An Accountant’s Perspective: Is Your Business in the Black or Just In The Dark?

Today, we’re sharing the unique perspective of Stacy Kildal. Stacy is an Advanced Certified QuickBooks ProAdvisor® and a member of Intuit’s® Trainer/Writer Network. She was named one of the CPA Practice Advisor’s “Most Powerful Women in Accounting” (2012-Current), an Intuitive Accountant “Top 100 ProAdvisor” (2012-Current) and one of Accounting Today’s “Top 100 Most Influential People in Accounting” (2014) … all of which is simply to say that she knows a thing or two about serving small businesses.

Over the years, I’ve had a lot of clients reach out to Kildal Services , asking me to help them with setup, training, cleaning up their data or monthly bookkeeping, and sometimes, I’m asked to do all of it! Each client was unique; most of them had stellar products and services and were fantastic at making or providing those items. Some have succeeded wildly, and some are just, well … gone.

In my experience of working with hundreds of small businesses over the years, I’ve seen a few common traits for those owners who made it through the ups and downs of the first few years and have remained successful. They all did the following, so if you want a shot at being part of the 50 percent of small businesses that survive, take a minute and ask yourself if you are doing these things:

1. Delegate until it hurts: Recognize that if you are going to make it, you cannot do everything yourself – and you shouldn’t. The ones that succeed surround themselves with great people and let them do what they do best.
2. Work with accounting professionals: We’re here to help. Really. Find a local bookkeeper, tax preparer and tax attorney you trust, and use their expertise to help ensure your business is set up properly, compliant, and keeping accurate and timely records. We know you started a business that was your passion, and we know that taxes and compliance are not your passion – but they are ours. Really.
3. Pay attention to the data taken from that record keeping: Make sure you are currently managing the business to meet your goals, and to guide you as you make future planning and decisions.

I recently did a webinar for the wonderful people at SCORE.org . I spoke to the attendees about that last item and about Key Performance Indicators, or KPIs, that can be used to gauge the health of their businesses. What the heck is a KPI? It’s just a tool that measures how you are progressing toward your goals. And, yes, you have to have specific, measurable goals in order to know how you are progressing toward them! Don’t laugh; I can’t tell you how many clients I’ve had that only look as far ahead as the end of today – and call that business planning!

We discussed the four critical questions business owners need to ask themselves in order to find out whether they’re in the black or just in the dark:

1. What key numbers/indicators should I be looking at? 
2. What do they mean?
3. How can I use these numbers to guide my day-to-day decisions?
4. How can I stay tuned in on the health of my business?

One of my first clients told me the best thing I ever did for them was translate what his previous accountant had been telling him into REAL ENGLISH. For months, the accountant instructed him to look at a series of reports to see how his business was doing, but the accountant was speaking in “Accountanteze” and never explained how to decipher what the data in the reports was trying to say. Sometimes, the data is SCREAMING to a business owner that there is a problem, but if the owner doesn’t know how to read them, the message and warnings go unnoticed. My client said he was too overwhelmed and intimidated to say that he just wasn’t quite getting it.

Whenever I do training with small business owners, I always try to give real examples of how product features in solutions, such as QuickBooks® Online or reports, can guide your business strategy and key decisions. There are 10 key performance indicators that will answer those four critical questions that monitor the health of our business, essentially helping you discover if your business is in the black or you’re just in the dark.

The 10 key performance indicators that are most important to you are:

1. Revenue: The income your business has earned from the sale of your goods and services.
2. Cash Flow: The money left over after subtracting expenses from revenue.
3. Current Ratio: Your ability to pay your bills.
4. Cost of Goods Sold: Any direct costs incurred in producing products that were sold during a specific period.
5. Gross Profit Margin: Money left over from revenues after subtracting the cost of goods sold.
6. Net Profit: The bottom line, as in the amount of income left over after you’ve paid all of your bills.
7. Net Profit Margin: What percentage of your revenue was profit.
8. Aging Accounts Receivable: What your customers owe you, sorted by date.
9. Total Inventory: All of the products your company has: raw materials, work in progress and finished goods that are ready to be sold.
10. Profit and Loss Statement: Snapshot of your company’s income (sales and revenue) minus expenses, during a specific period of time.

You can, and should, use these on a daily basis to keep your business on track to meet your goals and make better decisions – both short and long term.

So, how can you stay on top of all of this?

1. Make use of free or low cost resources to help with planning. For example, seek programs such as SCORE and their mentoring program, business tools, and workshops. Seek out your local Small Business Development Center for training on developing business plans, marketing, accessing capital or technology development.
2. Find an accounting professional. Intuit has learned that 89 percent of small businesses say they are more successful when they use an accountant (and by accountant, we mean any sort of accounting professional: bookkeeper, CPA, enrolled agent and/or ProAdvisor). We can help implement that business plan, design your back office systems, and keep your books clean and up to date with reliable data.
3. Don’t treat your accounting and bookkeeping as an afterthought. Listen to the advice of your mentor or your ProAdvisor, and find an accounting solution that fits your needs, whether it’s QuickBooks Self-Employed, or QuickBooks Online with an inventory app. You can’t get good numbers without good software!

If you’re a small business owner like me, not knowing if your business is in the black or in the dark will keep you up till all hours of the night wondering. By paying attention to your key performance indicators, you’ll know where your business stands today, how to plan and make better decisions for your future, and here’s a bonus: you’ll sleep much better at night!