What an accountant should know about a small business

As an accountant, you can be invaluable to a small business. The owner or director may rely on you to help them make sound financial decisions, and you have the knowledge and experience to be able to make savings across their business.

So what should an accountant know about a small business, when you’re working with them? This article will look at the following areas to demonstrate what you should know about your clients:

• How the small business works
• Their stock management system
• What do their expenses look like
• How healthy is their cash flow 
• The business goals

It’s important to understand what the business operation is, and what the day-to-day activities of the business are when you’re working with their accounts. If you can, make a visit to their office or premises, or have the client walk you through how the business works, so you have a clear understanding of their operation and the moving parts that go into making a sale.

By having a clear understanding of what they do, you’ll be able to examine each area of their work and find ways to save the business money or streamline processes for the client. You could look at anything from their manufacturing costs, if they are product based, or supporting with finding software to help a services based client manage their invoices and sales funnel. 

If you deal with a client who is product-based, then a really important area for them could be their stock management. Smart inventory management can be very important to a small business because with too little stock they can lose out on revenue — and the reverse is true as well, that with too much stock comes more cost to store it as well as having to deal with damaged or spare stock.

If you have a clear understanding of what a client’s stock levels and sales demand look like, then you should be able to offer some valuable insight on how the business should manage its merchandise. For example, you might find that if they choose to keep more stock, they could make long-term savings by buying in bulk from a supplier and their storage costs could remain the same.  

Another example is you might also notice that certain items have much higher turnover, but often go ‘out of stock’ for a period while the client gets hold of more. You could recommend changing the amount of stock the business keeps at any one time, because you can see the customer demand is high and the items will likely keep turning over at the same rate.

Many small business owners may have zero experience in keeping reliable books, and so this is one of the main reasons they may hire an accountant for support. The client might even have little knowledge of what they are allowed to expense when it comes to their tax self-assessment. If you have a thorough knowledge of their business operation and how the client works, then you will be able to pre-empt the expenses they might incur while trading.

For example, you might have a mobile hairdressing business as a client, and the owner might not understand how they claim back on petrol costs for their travel between client’s homes. This gives you an opportunity to save the client time and money, by offering advice on how to keep note of miles travelled, as well as a sensible filing system for petrol receipts. This will make both their record keeping, and your job much easier when it comes time to claim back their tax. 

One of the main tasks you may have to perform for a small business client will be to plot their cash flow and create projections for future revenue. You should know their numbers inside and out to be able to create realistic projections and cash flow statements so that the owner has a very clear picture of their business’s financial health. Without this, the owner may make decisions that won’t pan out long-term or could be missing out on opportunities to grow. 

Once you have a thorough understanding of the cash flow for a client, you’ll be able to support them in creating contingency plans for periods that have lower cash flow. You may also be a valuable resource for the client if they need to source a loan or investment to improve negative cash flow, as you’ll be best placed to recommend a plan of action to them. 

It’s important to find out early on in your relationship with the client what they want to achieve. You might be able to help them set some goals if the client is just starting out on their business venture, and they might even benefit from you providing them with some key performance indicators (KPI’s) for them to measure their success.

An accountant can add real value to a small business by identifying growth opportunities. Once you’ve got a strong grip on their financial figures, as well as an idea of what they want to achieve in business, then you can highlight areas that can grow the total revenue and allow them to scale up. On the flip side, you might notice areas that are holding the business back and you can offer advice on how to remove these blocks.

A big step for a business is hiring a new employee, and you can support strategic hiring for your business depending on their business goals. You can examine the figures and find out what areas would benefit most from an employee to save the owner time overall. 

You can save your practice time on manual admin and help your clients keep organised records with Countingup’s free accounting software. It’s built specifically to help you manage your self-employed and sole trader clients.

Countingup’s accounting software is MTD-compatible and full of features for you to efficiently review and manage client accounts with direct access to their real-time organised data.
The business current account and accounting app automates time-consuming bookkeeping admin for your clients so they can focus on running their business—and send you accurate, structured data to work from. Find out more here.