will achieve its stated goals.
- Help them prepare a budget
You probably have an Excel template for this or one of a number of software applications available. I think the plan and budget work should go hand-in-hand but sometimes you may agree to do a budget in isolation. For existing clients you will have the current P&L to guide you. As with the other things I’m talking about here, keep it simple. You will need to spend some time with your client asking questions and taking notes then go away and create the budget. Again, don’t over complicate it just because you can!
Another question I get is how do I charge my client for these services? In some firms it is fair to say I see 1, 2 and 3 being offered for free by accountants as part of deepening or mending client relationships. What can happen, however, is the client likes the services so much they are happy to pay for a monthly or quarterly review. In respect of 4 and 5 you agree a fixed fee for an agreed scope of work. And don’t just think in terms of hours x charge rate. Think in terms of the value you are providing. In many cases the value of a plan and/or budget will be high and you can charge accordingly. Value pricing is about charging a price based on the value perception of the client. You may need to ask a few questions to help them see the value but in most cases it won’t be hard.
Try some of these ideas with a few “friendly” clients to start with, and proceed with confidence knowing you really are helping your clients.
Rob Pillans, founder and principal consultant, Planet Consulting
