Can your Accountant help you manage your business?

Not all accountants are interested in providing services beyond taxation.  I’m disappointed to say this but, unfortunately, that is the real situation.  In fact, I believe that only about 40% of accountants, who are in public practice, are really interested in matters beyond taxation, audit, financial planning and SMSFs.

Unfortunately, small businesses are requiring greater services to be provided by accountants.  The surveys that have been conducted by CCH, MYOB, Smithink 2020 and universities have all indicated that the small business community is looking for a greater range of services to be made available to them by their accountants.

The problem a small business operator has is finding an accountant who understands the wider commercial issues beyond just tax.  From my discussions with small business operators, – from start-ups, people who invented new technology, and very experienced business operators – it all comes down to one very important aspect: in the main, they are all looking for accountants who are proactive and not reactive.

Proactive Accountants Add Value To Your Business

Being proactive means the accountant would be making suggestions.  The accountant will be helping you develop your business.

Management of Costs

Some of the other key attributes the accountant would require, in order to offer an all-round Chief Financial Officer (CFO) services to small/medium enterprises, includes the ability to prepare costing reports on:

• cost of product; and
• cost of capital expenditure.

Cost accounting is an integral part of accounting.

Unfortunately, in public practice, many accountants do not have any requirement to undertake costing exercises.  But it is important that the accountant you are using is able to assist you on your costing exercises for various projects.

Financing of Business

Financing of business is similar to being a corporation treasurer, arranging the bank loans, bank overdrafts, leasing, debtors factoring and other facilities for a business.

Working Capital Management is very important

Having an interest in the improvement of the systems relating to:

• debtors;
• stock;
• work in progress; and
• creditors.

This is vital so that your business can adequately manage its working capital.

Exports

If you’re an exporter, I’m sure you’d like to be dealing with an accounting business that has some experience in supporting exporters, in understanding some of the trials and issues that exporters can encounter.  This can include things like:

• exchange rates;
• the role Austrade can play to assist you; and
• the assistance you can receive from the Export Finance Insurance Corporation.

Human Resources

Human resources is becoming a bigger issue for all small business operators.  Accountants should have some knowledge of the workings of Fair Work Australia and the Work Health and Safety regulations so they can offer you meaningful advice.

Insurance

Insurance is another area whereby an accountant, who is proactive in offering advice to their clients, should be able to objectively analyse your insurance covers, to ensure every asset is covered and the premiums you are paying are reasonable.

Management Accounting for Individual Business Units

I don’t like the concept of ‘lumping’ all activities in a business together into one profit and loss account.  If you’re running four or five separate units within your business, I believe you should have four or five separate profit and loss accounts, so you can allocate accountability for the work that has been undertaken.  Those profit and loss accounts can be consolidated when it comes to lodgement of the business’ income tax return, but a consolidated profit and loss account, being prepared each month or each quarter, does not help management to run an effective business.

Benchmarking

I was talking to a small business operator the other day.  She mentioned that their accountant of 12 years is very good on tax, but not once has the accountant mentioned benchmarking to her.  The client was asking questions such as:

• What is the normal gross profit rate in our type of business?
• What is the normal labour to turnover in our type of business?
• What is the normal profit percentage on turnover in our type of business?

I asked if she had this discussion with her accountant and she said she had but they didn’t know where to get the information.

Benchmarking data is very important.  Benchmarking is available from a number of commercial sources and, of course, the ATO is now producing their own benchmarking reports. I believe it’s very important that your accountant monitors your performance against the ATO benchmarks.

Franchising

Franchising is very important for a whole range of businesses.  There are many business activities, being conducted around Australia, that are using franchise systems.

Does your accountant know anything about franchising?

Industries Knowledge

Accountants need to know something about their clients’ industries.  Whether it’s farming, manufacturing, building, medical or retail.  Accountants should have some knowledge on how these industries work.  Accountants should have understanding of KPIs and other information that pertain to each of those industries.

Other Activities that a Proactive Accountant would be undertaking

Some of the other strategies a proactive accountant would be able to discuss with their small business clients include:

• Calculation of break-even analysis.
• Preparing ‘what-if’ calculations – what would be the result if:
  • gross profit improved by 2%?
  • the number of times a customer dealt with your business improved by 10%?
  • debtors' days outstanding reduce by 10 days?
• What would be the cashflow effect of these types of improvements?
• Do you have a strategy for dealing with banks?  An accountant, offering a wider range of services, can assist you.
• If you’re operating a company, do you understand the corporate governance issues of being a director?
• If you’re contemplating exporting, have you talked to Austrade, the Export Finance Insurance Corporation and your bank?
• Are you operating as a family business?  Family business can be wonderful but they can also be very traumatic and can cause a lot of anxiety.  Is your accountant able to advise you on issues such as:
  • family councils;
  • succession planning;
  • employing external people; and
  • employing external directors to assist in the operations of the business?

Questions You Should Ask Yourselves

Accountants, who are able to offer a wider range of services, will be generally offering business advisory services for their clients, to assist them to add value to their overall business performance.  Isn’t that the type of accountant for which you should be looking?

• Is your accountant educating you on various business issues, so you understand the terminologies such as ‘break-even analysis’?
• Have you been receiving articles from your accountant, to assist you in your knowledge of business or in purchasing or starting a business?
• Is your accountant assisting you by sending you articles on how to manage your business and understanding concepts such as:
  • management accounting for individual business units;
  • business plans; and
  • succession planning?
• Have you received articles from your accountant on how to deal with your bank, such as:
  • submitting a loan application; and
  • monitoring the covenants that your bank instigated, as part of their deal with you?
• Are you interested in trying to develop a business that will attract investment by business angels or venture capitalists?
• Do you understand the strategies to get your business ‘investment ready’ for discussions with business angels or venture capitalists?

These are the types of services an accountant, offering business advisory services, can perform for your business.

Accountants Can Assist

An accountant, undertaking these types of services, would be delivering a ‘virtual accountant’ service.

If you’re interested in a wider range of services being offered to you, don’t hesitate to have a discussion with your accountant.

If your accountant is unable to supply the services to which this article is referring, we'd be happy to assist you on having an introduction with an accountant, within your location, who can supply these types of services.  Please send an email to peter@essbiztools.com.au with your location and postcode and we will send you the names of accountants within your area, who are offering these types of services.

ESS BIZTOOLS has developed hundreds of articles and other templates, to assist small business operators to improve their business operations, including ‘Small Business Overview’, which can be downloaded below.