Brian Hamilton, CEO, ProfitCents explains how keeping in regular contact with clients can work to your advantage.

The best business people I know are always ahead of the financial data they possess. The shrewdest people who run businesses have an inherent understanding that good management decisions are always based upon what is going to happen rather than on what has already happened. I have worked with hundreds of people who run businesses, and the logic and approach that they take often makes no sense to the rest of us. Yet there is clearly some logical matrix or reasoning that these people use to gather and break down complex decisions.

To financial people, this is an alien approach to working with financial data because it is our job to report on past and current results; we work in the here and now, where our clients live in the ‘what might become’. There are many reasons why our clients live in the future. Sometimes, this is simply how they are constructed as people. I always joke that the reason we live in the future is because the present is never quite what we want it to be. Also, the best business decisions are always based upon a careful review of future conditions, not on past conditions. Yet it is also true that business people need to understand the past in order to be able to make their futures happen. You cannot run a business without piecing together the results of the past and gaining insight from what has occurred.

The answer is not to discard legacy financial data (financial statements), the financial statements we have come to know and use, but in fact it means the opposite. What accountants need to do is connect what has happened (the results from financial statements) to what business people want to happen in the future. This whole idea is very difficult to explain, much less to understand. The idea is that we want to understand the past in order to make better decisions in the future. This is where many business people, even good ones, fall off. They cannot develop a good framework for future decisions because they don’t even know what is happening now.

Financial statement information is vital information. I used to work for one CEO who said it best: “financial statement data is a vital strategic weapon that can be deployed as a real asset in the marketplace”. Financial statement information is also massively under-used by both accountants and the clients they serve. Why? There are four major reasons:

1. Business people are so busy making ends meet that they don’t have the time to sit down and look at and analyse financial data.
   
2. Business people are intimidated by accounting (and accountants) and they don’t know how to read their financial statements. This is a huge part of the client engagement process and we need to be fully aware of this. Nobody wants to feel stupid, so people are afraid to ask the questions they should ask.
   
3. Accountants are so busy making ends meet that they don’t have time to sit with clients and look at and analyse financial data. Many of us are focused on the daily grind of getting work done.
   
4. Accountants are intimidated to admit that they may not always know the intricacies of interpreting financial statements. The truth is that in school we were trained to do accounting, not necessarily to use the information we produce. Financial analysis and indeed finance is quite different from accounting.

So, what does this leave? This leaves millions of business people who live in a future that may not happen and who often have no tie back to what has actually happened. To me, this is a perfect place for accountants to insert themselves. I recommend a 30 minute financial check-up once a year for all clients. Through simply sitting down with clients at least once a year and reviewing financial statements, accountants can build a bridge from the past to the future. This session is not time consuming and it is highly productive. At a minimum, it will deepen the relationships you have with clients. It may also generate additional fees for the practice- clients will learn that you are more than a tax preparer/compliance professional.

Here are some basic things that should be done in each of these sessions:

1. Explain the financial statements in plain and easy-to-understand language. The worst thing to do is turn these sessions into one way communication where clients are lectured and may not understand the issues being discussed. Numbers from a balance sheet or income statement don’t mean anything to the average and highly intelligent business client. Break things down and make sense of the financial numbers for clients. This point is vital.
   
2. Develop some understanding of margin management. Most business people don’t understand the importance of margins. In many businesses, either the gross margin or the net margin drives the business most. (Gross margin is sales less cost of sales divided by sales. Net margin is net profit divided by sales). Many good business people think that the key to success is increasing sales volume. They don’t have an appreciation for how volume increases both cash and profit. Many times, increases in sales may decrease profits or sales or both.
   
3. Point out some very simple areas the business person can work on. In my experience, the vast majority of businesses are driven by three or four key pieces of data. If these are managed well, the business does well. If they are not managed well, the business does not do well. It is important to try to identify these before the session.

The sessions should be informal and brief. If the session goes well, you will be viewed as a true strategic partner by your client; as a friend and ally. If it does not go well, then at least the client will know you care. In all likelihood, your clients will be surprised and impressed that you took the time to help them. In my experience, you will also generate additional fees from these sessions since almost all of these types of sessions will lead to further questions, challenges, and work.

Brian Hamilton is the chief executive officer and leader of the management team for Sageworks, Inc., which develops ProfitCents www.profitcents.co.uk [1], an application that aids accountants in communicating with clients.