I will quite often sit down with prospective or existing customers and go through a questioning process to uncover the “hidden potential” in the business in question.
Sometimes the questions generate answers which you know from experience are unlikely to be true. It’s not that the business owner is trying to be deceptive; it’s more often than not a case of either lack of knowledge, or unwillingness to confront the true reality.
A frequent occurrence of small business or closely held business firms is to under project expenses (“No we don’t spend that much”), and over project sales (“Of course we can do more than last year”), this can cause severe cash flow problems in the future.
It’s even worse when these sorts of numbers are relied upon by other users such as banks and lending institutions. The Bank then comes back to the customer with a negative perception of the customer’s knowledge of their own business processes and results which tend to make future borrowings even more problematic.
Typically projecting expenses is far easier than sales figures, as expenses are relatively easy to determine, the key being not to underestimate them in a given time frame. It’s often better to err on the side of caution and add a little ‘slack’ or ‘buffer’ to the expense amounts to take account of unforeseen happenings.
Sales on the other hand, are far harder to accurately forecast as they are unpredictable due to so many outside factors such as:
- Market conditions
- Sales peoples skills
- Product availability.
The overly optimistic owner of the company can, in their optimism, skew the numbers while in a bit of a denial mode, when preparing their bookkeeping journals, and share inaccurate numbers with their accounting firm, causing potentially serious problems and incorrect assumptions, affecting the longevity of the company.
This is where the benefit of an observant, curious, and diligent accountant comes in.
In our previous Blogs “How your accountant should be asking questions to help you grow” and “How a good working relationship with your accountant can assist your business growth” we talked about your relationship with your accountant, and how it’s not just about the numbers.
- How we ask those hard questions and focus on listening and learning to help grow your business.
- How we maintain frequent contact with our customers to ensure we all know what’s happening and can help if required at the time, rather than after, when it can be too late.
- We focus first on growing the business and then look at the compliance.
- How all compliance issues are managed in a professional and timely fashion.
- The questioning processes we use to uncover the “hidden capabilities” of your business.
- How this deeper understanding can positively impact your company results.
Read our last blog “If you could pick two people to trust your business with, would your accountant be one of them?” to gain further insight into the difference between an ‘A’ and ‘B’ category accountant. It shows you all the things a good accountant should be offering you, and if you haven’t already guessed it we at Oxen fall into the “B” category.is can cause