If the 2020 year taught business owners anything, it’s that many were drastically unprepared for the unexpected. As Wolfgang Schaefer, owner of Uncle Wolfie’s Breakfast Tavern put it,
“We were about to have our best year yet. Everything was planned for around that huge year. And there was NO contingency plan. None.”
When things are good, it’s easy to think that they’ll continue, right? That your clients will stay on for another six months to a year. That new leads will steadily increase month by month as your marketing takes hold. But ask any business owner who’s been around 10 years or more and they’ll all tell you the same thing. The downshift eventually happens to everyone.
So what role can your accountant play in navigating a difficult time?
At Revel CPA, we saw clients react to the financial challenges of 2020 in every way imaginable. Some pivoted and grew. Some fortunate ones were unaffected. Others went into a “hibernation” mode of sorts. We spent hours and hours on the phone during work hours, after work hours, on the clock and off. We took call after call until it felt like we were business therapists as much as we were accountants. Which made sense. Like most business owners, your business is their baby. It’s something you’re incredibly proud of and also worry like hell about. And when that baby gets threatened, when your employees are in jeopardy… you turn to the person that can help you try to make sense of it all. Your trusted accountant!
We’re going to share with you the three most significant ways that we added value with our clients in hopes that when the next crisis surfaces — whatever and whenever that might be — you’ll be able to turn to your CPA and ask for the same support. It might just make the difference between navigating these challenging times successfully and having to throw in the towel.
We understand your model
Your accountant is poised to help you analyze your business model because they know your numbers inside and out. They can help you break down your clients by revenue generated, or job profitability, and can advise on how to focus on the 20% of them driving 80% of your sales. They are keyed into your gross margin and can track to ensure that your direct costs are slowing down if revenue is as well. They get your key cost structures and can advise on the expenses that can be eliminated or trimmed back if you need to restructure to weather a challenging time.
By partnering with your CPA on your business model, they’ll help you understand what is so you can make better and more strategic decisions about what will be. They should be a financially-minded thought partner, that can even help you assess whether your product mix or the services you provide need to be paired down to focus energy on the few that have the best chance of keeping the business alive. So rather than running from the numbers because you’re afraid of what they might look like, take the bold step of scheduling time with your accountant. The insights you gain on your financial model will be well worth it.
We can provide visibility into other companies
No, not actual visibility into the other companies’ data. That would be terribly unethical and just a ridiculous thing to do. No, we’re talking about giving you general insights into what we see across our clientele. As a business owner, it’s not uncommon to feel like you’re on an island. Making big and little decisions by yourself, with only the information you can gather from your senses and experiences. You’re curious about what other people are doing, but only able to see the outwardly-shared elements. This is where your CPA steps in.
Your CPA will have visibility into a broad array of clients, and if you work with an accountant specialized in your field, the information is even more valuable. We were able to provide insights for our creative entrepreneurs based on what we saw through many segments of the creative and entertainment industries.
This could be something as simple as understanding and sharing trends in what we were seeing get booked out later in the year. Or when work was starting to pick back up. But it might also be ideas about how to connect with customers in a different way. Ideas about how to pivot. Or even just understanding labor trends and the like. All general industry knowledge, but a seasoned CPA should be able to add immense value to your conversations by providing a perspective that’s informed by a much wider lens than your own. So take advantage of that!
We can help you model for various scenarios
This was one of the most profound impacts we had with clients last year. Back in March of 2020, talk to your average business owner and it felt like the floor was slipping away from them and they didn’t know when it would stop. It’s easy at that point to back away and hide. To avoid looking at the numbers. To just react to each next week’s decline as if it’s something brand new. But for our clients, we pushed a very different approach: scenario modeling. Because when things get scary, what’s actually scary is not the numbers—it’s the uncertainty. And feeling like you’re no longer in the driver’s seat. Here’s how you change that.
Imagine the worst possible scenario. What does that look like? Losing 90% of your revenue? Clients taking 90 days to pay? What else? Lay all those horrible cards down on the table and let’s create a forecast around those assumptions. Then we make a lot of really hard decisions. A business can survive almost ANY circumstance if you’re prepared for it well enough in advance, so what are all the difficult choices you have to make in order to survive that nightmare scenario? It won’t be pretty, but all you have to do is make it out the other side.
Now, imagine a best-case scenario of this crisis. Maybe clients only decrease by 25%. Maybe they pay within 45 days. Be realistic, it IS a crisis, but let’s imagine the best possible outcomes. What do your spending and cash flow look like to support that model?
And last, we create a middle-of-the-road scenario to bridge the gap between the best and worst scenarios. You get the idea.
Now you have three plans — Plan A, B, and C — with decisions already made about what you need to do to survive whatever life is going to throw at you. You’re back in the driver’s seat, ready to execute. The difficult work is done for now.
This is the work of a strong relationship with your CPA and it’s our true hope that you take full advantage of this and many other ways that your trusted financial advisor can help you navigate challenging times.
How has your CPA helped YOU navigate difficult times, such as 2020? Share your comments below, and who knows, your experience might be helpful to a business owner just like you. Here’s to a brighter future and a more prepared tomorrow!