Before choosing an accountant to handle the nuts and bolts of your business’s numbers, first you might want to interview the accountant and found out how they conduct their own business matters. We visited this topic in a more general overview in the past, but this time let’s take a more in-depth look at questions to ask your accountant next time you see them. So, here we go with the four questions:
- What is my breakeven point?
This refers to the level of sales required to fully cover general business overhead. It is the point where you start to move into profit. Depending on your business, you might break this down to monthly breakeven, or even weekly or daily. It is not as simple as it might seem, since some costs vary with sales volume, whereas others are fixed. A good CPA will be able to analyze your cost structure and let you know the level of sales required to break even. Depending on your business, if your average transaction value is predictable, you will even be able to break this down further into units required to be sold. If you don’t know these numbers, be sure to ask your accountant to do some work on it for you.
- What drives my revenue?
If you ever think that you need to increase sales, would you know where to start? What are the key drivers of your revenue? In many businesses, revenue can be broken down into the number of customers x transaction frequency x average transaction value. It may or may not be that number for you however. Ask your accountant where you should focus your energy. It could be in one or more of the following areas:
- Retaining existing customers
- Generating new leads or inquiries
- Converting leads to new customers (or new jobs)
- Getting customers to buy from you more frequently
- Analyzing your pricing
- Looking at ways to sell more every transaction
There could be a variety of strategies to look at here. Let me pick on one for the benefit of this discussion – pricing. Too many businesses have very little knowledge about the impact of pricing on their sales. Many businesses offer discounts to people who don’t even ask for them, for example. On the other side of the coin, business owners make assumptions about increasing prices that often lead to them leaving money on the table. Ask your accountant – at my level of gross profit margin, if I increase my prices by 20%, how many of my customers could I afford to lose before I am any worse off? The number might surprise you – and help you with your pricing strategy.
- Are my financial results good, bad or indifferent?
Some accountants have a process to take you through an analysis of your financial performance each year, pointing out key ratios such as gross profit percentage, days locked up in receivables and inventory and others. But the question to ask is, is that good, bad or somewhere in the middle? Who knows, for example, if a gross profit of 42% is where you should be? Ask your accountant what the trends are like – is the number increasing or declining, or steady? And depending on the response, what is the accountant’s insight as to why that might be happening.
Equally as importantly, ask about benchmark data. Comparative data by industry is becoming more readily available. A knowledgeable CPA can easily access key industry benchmarks and compare your business to the ‘norm.’ You can then have a quality discussion with your accountant about what action you might take to fix your weaknesses and, more importantly, build on your strengths.
- What are your most successful clients doing?
Why not ask your accountant what their observations are on what their top 10 clients are doing to make them successful? It is a great question to ask, and if you pick up just one idea that you could implement in your business to improve your results or take you to still another level, it is worthwhile.
In many small business surveys, the accountant is cited as the most trusted advisor. Make sure you choose an accountant who will give you the guidance you deserve to help your business grow. If you have questions about choosing a right accountant, Williams & Kunkel CPAs can help. Call us today in Flower Mound at 972-446-1040 to have a chat.
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Source: Colin Dunn, Panalitix