Your Accountant Shouldn’t Just Tell You What Happened Last Year

For many business owners, the relationship with their accountant still follows a fairly traditional pattern.

The financial year ends. The accounts are prepared. You find out how the business performed, how much tax you owe and what needs to be filed.

All important, of course.

But there’s one fairly obvious problem.

It’s already happened.

By the time you’re looking at last year’s figures, many of the decisions that influenced them were made months ago.

At Exchange Accountants, we believe your accountant should do more than tell you what happened last year.

They should help you understand what’s happening right now, and use that information to help you decide what happens next.

Your accounts shouldn’t just be a history lesson

Annual accounts give you an important overview of your business.

They tell you how much you sold, what you spent, the profit you made and provide the information needed to meet your reporting and tax obligations.

But if those are the only numbers you’re looking at, you’re effectively running your business while looking in the rear-view mirror.

Imagine discovering that your profit margin fell significantly last year.

That’s useful information.

But wouldn’t it have been considerably more useful to spot the change while it was happening?

You might have been able to review your pricing, investigate rising costs or make changes before another six months passed.

That’s where more regular financial information becomes valuable.

What’s happening in your business today?

Cloud accounting has changed what’s possible for business owners.

Rather than waiting until the end of the year to understand how the business has performed, up-to-date bookkeeping and management information can give you a much clearer picture throughout the year.

You can monitor things like:

• turnover
• gross and net profit
• profit margins
• cashflow
• costs
• outstanding customer invoices
• upcoming liabilities

But having access to numbers is only half of the equation.

The important part is understanding what they’re telling you.

Are you actually making enough profit?

Being busy doesn’t necessarily mean being profitable.

Sales might be increasing while your margins are falling.

Your team might be working at capacity while the cost of delivering your product or service has risen significantly.

You could even be experiencing record turnover while taking home less profit.

Regular conversations with your accountant can help identify these trends much earlier.

Instead of discovering a problem in your annual accounts, you can ask:

Why is this happening, and what can we do about it?

What does your cashflow look like six months from now?

Your bank balance tells you how much cash you have today.

It doesn’t tell you what’s coming.

A cashflow forecast can help you understand when money is expected to enter and leave the business, allowing you to anticipate periods where cash might become tight.

That can be particularly important when you’re planning to grow.

You may have a healthy pipeline of new work, but will you have enough cash to recruit the people or purchase the materials needed to deliver it?

Knowing that before you commit puts you in a much stronger position.

Can you afford your next big decision?

Some of the most valuable conversations with your accountant should happen before you make a decision, not after.

Perhaps you’re considering:

• recruiting another employee
• buying new equipment
• moving premises
• purchasing another business
• expanding into a new market
• borrowing to fund growth
• selling an asset
• bringing someone into the business
• planning your eventual exit

There can be financial, cashflow and tax implications to all of these.

Speaking to your accountant before you commit gives you an opportunity to understand those implications and structure decisions appropriately.

Once the transaction has happened, your options may be much more limited.

Are your costs quietly increasing?

Most businesses have experienced rising costs in one form or another.

Individually, small increases can be easy to overlook.

A little more for software. Higher wages. Increased insurance. Supplier price rises. Energy. Finance. Professional fees.

But added together, those increases can have a significant impact on profitability.

Regularly reviewing your numbers allows you to see where costs are changing and whether your pricing and margins still make sense.

Sometimes increasing turnover isn’t the answer.

Improving what you make from the turnover you already have can be far more valuable.

What tax is coming?

Tax shouldn’t be something you only think about when a deadline appears in the diary.

Understanding your likely liabilities in advance allows you to plan your cashflow and reduces the risk of an unwelcome surprise.

It also creates the opportunity for genuine tax planning.

There is an important difference between tax compliance and tax planning.

Compliance is making sure the right information is submitted and the right amount of tax is paid.

Planning means looking ahead and considering the options available to you before decisions are made.

By the time your accountant is preparing last year’s return, some of those opportunities may already have passed.

Where do you actually want the business to go?

Perhaps the most important question has nothing to do with last year’s accounts.

What are you trying to achieve?

Do you want to grow turnover?

Increase profitability?

Build a management team?

Acquire another business?

Reduce your own involvement?

Bring family members into the company?

Sell in five years?

Create enough financial security to eventually step away altogether?

There isn’t one definition of a successful business.

Understanding what success looks like to you means your financial planning can support that goal.

Your accountant should be part of the conversation

We don’t believe business owners should only hear from their accountant when there’s a deadline approaching.

The most valuable relationship is one where your accountant understands the business, knows what you’re trying to achieve and can be part of the conversation when important decisions arise.

Sometimes that conversation might be about tax.

Sometimes it’ll be about cashflow, profitability, forecasting, technology, investment or growth.

And sometimes it might simply be:

“We’re thinking about doing this. What do you think?”

Those conversations can be far more valuable when they happen before the decision is made.

Look forwards, not just backwards

At Exchange Accountants, preparing accurate accounts and meeting your compliance obligations will always be an important part of what we do.

But we don’t believe that’s where the relationship should end.

We want our clients to understand their numbers throughout the year and use them to make better decisions about their businesses.

Because your accountant shouldn’t simply be able to tell you:

“Here’s what happened last year.”

They should also be helping you answer:

“Where are we now, where are we going, and what should we do next?”

If you’d like your financial information to play a bigger role in the decisions you make, speak to the team at Exchange Accountants.

Let’s Grow Together.