Five disciplines of our most profitable clients

Working as a business advisor provides exposure to different company sizes, a range of industries, and a variety of management personalities. But I have noticed something consistent about our most profitable clients. They all adhere to five financial disciplines. And for these I can find no substitutes.

1. They maintain up-to-date bookkeeping. If this sounds like a lot of work, keep in mind that it involves somebody making no more entries than would be necessary if one were ultimately to catch up from being a couple of weeks, or several months behind. The work is identical (if not faster). The difference is in establishing currency as a business priority. What’s the advantage? One can produce financial statements that are more useful because they deal with what’s happening now in the operation instead of being out-of-date before they are printed. Inability to produce credible financial statements has a very high correlation with business failure in my experience.

2. They develop and follow expense budgets and a revenue plan (some might say sales goals). You’d be surprised how many “free spirits” find their way into the small business world where this kind of planning for them feels too constricting. They seem to believe that serendipity or fate controls business outcomes instead of contemplated design. There shouldn’t be any resistance to budgeting. Expense budgets are made to be changed, as long as the manager understands the impact on the bottom line. As for sales goals, I’ve seen in my own businesses the difference between the absence and the presence of reasonable objectives. Goals serve to unify employees and (when properly matched with even small incentives) help the company achieve what otherwise can be unreachable.

3. They establish and track relevant key performance indicators (KPIs). Every industry is likely to have different KPIs, for instance, average order size, number of items purchased per transaction, sales per employee hour, etc. The best managers develop systems to be able to monitor what’s crucial in their enterprise. Like an automobile dashboard that reports key information about a car’s status, a company dashboard helps keep the focus on what can lead to more profitable overall results. Even QuickBooks recognizes the value here, especially in the online version, with a home page display that highlights information of typical interest.

4. They benchmark their results against similar businesses. Certainly your closest competitor might not be anxious to disclose sensitive financial information to you. But I continue to be amazed at the information exchanged by competitors in some industries. Peer groups which orchestrate meetings between companies from different locales to facilitate a more candid flow of information are ideal forums, but membership, admittedly, can be expensive. But one needn’t be a member in this kind of arrangement to do any benchmarking. A studious evaluation of publicly available information on the web can serve to motivate a manager just as well.

5. They seek out and use professional accounting services correctly. There’s obviously a big difference in training between a Certified Public Accountant, an Enrolled Agent or a business tax preparer. In this era of significant changes in tax law and IRS regulations it takes little imagination to see why our most profitable clients all have relationships with CPAs. But the engagements usually go beyond just tax preparation. Our top clients are seeing their practitioner routinely for business planning and/or financial analysis. If your company’s interaction with a CPA is limited to dropping off records and picking up completed tax returns, either you have not chosen an ideal accountant or you’ve shortchanged yourself by not engaging for more beneficial services.


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