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Financial Advisory Services
accountants and bookkeepers

Financial Advisory Services

In this Accounting Advisory Services series, you’ll receive a guide to navigating five different buckets. This article digs deep into defining one of those buckets – Financial Advisory Services.

Download a PDF of “A guide to developing accounting advisory services”

The five buckets we are exploring within this series of financial advisor offerings are:

  • Financial Advisory
  • Process Advisory
  • Apps Advisory
  • Compliance/Forensic Advisory
  • Successor Advisory

In my experience being on the road as a member of the Intuit® Writer/Trainer network, I have heard my peers’ concerns about offering Financial Advisory Services. As a whole, accountants have a fear of failure and in our line of work, it is in our nature to want perfection. However, it’s difficult to deliver perfection in an area we do not feel fully qualified for. I have told my staff that a “B” is not a passing grade. Our grade must be an “A” at all times. Therefore, a lack of clear understanding of capital markets and Financial Advisory Services makes us feel uncomfortable.

According to research, 20% of small businesses in Australia fail within their first year, with more than 60% failing within the first three years. Given this information, why doesn’t every business plan for success?

Success is not automatic. A small business owner (SBO) may have realised a niche with skilled employees and adequate resources to accomplish the task, so why do these same SBOs fail to create a business plan for success? What I have most often seen is that the SBO does not grasp the financial intricacies that facilitate long-term success. Most often, they too fear failure, have a lack of financial understanding, and are not sure where to start financial planning.

The business must act with intention and work within a plan that is not only clear but also achievable. Change takes time. Similar to starting or beginning a new habit, once you get results, you wish you had started sooner.

SBOs often feel adrift. Advisory services are about saving people and businesses. However, no amount of desire to save the people can be accomplished without first directly addressing the financial health of the company. A structure is only as strong as its foundation. Granted, no amount of coaching, advising or planning is a guarantee of success. It does, however, increase the likelihood the business owner will understand and more successfully navigate the challenges related to financial success.

What are Financial Advisory Services?

Financial Advisory Services (FAS) address the financial health of the business. CFOs and financial coaches work toward achieving this goal but operate slightly differently.

While a CFO can be very clinical with precise methods for financial improvement, a financial coach takes into consideration the unique personality of the business owner and the fundamental character of the business itself. Both CFOs and financial coaches seek to increase the health of the business and facilitate its continued success.

Financial advisory consulting firms make recommendations and motivate with enthusiasm to create goals. Start small. Accountants sometimes struggle with how to start offering FAS, but SBOs have even further confusion, due to their lack of understanding of income, profits and cash flow statements. We don’t have to have all the answers… just the confidence in offering guidance and insights to the story that the numbers tell. We are expected to be experts in our craft. The key is being poised in the delivery.

Most SBOs do not have a financial background, and the numbers on reports mean nothing to them. On their own, it’s difficult for them to create forecasts, budgets and cash flow plans. A paramount concern to SBOs is “Where did all the money go?” Another primary concern they also want answered is “How do I make more of it?” Because most SBOs lack time and comprehension, the question is, should they hire a financial advisor to assist them?

To the SBOs who already have a grasp on their numbers, the accounting professional can offer an unbiased, fresh perspective by creating a team and coach relationship. This will help facilitate guidance and drive introspective thoughts that foster results. Most SBOs already employ an accountant, this accountant is expected to have financial expertise and the confidence and capacity to perform client advisory financial services.

The expected outcome of Financial Advisory Services

First, more confidence in decision-making can be accomplished by applying your strength as an accountant to your client's unique financial situations. By having conversations about their books, you can start with the most significant issues and gain insights into their needs. Set a realistic timeline for improvements, including incorporating strategy and recommendations. These strategies can restore a business to financial health and provide enlightenment to the business owner, which could lead to growth if that is the desired outcome.

Forecasting, budgets and cash flow planning

Once you have a firm grasp on revenue and profits, you can start to explore your financial goals including forecasts, budgets and cash flow planning. Historical numbers outline how you performed previously. The historical numbers are concrete, but planning has the possibility to create a forward-thinking roadmap.

Forecasts. Forecasts are financial models – living plans to be reevaluated, expanded upon and potentially change course. ” Forecasts eliminate being adrift and surprised financially. Forecasts differ from financial statements because they help set revenue goals and manage profits.

Budgets. Budgets are a tool to manage your cash. Personal and business budgets can be made to achieve revenue goals for your financial advisory firm. They also work to help you plan for lean months by evaluating where you can reduce expenses. By reviewing budgets against actuals quarterly, you can keep your finger on the pulse of the business’ health and be positioned to address issues as they arise, such as a global financial crisis.

Cash flow planning. Managing cash flow has become more complicated with the use of electronic funds. Previously, cash was the only way to make purchases, but now, revenue and expenses are more difficult to manage. During months when less cash was on hand, less cash was expended. Now, it’s not so cut and dry. Expenses paid electronically can make cash flow tracking difficult, especially if electronic bill payments are not recorded in the bookkeeping until after they clear. Customer payments can be tricky as well because customers have various payment methods that can take days to clear the bank. In addition, customers can have late payments and default payments, making cash flow or asset management difficult.

Start simple with cash flow management. Teaching SBOs to enter bills to manage payment dates allows them to plan for immediate needs, including payroll. Some businesses have more cash flow risk. SBOs with greater individual invoice values create cash flow dependencies, as do slow payment intervals. Industries, such as manufacturing plants with inventory and warehouse expenses, have more cash flow risk than service-based businesses with little overhead, such as accounting firms.

Once you realise a positive cash flow, you can begin to save for unexpected slow periods. If you need help determining a business’ cash flow risk, Dryrun has a Cash Flow Scorecard to help determine the business’ cash flow risk and the amount a business should reserve – roughly about 90 days of expenses.

Take the stress out of managing your firm

Financial reporting apps

Financial reporting apps make it easy to create forecasts, financial models, budgets and cash flow plans. Reporting apps that attach to QuickBooks® can find trends in the data, such as a business' best customers or most substantial vendor expenses. Because most apps are cloud-based, they allow for better collaboration than Excel. Financial apps are a dynamic database full of insights with various ways to view your data. Reporting apps assist accountants by producing deliverables that create visibility, which helps you avoid pitfalls.

Financial Advisory Q&A with Michael Ly

To understand how financial advisory services (FAS) are being performed successfully, I sat down with one of our leading professional peers, Michael Ly, CEO of Reconciled, an online bookkeeping and business advisory firm. His firm serves entrepreneurs all over the country and runs as a distributed team in multiple states.

Q. How do you explain FAS to your clients?

A. Advisory services have the expertise and breadth of a CFO that is accessible for the size and stage of their business.

Q. How do you sell FAS and are they bundled with other monthly offerings?

A. Most SBOs know they need tax and bookkeeping. They come to us and start describing what they actually need and start defining CFO level work. For example, they say, “I need a financial presentation to give to my investors to raise capital.” When we hear those trigger words, it’s our cue to start introducing CFO, coaching or mentoring services. Services outside of bookkeeping are offered separately.

Q. What does a typical FAS engagement look like?

A. CFO Services usually begins with an initial consultation with a CFO (separate from the bookkeeper) on our team, who establishes customer pain points and their ultimate goals. Then, the CFO starts providing solutions, which can be a mix of actual deliverables (such as financial forecast or investor deck) or something more consultative (such as a weekly or monthly video call to review financial performance and help make decisions). And our team works to put it all together.

Q. Are there essential software/apps your firm uses for delivering these accounting and financial advisory services?

A. We do use Fathom for financial reporting, which is easier to read for the customer. We use for short-term cash flow reporting and Excel and Google Sheets. We do video calls on Zoom and Google Meet.

Q. What’s your client’s reaction to FAS?

A. Our customers extract amazing value out of CFO services. We are already doing bookkeeping for our clients. CFO services, coaching and mentoring are often what they are really seeking. Because we have moved beyond transactional bookkeeping services and are offering financial consulting, this sets our practice apart, and our clients are able to make management decisions based on sound financial advice. The CFO services help to control and create the desired outcome they want to create for their business.

Q. Are there any resources you would like to share with your peers?

A. Yes. We have a standard list of seven routine questions we regularly ask our customers:

  1. What are your short-term and long-term goals for the business?
  2. Describe what your business looks like one year, three years and five years from today?
  3. What key metrics are you currently using to make your primary business decisions?
  4. What kind of capital will you need to fund your growth plans?
  5. Who is your target customer?
  6. How much does it cost to produce one unit, or serve one customer, for your business?
  7. What does your exit strategy look like?

Q. What recommendation do you have for your peers?

A. As your firm grows into FAS, hire team members who understand the firm mission, and then it’s paramount as the CEO to trust your team to do their job. CFO services are created with precision coaching, while mentoring is about asking the right leading questions. Price your FAS – don’t give these services away.

Books and podcasts Michael recommends:

Financial Advisors follow this approach to an effective workflow

A workflow that includes FAS is not much different from what we are already providing. Accounting practices are evolving; therefore, we have to pivot to include FAS in order to keep businesses current and healthy. It can be expected that the first several meetings will lead to confusion and a lack of understanding. However, effective meetings will quickly lead to an understanding of knowledge through insight.

Incorporating Michael Ly’s seven standard questions with an effective workflow for performing FAS can be used as a guide.

  1. Gather business details
  2. Why are they seeking Financial Advisory Services
  3. Daily, weekly and monthly bookkeeping performed
  4. Financial monthly review
  5. Cash flow management
  6. Build and review budget
  7. Financial forecasting

Each month, the workflow is repeated and new monthly forecasts, budgets and cash flow reports are generated. During each meeting, an action plan is created for next month.

It is vital to communicate. One of the areas SBOs often feel let down by their accountant is help with financial understanding. A recommended read for more insights into effective workflows and cash flow forecasting is “Pandemic Cash Flow” by Blain Bertsch.

This is an example of how an FAS engagement could look like for you

You schedule a meeting with an existing client to review the books. Because this is a current client, you already know the answers to sections one and two of the Financial Assessment Worksheet. You have been performing monthly bookkeeping services for them for years, and often have meetings to review unresolved transactions, so you quickly work through section three.

Now, it gets fun! You open up the financial statements and start talking through them. On the other end of the phone, your client is slightly confused at the sight of the balance sheet and profit and loss (P&L) statement, but you talk them through how they relate, and what key areas you pay attention to month after month, such as open invoices, undeposited funds, past due bills, and inventory balances. You ask if that was helpful to go over the financial statements in a meeting like this, and should you do it every month? That wraps up section four.

You can hear the wheels turning, and they ask you the inevitable question, “Looking at the net profit, I can’t possibly have made that much. Where did all my money go?” It’s time to talk about cash flow management. Reviewing the balance sheet, you show them how they paid old debt down last year and accrued new debt. This debt was paid down with net profits visible on their P&L. They seem interested to understand more about what you are saying, but for now, that wraps up section five.

Next, you tell them there is more you can help them with to enable them to build financial understanding. You start working through section six. The next meaningful conversation is how much money their family needs to survive each month, and how much money the business needs to bring in to support their family budget.

Lastly, you share that the next step is financial forecasting, which is all about creating goals and establishing a business plan. This is the conclusion of section seven of the worksheet.

Each month, you go through the same steps over and over, until it feels like an oiled machine, and both you and your client feel more comfortable and confident in talking through the numbers. In the beginning, you might find it’s easiest to work through only section four and section five until you are both ready to move on and conquer budgets and forecasting.

Be your clients’ FAS coach

In the end, the goal is to provide guidance to make better decisions. Regardless of their size, all businesses should understand their financial numbers. As these are key indicators of health and success, whereas large corporations have an internal CFO, the small business owner relies on the outsourced accountant for FAS. And, remember: FAS keeps the doors open.

A good coach creates accountability and discipline, using non-emotional data-driven insights to develop a roadmap. Over time, you will gain traction to drive toward forecasts, budgets and cash flow management. Even large profitable businesses can fail in the long term, due to a lack of understanding and monitoring of their financial health. All of this is within the wheelhouse of the modern accountant seeking to offer more Financial Advisory Services.

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