How well do you know the back of your hand?
posted on November 14, 2019in the Blog Category
How well do you know the back of your hand?
The phrase is something of an oddity within the English language and one we rarely, if ever, stop to contemplate. Knowledge of the topography of the backs of one’s hand is unthinkingly held up as the comparison by which we demonstrate to others how much we know about a subject. “Oh, Clacton-on-Sea you say? Yes, I know A-roads round there like the back of my hand.”
But how well do you know the back of your hand? Take a look at it now and you might be surprised. There might be a little freckle you’d never noticed before. A vein that bulges a bit more than you’d realised. Perhaps you’d never quite appreciated how hairy your fingers are.
Now, for a blog prepared by an accounting firm, this might seem like a strange introduction, but bear with us. The point we’re making here, is that the part of our anatomies we’re supposed to know so well we can describe it without even looking, can comprise features we had at best not appreciated and at worst, completely missed.
The above is true for something else, and it’s the reason we laboured on the hand analogy, it’s true for your business.
The cost of being open for one day
It’s a simple question but one that few business owners can immediately answer; “How much does it cost to open your doors each day?” In other words, what is the amount needed to cover wages, rent, utilities, stock, and shrinkage to cover opening hours for one day of trading? If it’s a figure you can’t immediately bring to mind, then not only are you not alone, but it stands to reason that there may be aspects of your business that you don’t know quite as well as perhaps you should.
However, this is not a piece intended to be a finger-wagging exercise about what you should and shouldn’t know. As simple as the above question is, we all know it conceals the reality of running a business day-to-day. Servicing customers, managing staff, organising suppliers, processing payments, overseeing various campaigns – not knowing exact cash positions and expenditure at all times is a forgivable offence, but where this knowledge is found wanting on a regular basis, it can quickly become a problem.
Indeed, even those business owners who can recall the figure needed to be matched each day to break even remain unsure of how to optimise areas of their enterprise that could enhance results. There exists a solution though, and it comes via a partnership that you already have, your accountant.
More than just tax returns
The relationship many business owners have with their accountant is purely a transactional one. As tax deadlines draw near, they hand over their books, pray there are no glaring issues, pray a little harder still that no nasty surprises surface and then pay for the service once completed.
Accountants though can offer much more. With them working alongside so many different types of businesses, they have an insight into what makes for best practice better than probably anyone. They also have an insight into your business which rivals your own.
Once a business owner comes to realise that their accountant is capable of much more than simple settling their tax affairs, the relationship takes on a whole new dynamic.
From accountant to business advisor
The ways in which an accountant can service your business – based on their extensive knowledge of it – are myriad. We provide just a few examples here…
Improve cash flow – Cash flow management is a critical business element that can be overlooked, particularly by start-ups. A company can quickly begin to experience issues if it does not have ready capital to spend, regardless of how profitable it is on paper. A good accountant will implement mechanisms to ensure your cash flow is robust enough to protect against risks and increase confidence among your investors and stakeholders.
As well as improving cash flow, many accountants will also provide cash flow forecasting, a vital strategic tool which allows opportunities and issues to be identified so action can be taken quickly.
Reduce your workload – Dealing with a business’ finances is a labour-intensive and complex undertaking. By off-setting it to your accountant, not only are your finances then under the remit of a specialist, but you are freed to concentrate on value-adding activities.
Support growth – There comes a point for those businesses who have secured a stable grounding when they will need additional funding to grow. Securing finance from a bank or other provider is a significant hurdle, lenders and investors want assurances that they’ll see return on their money. Here, your accountant can play a vital role in presenting a strong financial case to help secure those funds.
As well as helping achieve growth, a good accountant will also provide support should your business experience sudden, unplanned growth which can be as problematic as stagnation. An abrupt spurt can create all kinds of difficulties from cash flow management, to tax, to employment needs, to office space. In such a scenario, your accountant can help you react quickly and effectively and turn such growth into what it should be – an advantage.
Buying or selling a business – Mergers and acquisitions can be a quick route to business growth or to entry of a new market. If you’re considering purchasing a competitor or a complementary business, your accountant should be amongst the first people you contact. Not only will they assess the practicalities, they will also scrutinise the target company’s accounts to ensure everything is satisfactory.
Restructuring and managing change – Company restructures become necessary for all kinds of reasons. Whether it’s to improve efficiency or enhance competitiveness, your accountant can advise on the options and methods available for a restructure together with the associated benefits and pitfalls.
It is worthy of reiteration that accountants carry a wealth of knowledge derived from working with clients representing all types of business, and an experienced accountant will have seen most of the problems and challenges that you are likely to encounter. As a result, an accountant can provide an unbiased sounding-board for your ideas, warn you of potential risks and alert you to opportunities.
Running a business is demanding and knowing what’s happening in all areas, all of the time is more so, but with the right accountant at your side, you could learn to know it even better than you do the back of your hand.