Things you can do to improve business value in finance and accounting.
I so enjoyed recording our podcast this week with Susan Bryant. She’s one of those CPAs that just “gets it” when it comes to working with her clients. She and her entire team at MB Group really dive into their client’s businesses and provide practical financial advice and guidance.
I thought I’d expand on our discussion about things you can do in finance and accounting to maximize business value, so here are excerpts from my upcoming new book, and some practical advice you can use right now.
How frequently do you get and review your financial statements? I'm frequently astounded by the number of times I talked to business owners who say they really don't get and use monthly financial statements. Rather, they get them at the end of the year when the accountant does the taxes. Business owners really need to review the financial statements on a routine basis, at least monthly by the 15th. Earlier if possible.
If a business owner gets pushback from finance and accounting who thinks it just too much to produce in 10 to 15 days, challenge them to set a target for minor improvements and then relentlessly monitor the progress. It’s really all about the process. If we could do it for our complex business, anybody can do it. It is easier than you think if you just get started.
And, while you’re at it, your financial reporting should be easy to read and understand, particularly if you share your financials with an outside group, like investors, an advisory board, or family. If you do share with an outside group, you should simplify the reporting as much as possible. For most businesses, having a one-page P&L is enough.
Depending on the complexity of your business, you could have more detailed financials for internal use, and you should always have to have the ability to drill down into the details if needed. In a recent business of mine, our internal P&L was six pages long because we decided that the management team needed granular information to make strategic decisions in our business. But, we would consolidate into a simple one-pager for external distribution. Depending on your accounting software, that might be as simple as a click of a button. The point is - make sure your reporting is simple enough to understand, with just enough detail to satisfy the audience.
Finally, business owners should think about getting financial statements audited. One of the many mistakes I‘ve made was failing to have our financials audited until we were large and complex. Our first experience was a beating and we had to create records that just didn’t exist in our business. Our first audit was far more complicated, took far longer, and was way more expensive than it needed to be. It doesn't need to be that difficult.
Many business owners think that auditing financial statements are something that only the big companies do. However, an independent audit provides their party verification that your financial statements are correct, and therefore you’ll have proof when it’s time to transition regardless of the size of the business.
Owners should think about getting an audit long before it’s time to transition because typically the smaller you are, the easier the audit and the lower the cost. It is surprisingly affordable when you’re small, and it forces the business into better financial management practices, which helps improve enterprise value. I suggest that you test the waters and find out how much it would cost to get an audit. Even if you decide to wait, you’ll at least get a feel for the cost and the process.
Every business owner has some discretionary expenses (things like a company car, cell phones for the family, vacations, and country club dues) but you need to relentlessly track it and ultimately minimize it. Everybody has some discretionary expenses. But, you need to track it because eventually, every business is going to transition and if you ever get into a position where you want to sell your business to a third party, third parties get adjustment fatigue (a term to describe the feeling that there are just too many adjustments to the financial statements).
Many businesses manage to a zero on the bottom line, but the real number is really much higher because of overinflated expenses. Owner salary adjustments are common, but all the other stuff ultimately needs to be minimized or eliminated. Susan put this best in our podcast this week - don’t do it!
BUDGETING AND ACCOUNTABILITY
Many businesses don't create or follow budgets. As I'm fond of saying, just like the Cheshire Cat, if you don't know where you're going, any road will take you there.
As you may already know, I read a lot of books. I recently read Good Profit , (2015) by Charles Koch, who takes the opposing view. He advocates not having a budget because he says budgets give people reason to spend money. Although no one can deny Koch’s success, we think of budgeting a little differently. Until you can operate on his level, I think budgets are appropriate, and frankly, most businesses should complete next year’s budget before year-end, and share it with the managers to hold them accountable.
I think that having a budget makes it easier to make decisions because when you budget, you really think strategically about investments before the time comes to make those investments. And once you’ve settled on a budget, it gives some freedom to the managers to operate within “the fences” of that budget, and thus eliminates the need for future discussions and approvals for budgeted items.
So, stop right now, and pick at least one thing discussed above that you’re not doing and put a plan in place to go do it! And, of course, if you need additional information on any of these, just reach out and we’ll point you in the right direction.
Message me on LinkedIn or on our Facebook Page or email me or call my cell and tell me HOW you are improving your financial processes. It will have a dramatic impact on your business value. What are you going to do today - to Maximize Business Value?
And remember, we’re here to help. If we can help you in any way don’t hesitate to reach out!
You can catch a more in-depth conversation on improving your financial processes on this week's episode of the Maximize Business Value podcast with Susan Bryant.
ABOUT THE AUTHOR
Tom Bronson is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that dramatically improve business value that was developed during Tom’s career 100 business transactions as either a business buyer or seller. As a business owner himself, he has been in your situation a hundred times, and he knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Want to chat more or think Tom can help you? Reach out at firstname.lastname@example.org or check out his book, Maximize Business Value, Begin with The Exit in Mind (2020).
Mastery Partners, where our mission is to equip business owners to Maximize Business Value so they can transition their business on their terms. Our mission was born from the lessons we’ve learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed.