The value of knowing the financial inputs and outputs of your business

When small business owners think about accounts, many are thinking about an end result, a product of all their efforts over a year. But accounting is so much more than the output. Done right, and with the support of some of the brilliant software available, it can turn real-time information into intelligence on which to base business decisions.

I think about accounting as an eco-system supporting your business. It’s an end-to-end process which aligns with the flow of your business, but the information you get out is only as good as the information which goes into the system.

Inputs

Information about sales is the obvious input when thinking about your business’s financial performance, but there are many others too.

The key with this type of information is to automate as much as possible, because that frees up time and energy for you to focus on things which add value to, or generate revenue for, your business.

Other critical inputs include:

  • Expenses
  • Mileage
  • Your bank feed

Once you have a cloud-based accounting system, using platforms like ReceiptBank, Expensify and TripCatcher makes plugging that information in much faster. Many of the apps use machine learning to automate populating the information you need, so just a quick check of the results to validate they are correct is all that’s needed.

Gone are the days of turning up at your accountant’s office with bags of receipts and a spreadsheet. It’s quicker and easier to take a photograph of each receipt and let an app do what it was designed for, than to complete a spreadsheet line by line and have your accountant double-check it.

With inputs, it’s about getting the information accurately and quickly into the system so it can be used as part of the whole picture. You may decide expenses are an area to target to help increase your bottom line, but you need the information into your accounting system first in order to be able to analyse it.

Slicker processing

The next step in the information flow for your business is what helps you get money in faster and with less effort.

There is a wide range of apps and bolt-ons to cloud accounting services which can automate you getting paid faster.

With 23% of UK businesses citing late payment for goods or services as a major reason for insolvency, this is a critical part of the process, but also shouldn’t take up too much of your time.

For taking payments there’s:

  • Go Cardless – makes setting up direct debits easy and takes a small commission from each payment, just 1% for small businesses, capped at £2/transaction
  • Stripe – a way to take card payments which allows your clients to use their debit or credit card for instant payment
  • iZettle – if you need a card terminal, this clever platform uses a card reader and your tablet or smart phone to take payments. The system will also create invoices
  • Shopify – if you need an ecommerce website, this platform allows you to build it

And for getting money in to maintain that all-important cash-flow, Chaser and Debtor Daddy are apps which automatically chase late payments so you don’t have to. Debtor Daddy even has a team making phone calls on clients’ behalf, saving you what can sometimes feel like an awkward conversation and preserving your relationship with clients.

Critical outputs

Having spent time and energy getting your inputs right, you need to analyse the outputs from your online accounting system.

Here’s where some of the apps and software can also add real value. I use Futurli (formerly Crunchboards), a system which links to your Xero or other cloud accounting platform, and produces configurable dashboards of critical insight into your business. There are other versions – Fathom and Spotlight being the main two.

This is where the real magic happens for me, because in analysing your numbers we can look at a wide range of scenarios ahead of when they might happen, work through all the possible impacts, and leave you better prepared to make the right decision quickly when the time comes.

It’s like having a regular health check on your business which means you not only know it better, but you have an understanding of what might happen in a range of scenarios.

Combining the expert eye of a management accountant with the intelligence provided by dashboards configured for your business is the gold standard of accounting. You can use live data to plot, for example, cashflow in the next quarter, or profit margins based on current performance.

It’s possible to bolt on project management, payroll or CRM software and pull from these systems to augment what you see if that’s important for your business.

And then you can talk about the so what and what if scenarios based on a range of possible outcomes, giving you not only valuable insight, but priceless thinking time ahead of any critical decisions you might need to make.

Are you getting 80% of your turnover from 20% of your clients, for example? What are the risks and opportunities with your current client base? What happens to your cashflow when the system knows and factors in that that your biggest client always pays 12 days late?

Helping clients to answer those kinds of questions is what gets me out of bed in a morning. It’s the value an expert combined with the latest technology can add to your business strategy. And it might be the smartest move you’ve made for your business this year.

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