Now that you have probably assembled your documents for the past business year as tax filing time approaches, you can determine if the goals that you set at the beginning of the year have been met.
Sometimes it is difficult to understand all the numbers and what they mean. Sometimes you are too closely involved with the business to be able to stand back and take a realistic look at where you at today.
To run a business successfully, you need to be able to take that step back and realize that perhaps a plan that you put into place last January just didn’t pan out, that you need to change that plan or get out of it entirely.
Most of us will find that really difficult because we thought we planned it out carefully and we thought we had covered every angel, but perhaps we didn’t.
It’s at this point where it might be beneficial for someone not totally invested in the business to come in and take a look at your results. It might help you to understand where you are today, what is going right and what needs improvement and how to make those improvements. This is what is called a Health Check.
Perhaps you are the kind of business owner that just focuses on your bottom line. But basing your decisions just on your bottom line doesn’t address the balance sheet and may harm your cash flow in the long run.
This is why I encourage sole proprietorships to run a complete accounting software package so that the effect on the balance sheet can be seen and improvements can be made based on both the income and the balance sheet statements.
Most business owners are interested in five things: A return on their investment or bottom line profit, a wealth assessment of the business, how attractive it is to a potential lender or investor, working capital management and cash flow management.
These interests can be satisfied by looking at a few performance indicators such as profitability, working capital, cash flow and return on your investment.
It also helps to look at your business trends or comparing how your business is performing against a benchmark such as an industry statistic from Statistics Canada.
If you know how to calculate the numbers and what they mean, that is knowledge.
You can then turn that knowledge into strategy for the future and then continue to monitor your results against your strategic plan.
You can perform what if analysis on your data to test out how changes you might make could affect your future results.
The people that can help you to analyze your business and explain the numbers are your accountants.
Most accountants are mainly involved in what is called compliance work, whereby the numbers are crunched and organized to meet the requirement to file a tax return or to comply with bank covenants using generally accepted accounting principles.
Few accountants have the time to delve into the world of strategic planning, which is why the industry of business coaching or business advisory services has developed.
Also, not many small business owners can afford to pay the fees to have their accountants give them strategic planning advice, so they tend to turn to their bookkeepers for explanation of the numbers because of the closer relationship that they have with them than their accountant.
I must urge caution because although bookkeepers can be very good and sorting and entering data, they do not have the training for strategic planning.
I would be very worried about the future of a company who took the advice of a bookkeeper over the advice of a designated accountant.
If you should decide to go the business coaching or business advisory route, again you need to do your due diligence and check out the reputation and credentials of the coach and the company, just as you would if you were looking for any professional to help you in your business.
How do you know if you need business coaching? The answer to that might be if you are looking to expand your business and don’t quite know how to go about it, or if you have looked at your results and they weren’t exactly where you wanted them to go, or if you know that you are lacking in a particular area of business management and need some assistance, or perhaps you have ideas for expansion but don’t quite know what effect that might have on your existing business.
Those are all good reasons to seek out external advice.
Gabriele Banka is a Certified General Accountant and the owner of Banka & Company Inc., providing Business Advisory Services.