What do I mean by "show them their money? I am not referring to the incredibly accurate financial statements you provide. Although accuracy is important, it's like throwing a swimming suit to someone who has fallen overboard and is drowning. The swimming suit makes sense when someone is going swimming but not when your clients are having difficulty staying afloat. They need a lot more from you (right now) to navigate and sustain themselves until the economic storm subsides.
Here are six key performance areas where your clients need help:
1) Reduce expenses: Cutting costs is obvious. How it gets done isn't. It's time for some Open Book* information sharing. Many business owners don't share financial information because they fear how employees will interpret what is going on. I'll let you in on a secret: employees make flawed assumptions everyday about what is going on. Wouldn't it be better to give them the straight scoop rather than let their imagination -and rumors-run wild? As best supporting CPA, you can help your client prepare and communicate a modified (departmental) P&L that provides employees with "Line of Sight" understanding and management of the expenses they control. Cost savings coming from the head and through the hands of every employee, not just owners and managers, can yield some amazing outcomes. In February 2010, Harpo Studios highlighted "waste not, want not" as their cultural focus. As a result they were able to cut many of their costs including plastic cups. The outcome: employees must use their own mug or container. Savings: $41,000 per year on disposable cups alone!
2) Leverage untapped assets: Lurking beneath the surface of every business are assets that are not being fully utilized or realized. They are easy to miss because everyone is so focused on "doing the work." For example, when touring a large auto repair facility we came across a storage room full of engine cores waiting to be returned. We might as well have opened a storage room and found gold bricks; there were thousands of dollars hidden in plain sight. Another example we see often of are companies modifying their work week to four, ten-hour days, job sharing, and consolidation of administrative tasks between departments and company divisions. An ingenious example, I saw was a school district that made its fleet of buses available for public charter during non-school hours. As best supporting CPA, you can help your clients do an inventory of all their underutilized assets and brainstorm with the team ways to leverage those assets. In some cases, leverage can be found by outsourcing non-specialized tasks such as accounting, maintenance and collections to free up valuable employees to perform more high value work.
3) Develop better pricing strategies: Pricing is often seen as the sacred cow in organizations. Many argue for consistency and against customer push back. I would argue that pricing is a science ripe for experimentation. Price changes also provide the most accurate and immediate feedback of any strategy a company can employ because people vote with their wallet and/or their feet. There are very few companies in the world that can truly compete on price. WalMart is one of them. Your clients are not. You can be a great support to your clients by helping them model the outcome of raising prices and reducing volume. In most cases, the end result is higher profits and less strain on company resources. The next time you talk with your clients ask how many of their customers complain about price. If fewer than 10 percent are complaining (we call this squeak factor) then it's time to raise prices. This is a strategy accounting firms can also apply.
4) Evaluate and strengthen credit policies: This one is tricky. Take a look at clients that don't currently offer extended payment terms or credit and consider the opportunity of doing so; would it would attract more business? Your next task is to help your client determine their break-even and cash flow needs to support this new strategy. If your clients already extend credit, review trends in this area to see if there is a particular product, customer demographic, sales person or region that is more problematic than others and strengthen policies accordingly. A cautionary note: Be careful not to create a norm (credit policy) for the exception (a small percentage of customers). If it is a small segment, deal directly with the problem and reward good customers with benefits for paying on time.
5) Evaluate current product/services for profitability: A common business owner mantra . . ."Sell as much as you can. Sell even more when times are tough." This can quickly turn a struggling company into sinking one if the owner doesn't have a good handle on their margins or understand the link between revenue growth and cash flow. This is where a CPA can provide some financial and business fluency training to help clients, managers, and employees understand that not all sales are going to add value to the company. Some products and services provide a better return. Owners have a tendency to focus on the top line in troubled times. In some cases selling less can yield more. A good CPA can help fine tune client strategies for pricing and product/service mix to ensure the healthiest bottom line.
6) Help clients zero in on their ideal customer: Now more than ever your clients need to understand the 80/20 rule. You know the rule . . . 20 percent of customers buy 80 percent of goods and services and the remaining 80 percent of customers may not be worth the effort it takes to service them especially if those bottom 20 percent of sales take resources away from the top 20 percent customer relationships. As times have gotten harder, the demographics of an ideal customer may have changed. You can help your clients monitor customer behavioral trends so they present the right products, packaging and pricing to attract more desirable customers
No one is better qualified or positioned than a good CPA to show clients where their money is and isn't working for them. The weakest of businesses have already closed up shop but there are a lot of good businesses that are barely hanging on. I am certain you can think of at least five clients that fit that description. They are probably already falling behind on paying your bill. Rather than focus on collecting your fees, take a step back and look at the bigger picture. Investing in the survival of your current clients will guarantee your fees are among the first paid, not to mention the added value of an increase in client loyalty and the raving fan factor. This is the ideal time to attract other businesses that may not be getting the support they need and deserve from their current CPA.
*Open Book Management by John Case
