To grow your practice you’ll need to increase clients, or increase the income per client.
Both are good choices and the second one is I believe the easiest opportunity for accounting and bookkeeping businesses.
Having worked in the industry of business mentoring for over 20 years, it’s become obvious the need for advice for the majority of business owners is great.
Software is in use by businesses at various levels these days and that is a strong opportunity for your business. The opportunity exists because software is introduced to businesses only from a “how” perspective, as in how to use it.
Due to the quick education needed by software providers, with the strong focusing on ‘how’ to use it, more time is definitely required for the benefit to the business with a thorough “what” and “why” management understanding.
The greatest value I believe in using software is the reports they produce. A very small percentage of business owners have the skills to understand the reports and what they mean, nor why the figures in reports are important.
Accountants and bookkeepers are very skilled with interpreting figures and looking at reports and understanding what they are revealing. This is your industry skillset and therefore an opportunity for your business owner clients.
Due to their technical background, business owners are very attracted to job management types of software. The reports, from my experience, are rarely viewed in-depth let alone understood. The business owners don’t understand what they figures in the reports mean, nor which reports are the most important ones or why.
Gross Margin Reports
The opportunity for accountants and bookkeepers is to focus business owners to focus on gross margin reports on completed jobs or projects. From experience, this is the greatest opportunity to add value to these businesses.
An example of this in a service and manufacturing company can is to begin a conversation by explaining that the gross margin seen in a Profit and Loss Statement for one month is a poor representation of the actual, true figure. This being due to income figure for the month not being relevant to the wages paid for that month, nor the materials cost figure, which is usually related to the previous month’s jobs or future month or two jobs.
An excellent report to focus clients on is the technical employees’ wage costs on completed jobs and actual materials costs to determine the gross profit and gross margin on each and every completed job.
The gross margin on every job then can be compared to the gross margin for the business for the previous financial year so that it can be seen if each jobs is achieving the same gross (and net profit margin) for the coming financial year.
The business needs to have the technical employee included as the Cost of Sale on jobs in reports to see how people are the biggest variable to gross margins. Ideally, reports that reveal individual gross margins per technical employee are also valuable in reports for discussion.
While all this is probably quite simple to you, in the life of a very busy business owner who has low to medium financial literacy skills, this isn’t that simple and so it is rarely looked at. This is how to apply this opportunity as a mutually beneficial service for you to offer and provide – as their “Interpreter.”
Gross profit and gross margin reports by singular jobs/projects are important, but it’s when you collate all jobs of the same ‘type’ that reports become extremely beneficial.
Segment the Business
Segmenting a service and manufacturing business into its various job types, to look at the average gross margins is most beneficial as different service types require different employees to carry out the work and various variables can apply to the different types.
Income, gross profit and gross margin reports by service types for one to twelve months always reveals an interesting breakdown of the financial year for gross profit and gross margins.
You will benefit from applying this same principle to your own business, by starting with a list of the various types of services your business provides. Track income and wages costs for the month to determine the gross margins on each different service types. You may be surprised by what it reveals.
The experience of doing looking at your own business’ results will significantly increase your practical understanding of this way of looking at your business and any other and will boost your confidence with advising your own clients on this process.
Confidence when selling additional consulting services is essential and nothing beats the confidence that comes through experience.
Having introduced this style of management reporting to clients from sixteen years ago with a ‘Production Report’ spreadsheet, it has led to very significant increases in gross margins, in the order of up to 20% on one to ten million dollar revenue companies. It’s not uncommon to seeing businesses increase net profit by one to many multiples of hundreds of thousands – in three to nine months from those results.
By working out how you can add value to your client’s businesses with their software reports you could be adding the highest value in your relationship.
By helping them to increase gross and net profit margins, your costs are then an investment, which makes them far more attractive.
Tim Stokes
Author Bio: Tim Stokes is a 36 year experienced business owner and builder of 7 in service industries. In 1997 he began mentoring business owners in all aspects of business growth and lifestyle success with results published in national magazines. He’s no accountant, but he brings a fresh, very practical, intelligent point of view to growing businesses that his principal clients enjoy. He’s authored 12 books and The Academy of Business Mastery business management course with its systems and management tools. He’s respected for his contribution to clients of accounting firms who see the results. Tim believes the most important figure in businesses is the net profit percentage and specializes in increasing it with a full suite of time-proven strategies. Visit Tim's website to learn more about him.