Which Financial Statements Have the Biggest Impact on Client Success?

Sometimes entering a new client engagement can feel like walking into a middle school cafeteria after a food fight—broken food trays are scattered all over the floor, there’s pudding on the ceiling, and a Salisbury steak stuck to the window. When every corner of the room needs your attention, where do you begin?!

Similarly, every business has its own needs, and part of your job as a trusted accounting advisor is to help determine what to prioritize first to lead to client success. For this article, we’re talking about client needs that are best served with various financial statements, reporting, and conversations—all that good stuff that makes client advisory possible.

As an accountant, you understand data is invaluable to how your clients run their businesses, but each client doesn’t necessarily know how important various data points are. Your firm likely provides information to business owners in the form of reports or advisory planning sessions, all meant to empower businesses to succeed.

But to make the most of your time with each of your clients, it’s important to know which details matter the most and how to get clients to see data in a way that actually makes a difference in their day-to-day decisions and operations.

Let’s take a look at a few of the key financial statements and data sets that best help your customers achieve success—helping you reduce churn, generate recurring revenue, and drive long-term value.

Income Statement and Profit & Loss

One of the two main pillars of reporting, the income/profit and loss statement is the lifeblood of the entrepreneur striving for profitability. But for business owners strapped for time trying to keep operations smooth, income statements are being glanced at just for the bottom line. So many important questions about expenses and revenues are answered here—so long as someone knows how to use it.

Why is it important?

• It’s quickly understood by business owners: For a business to understand its day-to-day operations, it has to understand its income statement. Whether it’s cost-cutting conversations or deciding if a marketing plan to build brand awareness is affordable, the decision runs through the income statement.

• It’s customizable: A business can customize an income statement to provide a wealth of information at a glance. Investing a small amount of time into segmenting revenue and expenses or other valuable extra information makes a P&L a business owner’s go-to report to understand their business.

How to talk about it

• Relate it to their operations: Everything touches the accounting practices of a business. As an accountant, providing value to a client means connecting the dots between line items and the success/failure of the business. 

• Frame the conversation properly: Provoke critical thinking in business owners by guiding them toward using past, present, and predicted data to enhance their decision-making. Maybe they have a high level of certain expenses that at one time made sense, but they don’t now, given how their business has changed. Framing the conversation so they understand what else was possible with that money can help them realize the real cost of stagnation. 

This is the kind of customer service clients are looking for—and are willing to pay more to receive.

Balance Sheet

The other pillar of financial reporting shows business owners what they have and what they owe. So long as this report is being reviewed regularly, business owners can stay on top of debts, decide whether they can afford financing, or explore the possibility of investing in new capital assets.

Why is it important?

• It separates personal and business accounting: Sole proprietorships are the most common entity type for small businesses by far and are only increasing in number. One appealing aspect of being a sole proprietorship is the ease of using personal money to fund the business. The down side for accountants? Getting an accurate balance sheet for tax time. But if you start the conversation early, getting it ready for tax time is a breeze.

• It better prepares clients for loans and investment funding: If a business is looking for funding, they’re going to need a balance sheet. But even before they submit an application, it’s important to go over what type of loan they’ll be offered and if it’s affordable. Take the time to talk about the balance sheet from the perspective of banks, financers, and investors.

How to talk about it

• Open up conversations to better structure the business: Did your client opt to start out as a C corp but are still using personal funds? Or maybe they’re a sole proprietorship worrying about the debt they’re personally liable for. Changing business structures can be costly and time consuming, but it can also be a massive benefit. It’s very likely not an option your client is exploring.

• Help further financial literacy: Once a client is familiar with a balance sheet, it’s time to start introducing easy but valuable ratios they can calculate. Their debt ratio can serve as a quick gut check as to whether they have a serviceable amount of debt. Once they have that down, maybe it’s time to introduce the quick ratio. You can effectively teach your client to look at their balance sheet like an investor or bank and completely change their perspective on their business.

Accounts Receivable and Payable Aging

Cash-basis accounting is inevitably simple, but it can also make a client’s outstanding receivables and payables a blind spot—if it’s not on the balance sheet, they likely won’t go out of their way to look into it. But not paying attention to these numbers can leave businesses in an unfortunate financial bind.

Why is it important?

• Poor accounts receivable practices ruin companies: 82% of small businesses fail due to poor cash flow management. When businesses are in a pinch and need cash, they tend to turn to financing and taking on debt. These situations are made even more difficult if they see outstanding receivables that could have prevented this problem in the first place. 

• Invoices go unpaid if not pursued: Small businesses are owed an estimated $825 billion in unpaid invoices. Many businesses are in a similar place, making debt collection calls a serious blow to operations. A business that stays on top of its AP can avoid these unexpected cash flow road bumps.

How to talk about it

• Build trust through explanation: Every business has outstanding payments, and there’s often a lot of emotion tied to them. There can be frustration, disappointment, or shame when looking through accounts receivables and payables. Reassure them that this is normal, and always keep the conversation coming back to the business.

• Sell your services: An AR service is kind of a no-brainer for businesses. Explain how much they have outstanding (on average) and the success rate of following up on debts. They’ll make more—likely a lot more than your fee (which you can then incrementally increase along with client success). 

An “Executive Summary”

If you want to up your services to the next level, consider creating an “executive summary.” An executive summary should be a one page report that covers all the main pieces of information you think is important. Whether your client is detail oriented or looking for the Cliff’sNotes version of their reports, there’s immense value in providing the most pressing information on a summary sheet.

Why is it important?

• Cuts to the heart of the matter: Business owners are strapped for time. If you want to maximize the effectiveness of every appointment, it’s important to set priorities and prepare the reports that serve them. The executive summary you provide should follow the same structure as the appointment and can be used to guide the conversation forward productively.

• An effective summary becomes a regularly used tool: Over time, your clients will become accustomed, or even reliant, on seeing that single sheet of paper each month. They’ll probably ask you to customize it with the data that best support their growth opportunities.

How to talk about it

Just the facts: Each point should be fulfilling some purpose. Prioritize these points based on whether it’s something actionable, the level of impact, and the timeframe of the action needed to be taken. Use this simple framework for deciding priorities: 

• • Start with small actions with big impacts
  • Move onto big actions with big impacts
  • Then small actions with small impacts 
  • End with big actions with small impacts 

Always keep that ratio of impact to effort in mind when prioritizing talking points.

Embrace the differences in clients: Each executive summary should be a reflection of the client. If your client is into numbers, always cite reports and have them on hand to back up your points. If they need something more tangible to learn from, provide hypothetical examples to get concepts across. 

Provide Essential Data Automatically

To maximize your service with every client and whip their metaphorical lunchroom into shape, you must embrace the fact that different data is essential for every conversation. Even over the lifetime of working with a client, their needs will change, which means different reports and data. 

But here’s the rub: you don’t want to be in the weeds compiling each report and running the numbers when technology can do that for you. Being a smart advisor means maximizing every moment, and there’s no better way to do that than through automation.

Plenty of firms are realizing the advantage that automation brings, and they’re saving loads of time and money doing it. Take DSJCPA, for example—the New York-based firm implemented automation and is now saving more than 92 hours of bookkeeping labor each week.

What could you save?

To find out, get in touch with a Botkeeper specialist, who will walk you through the ins and outs of the Botkeeping℠ methodology. And if you act now, we'll even send you a $25 gift card as a thank you for your time! Click below to get started.