Transformative Financial Awareness is Within Reach


Financial Awareness Offers a Distinct Advantage

What does it take to run a successful business? First, a unique value proposition must find its demand within a given market. Next, business operators must organize workflows and manage teams in order to execute that value proposition consistently. Even when a business is firing on all cylinders as an operation, attention must be given to sales, hiring, and all manner of process improvements that grease the wheels of their profit machinery. 

Good business operators are obsessed with efficiency. And not because they love to nitpick (hopefully). It is because actions that improve efficiency make everyone’s labor more fruitful by maximizing profitability. Efficiencies help reduce costs, and where costs are reduced, profit is increased. Those increased profits enable investments in technology, equipment, wages, and advertising, all of which improve growth potential for businesses.

So where are such efficiencies found? Simply put, opportunities for efficiency are found in the analysis of financial performance metrics. With higher levels of detail in financial reporting, business owners are able to identify more areas for improvement. Greater financial awareness also highlights the most potent investment opportunities.

Most business owners understand that it is best to practice informed decision-making. Even so, many are not aware of the level of information they can access through financial reporting. In these cases, they may wait until they reach a pain point before hiring additional help for financial management.

Challenges that Demand a Response

There are many reasons why a business owner would invest in financial management. The bulk of those reasons can be classified as growth-related challenges. Most businesses are built to grow. And with growth comes complexity. Greater volumes of financial data demand more attention from business operators, stretching their time thin and straining their ability to manage day-to-day operations.

Owners and operators who are unsure of the accuracy of their financial reports experience underlying anxiety with each decision. Conversely, decisions backed by financial metrics are made with confidence and peace of mind. 

When businesses prepare to file their taxes, apply for loans, or establish a sale value, operators often experience a sudden wake-up slap. The IRS demands a certain level of financial detail that is non-negotiable. Banks and potential investors go even further, demanding clear business plans and revenue projections. Anyone who has had to spend an entire weekend manually entering data into their accounting system will attest to the value of regular, thorough reporting processes!

The Fundamentals of Financial Reporting and Common Mistakes

Most business owners are only concerned with their profit and loss statements. The P&L shows you how much money you made from business operations in a given month. As important as the P&L is, gross profit and net income are often misrepresented in these statements. That’s because of some common inaccuracies that occur in balance sheets

For a profit and loss statement to be useful, the balance sheet must be accurate first. A balance sheet is supposed to state a business’s assets and liabilities clearly and completely. Such a document is appropriately stated when:

  • Owned assets are truly the items shown
  • Liabilities are reconciled so it shows a true picture of what is owed

If either side of the balance sheet is inaccurate, their resulting profit and loss statement will be off-base. For instance, loan liabilities are often misreported. 

Every payment to your loan provider is split between principal and interest. Businesses commonly record entire loan payments as an expense or record the entire payment against the loan liability. Correctly reported, only the principal payment should count against the loan liability. By including your interest expense against the loan balance, you have understated your expense in the profit and loss statement.

One more common error I see on balance sheets has to do with payroll liabilities. Businesses will record net paychecks as an expense, even though a portion of each check is actually a payroll tax liability. When tax payments are made, including employer and employee taxes, the owner might report all of that as tax, which is incorrect. This simple mistake results in underreported wages and overreported taxes. 

A whole host of technical errors can potentially throw off your profit and loss statement. Advantage Insights helps our clients produce fast, accurate financial reports all year through consistent, repeatable processes. The accuracy and detail of that information is game-changing for business decision-makers.

The Right Information Changes Everything for the Better

As I have outlined in previous blog posts, many of my clients perform work on project-based contracts. For them, the ability to view profitability metrics by specific project or customer is transformative. 

Project-based businesses perform a detailed estimate process to set bid prices. However, without a granular understanding of their profit margins on a project-by-project basis, they are unable to clearly confirm their bidding process. 

Businesses can find success without an optimized bidding process, but they are leaving money on the table. Bidding practices can be refined with profitability breakdowns. That’s because costs for labor, materials, insurance, fuel, etc. can all be tied to specific projects. 

For long-term contracts, price increases may be necessary after 1-2 years. With detailed profitability reports, operators can raise prices with confidence and explain those increases to their clients with a greater level of detail.

Transformative Financial Awareness is Possible. What’s Holding You Back?

Business owners are some of the most independent thinkers I have met. Many of them find success by doing things “their way” with a high level of involvement in the daily management of their companies. When challenges of growth begin to test their ability to manage every aspect of their business, smart operators seek reliable help.

Competent financial management is rare and, in many cases, expensive. Many business owners find themselves in need of financial management services, but unable to afford a full-time specialist. In such cases, they may hire fractional financial management services, but this is not a silver bullet.

Owners and operators must have the desire to gather and use financial data to their advantage. They also need a team of committed and competent professionals in place to do the work. Consistent, repeatable reporting processes require buy-in from leadership and staff. But once those processes are in place and regular financial reports are available, everything about running a business gets better.

When my clients see the benefit of thorough financial management, they are able to invest more of their time and attention into strategic planning. Not only that, the time they spend looking at the big picture is so much more valuable because of the data we provide.

For the health of a business, its owners and operators must have time to plan, manage, invest, and review performance metrics. By getting help with time-consuming financial management objectives, owners receive the gift of time and confidence in their reports. And for owners who eventually want to sell, more detailed reporting provides them the data they need to prove the value of their business!

Achieve Superior Financial Awareness with Advantage Insights

Advantage Insights helps our clients establish solid accounting processes. We focus on areas of need first, then we work to illuminate areas of interest for owners and operators. This process begins at the highest levels of financial visibility, working down to more granular detail. Solid accounting is the bedrock of everything we do.

We work one-on-one with clients and teams to establish process flows and workflows tailored to their work styles and schedules. The transition can be bumpy at first. Change is scary but worth it. That’s why we are more hands-on with clients at first, working toward a more automated process.

Make decisions based on true financial results rather than gut feelings. By doing so, you remove the stress of not knowing. Detailed financial reports give you the lay of the land, like a map. With this information, you can chart the future of your business, step by step. With less information, you make decisions like a lost tourist, squinting at street signs in your path.

Advantage Insights delivers reports on a monthly basis that help you identify problem areas and understand monthly performance trends. Our clients compare budgets to actual performance with succinct reports that zero in on what matters most to their bottom line.

Every business is unique, with its own challenges and internal culture. If you want to know how Advantage Insights can help you address your own unique challenges, reach out. We offer free consultations to explore how we can help. Click the link to request a consultation or contact us to learn more.

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