Guest Blogger Paul Polito

Often, out of ignorance mostly, clients put their accountants in a box and won’t let them out. I have experienced this. Once a client gets it in their head that “Polito is our tax guy,” it’s really hard to shake that image. Our profession has so much more to offer!

When I was in the publishing business, before I knew what accountants did, I was the same way. I called my accountant for tax stuff and little else. I failed to take advantage of his years of knowledge and experience. That business never flourished!

Many CPA’s start their careers as auditors for national firms auditing financial statements. That is extremely valuable experience. Frequently, after between 2 to 5 years, these auditors join public companies as controllers and chief financial officers…and, a significant number go on to become CEO’s of large public companies. Indeed, there is a lot more to accounting than financial statement preparation and tax compliance!

About 10 years ago, we developed a service for a number of clients who had what I term “technician syndrome.” These clients knew their particular trade or business and were fairly successful at it, but knew nothing about the financial condition of their company. They had no idea how they were really doing. If there was cash in the bank, things were ok. Actually, they were in a contest with their competitors but they weren’t keeping score! In many cases, they didn’t understand the scoring system!

With the help of my associates, I developed a series of graphs and reports tailored to each particular business. We find elements of the financial records that if measured, could provide tools to gauge the success of various strategies. We call these” Key Performance Indicators” (KPI’s). We model the effects of slight changes in these measures. What would happen, for example if the company could increase margins by one percent? What it would mean to the company, its owners, its employees, and other stakeholders? We benchmark the clients by industry and size so they can see how they are doing compared to their peers.

We meet with these clients quarterly to go through the financial statements and the special reports that we designed specifically for that client. At first, these meetings were the only time the clients seriously looked at their financial data. The meeting is a really important part of this service. It takes fairly deep study and analysis to really utilize the data. This analysis coupled with the prodding of a seasoned professional outside the business, provides a stimulating atmosphere for new ideas on how to improve the business. The brainstorming that goes on in these meetings is extremely valuable.

How do we use the data?

Using break-even analysis, we illustrate profitability scenarios. We work with clients to develop budgets that support their strategies and we develop financial tools to measure the effectiveness of new strategies. We develop forecasting models which our clients can use to project income and cash flow, and finally, we do tax projections with cash analysis so that the demand on cash for any suggested tax strategy can be quantified in cash required and cash saved.

To a non-accountant, this stuff is daunting. I am convinced that one reason some businesses can never “break through” to that proverbial “next level” is because they fail to make full use of their financial data. By meeting regularly, even on a quarterly basis, for the sole purpose of assessing the performance of the business, clients tend to be more engaged, execute strategies more consistently, and frankly, make a heck of a lot more money! In the final analysis, we are helping them keep themselves accountable by orchestrating the reading of the scorecard.

At this time of year when we “resolve” to improve, it’s a great time to develop tools to measure business performance and get very intentional about the way we run our companies! How’s this for a New Year’s resolution…call your accountant and ask him or her how they can help you better measure your performance. You might be amazed at the untapped resource on your team!

Our thanks to guest blogger Paul Polito. You can learn more about his practice at PolitoEppich.com.