Here is a situation that I know many owners of small and medium-sized business go through every year:

It is just short of six months after your company’s year-end, and you have a meeting with your external accountant (CPA) to go over the financial statements they prepared for you. It was so long ago that you have a difficult time remembering what happened last year. From what you do remember, these statements don’t look at all like the reports your bookkeeper gave to you at least a month after your year-end and you were told that “everything is in there”.  Even then, you had a hard time making any conclusions from this report with a single column of numbers and you knew you couldn’t trust the profit amount because it always changes drastically when your CPA does his or her work.

When you look at the statements from your CPA, they don’t mean very much to you either. You skip over the Balance Sheet because you don’t understand it. On the income statement, you see that your sales were higher or lower than last year and you look to see if you made any profit, but not sure if it is a good amount of profit or not. You didn’t plan for the amount of profit you wanted to earn, so you had nothing to compare it to. When there is a profit, you probably ask yourself, “where is that money?” “Shouldn’t I be able to put my hands on it and reward myself for all the hard work and the problems I was able to overcome?”

One business owner I know told me she asked her CPA how to increase the business profits and all he said was to increase sales. This made her feel dumb because it seemed like such an obvious answer but at the same time it isn’t that easy and, in some cases, increasing sales can decrease profits.

This is not the CPA Firm’s fault in most cases. Many company year-ends are at the same time and they get so busy that it becomes very difficult for them to do a quick turnaround of your statements. To make things even worse, many company year-ends happen around personal tax return time, putting further demands on their resources. Then there is the fact that most companies are slow to get the information the CPA needs to do their work and then they all come in at once. The CPAs become stressed and overworked, providing them with little time to get to know you and your business, and not able to provide you with the attention you really need.

What is the solution? How can you get timely, accurate, and understandable information that helps you to make sound decisions, truly understand what is working and what is not working in your business, and be in better control of the level of profits you end up with at the end of the year? Here are the five steps I think you should take:

First, you need to plan for your profits. Create a monthly forecast that incorporates all of the activities and required resources to achieve your targeted sales level. You may need to understand where your company is making profits, where it isn’t making profits, which expenses are fixed, and which expenses change with the level of sales (variable). If your desired profit is not calculated on this forecast, determine cost savings and efficiencies that need to happen to get to your desired profit.

Second, recast your internal financial statements so that they compare actual results to this forecast each month and show financial ratios that indicate your business’s financial health and progress to reaching the targets you set.

Third, have your bookkeeper with the help of a Senior Financial Advisor, make journal entries to your monthly statements to record sales and related expenses in the same month, accrue expenses like depreciation and month end payroll expenses, and make adjustments for prepaid expenses each month. These are entries that your CPA would do long after the year-end. Processes should be put in place so that accurate statements are created within two weeks after each month-end. This will enable you to have a very good handle on the performance of your business throughout the year on a very timely basis, allowing you to make sure you are on track to reach your planned profits.

Fourth, since you will now be getting timely and accurate monthly financial information after making the above changes, there will be very little difference to the statements your CPA will provide, and you will get it from them much sooner because all the working papers they need will be prepared by your Financial Advisor and you can then provide it to them soon after your year-end.

Fifth and last, because you planned your profits and tracked the performance against that plan each month, you are much more likely to reach that planned profit. If you set aside that profit in a separate bank account, then you will be able to put your hands on it and give yourself the reward you deserved so much.

If you have any questions about this or would like help implementing this in your business, contact Kevin at kevin@copiousinsights.com or (226) 791-0374 to arrange a no-obligation conversation.