Small business owners who enlist the help of an accountant are far more likely to succeed, new research from Xero shows.
Surveying more than 2,000 small business owners, our research suggests that forming strong relationships with a professional financial advisor is beneficial to the longevity of the business. For those owners who collaborate with an accountant or bookkeeper, 42% of survivors describe that relationship as “excellent,” compared to 27% of those whose company failed.
Speaking at Xerocon in London, software entrepreneur and angel investor Dale Murray explained how good, clear accounting advice can propel small business growth.
“I absolutely believe that accounting, finance and understanding the numbers is a discipline every business owner needs to get their heads around if they want to do something special,” Murray said.
An accountant’s job is to provide clarity around what can seem like a deeply complicated world of business data and numbers.
Language is important
Revenue, EBITDA, net profit, NPAT. The terms in accounting can be complicated and may confuse many small business owners.
Murray says, “Good accounting advice starts with understanding our language.”
“The biggest thing we can do with our small businesses is take a little bit of time when we start working with them to agree on the words we’re going to use, and then use those words consistently.”
Cutting the jargon where possible, and educating small business owners on terminology, will help them see the value of the work you’re providing.
Not all pounds – or dollars – are equal
Accountants play a key role in helping small business owners understand that not all dollars are equal – some are already underweight.
If business owners are going to increase their spend, accountants can help them understand that: “a pound earned in revenue is quite different to a pound spent,” Murray said.
“Inherently, every pound earned has a cost associated with it,” she said, adding “You’ve got to take off the cost before you start to spend the money.”
Accountants can also really help small business owners understand that not all customers are equal – some deliver lower revenue than others – and sometimes small businesses chase less profitable businesses.
Cash is everything
While business owners look for the opportunity, advisors need to see if there’s cash at the end of the day.
Accountants can help small businesses understand if they’re in negative or positive cash cycle. Negative cash cycle businesses are more fragile, however, an advisor can help shift the operation from one model to the other, Murray said.
Helping manage cashflow is one of the most important tasks an accountant performs for a small business, Dale explains, adding that unexpected cash crunches or events can throw even the most stable business.
Plan for all reasonable outcomes – and some of the unreasonable ones
Budgeting and forecasting can really help a small business understand what they need to do to get ahead.
“We need to help our business owners plan, not just for the reasonable outcomes but some of the unreasonable ones too,” Murray says.
But keeping it simple is the key to maintaining client interest.
“We need granularity in the spreadsheets, but we don’t need so much that we swamp our small business owners,” she said.
“If you can, get your small business owners to play around with the assumption boxes. Show them if they play with the margins, the revenue, they start to see the power of the numbers, they see just how big and profitable their company can be.”
Keep out of trouble
At the end of the day, compliance is key in accounting. Advisors help prepare statutory accounts, tax returns and shareholder information. “It’s our job to keep them out of trouble,” Murray says.