Are you looking for ways to begin Strategic Advising as a service to small business clients, but are unsure where to start? The work can feel “big” if it’s new for you.
On top of that, you don’t always know what a client will want long term, so even if you’ve developed packages and menu based pricing, it can be hard for a client to commit to a package of services if they haven’t experienced any of it before.
Rather than feeling like you have to go all in, you can instead start out with some basic advisory services—things that will make sense for all clients, and that allow you a longer runway to get started. This approach benefits both your business and your client’s experience.
A broad look at Strategic Advising
In its broadest form, Strategic Advising includes the work of strategic and long-term planning, and the financial forecasting necessary to support such plans, with the end result being increased profitability.
Big businesses do this work all the time. It’s a collaborative effort between the executive team and the finance department providing financial planning.
But, small businesses don’t have this organizational structure. They have the owner, who is typically the “executive” of everything—including sales, technology, and operations! This business owner has engaged you. And because of that, they need your help and insights so they can be strategic about financial planning for their business’s growth.
Strategic Advising services can vary depending on how long the business has been in operation, and where the business owner is in their growth trajectory. For instance, a business that has been in operation for only one year will be focused in a more granular way on their expense budget, or other tactical things that have to do with stability.
A business in operation for five or more years can usually afford to look out a little further and plan for longer-term growth. Later stage businesses like this have the historical data to look back at their performance, which provides insight in forecasting.
In complete contrast, a high-growth startup will be looking at potential valuation from day one, and with no financial history, will still want to develop a strategic plan and forecast for things that drive aggressive growth, like marketing spend or development costs.
How to get started
Whatever type or stage of your client’s small business, the goal of Strategic Advising is to help plan for increased profitability and to manage a working cash flow (which centers around an up to date financial forecast), all the while providing an experience that emphasizes your value add.
This happens in a cycle of developing a financial plan (a forecast), and then meeting monthly to review the plan versus actual performance and look for places to make improvements.
But how can you get started in this work if it’s totally new to your practice? How do you do it, and digging deeper, if you are a bookkeeping professional versus a CPA, should you lean one way or another? I have all of these answers!
There are three places you can start that make easy inroads for clients, and also lend themselves to evolving into larger strategic services down the road. For these reasons, these services are all highly scalable and typically generate a higher profit margin than traditional compliance-based work.
1. Key performance indicator (KPI) monthly reporting
How you do it
Call this management reporting, or dashboard reporting, or whatever version you wish, but the objective here is to find a few key performance indicators (also known as leading business indicators) that will reflect business performance, and simply report on those each month.
Things like total revenue, gross margin, AR days, and AP days are all good leading business indicators. Take the average for the month and report on them, using a nice graphic and providing a written summary.
The key here is to pick the right metric. It’s not rocket science, but you do want to match metrics to business type. For instance, some businesses don’t have AR or AP at all. Some don’t really have a gross margin that is meaningful. But businesses that invoice customers should be tracking their AR days, and businesses that sell products should be tracking their gross margin.
Another popular metric uses a large expense category like marketing or payroll spend, reported as a percent of revenue. Those expenses usually make up the largest categories for small businesses, so tracking them can be very useful.
You don’t have to be a specific industry expert to know these things—you simply have to know how your customer’s businesses are operating, and what makes up their P&L, which you already do!
Why it’s good
This type of reporting is great for you because it’s simple and straightforward: you have the data. No forecasting is necessary. You can just provide key business metrics on things that really do affect business performance—it’s why they’re called key performance indicators!
These metrics are great for your clients because most small business owners (really, most people) get lost in financial statements. They are complicated and off-putting. But highlighting the metrics that matter can bring clarity. They provide a single point of focus and help connect the dots between data points and goals.
Who it’s good for
This type of reporting is a fantastic way for bookkeepers to get started in advisory type services. And for any type of accounting professional who is wary of having the dynamic conversation about business performance, this is nice because you put your advice on paper (or in software) and present it that way.
You have time to put together actionable thoughts and write them down. As these conversations grow over time, this type of reporting and conversational advice can naturally grow to the next level of service because you will become more comfortable with it and your client will be ready for more.
2. Benchmark versus monthly actuals
How you do it
Providing benchmark data is another layer you can add onto the key performance indicator reporting. Here too, you don’t have to provide a forecast, just an industry benchmark against the key performance indicator you’ve chosen. LivePlan provides industry benchmarks, or you can use a site like BizMiner. Simply report the benchmark next to the actual monthly average, and add your narrative.
Why it’s good
For your client, understanding how their business is performing against others in their industry is an added layer of information that can help reveal business performance issues—especially in expense categories like payroll and rent.
Who it’s good for
This added layer of reporting is a great next step for bookkeepers especially because it involves an added layer of reporting to the key performance indicators. The only qualification here is getting access to benchmark data that you trust, and often CPAs have more ready access to this type of data.
Again, LivePlan has a benchmark tab with thirteen metrics, and there are other online sources too, like BizMiner. If you’re part of a firm, ask if you have access to a service like ProfitCents.
3. Sales (revenue) only forecast
How you do it
This is the first category of work that involves any type of forecasting. But a sales-only (or revenue only) forecast is a fantastic way to begin. You simply forecast, by month, the sales (only) for the business.
You can do this at any level of detail that you wish—one line called sales, or a few different lines based on the types of revenue. You can even leave out lines that you are unsure about forecasting right away. The small business owner can help with seasonality, and you can provide your own knowledge based on what you’ve seen from their past results.
If there are unknown sales, (especially for service-based business this is true, like bids outstanding), a good way to handle these is to forecast them at the percent of “win potential” the business owner predicts (multiply the bid by the percent winnable). Usually 75%, 50% and 25% winnable are good categories. This adds some layer of revenue, based on some type of truth, without overstating or understating it. You’ve just done a little financial modeling!
Why it’s good
This type of forecast is great because it’s a very focused place to start. Sales are very concrete, and typically business owners can help quite a bit in predicting them. The forecast doesn’t need as much input from you.
But over time, as you report on the forecast versus actual and see gaps, you can be a guiding voice in helping the business owner learn and make decisions about how to meet their plan. And these types of conversations naturally lead to wanting to know more, which means eventually adding a full P&L forecast. And as you become more skilled and comfortable in forecasting, adding these layers will become more natural for you. Everyone grows together!
Who it’s good for
A sales-only forecast is perfect for anyone new to forecasting but comfortable in having discussions with clients about performance and asking questions—digging a little deeper than usual.
I believe that bookkeepers are actually uniquely qualified to do this type of work because they know all the numbers, usually by heart (am I right?)! But anyone who is interested in business performance and helping their clients think about sales can do this work. And as described above, this work naturally leads to more, because inevitably you will talk about the things that affect sales, like marketing expenses and manpower.
Want to do more—like cash planning?
The deliverable all small businesses want and need is great cash flow planning. Even though profit is just as important, especially for long term planning, small business owners are intimately tied to their cash in a way that is different from their profitability. They look at their bank balance daily—they feel it.
But in order to provide cash flow planning, you have to dig much deeper. You have to forecast revenue, COGS, and expenses, and then apply assumptions about collections and payables, and account for inventory if they have it. All financial roads lead to cash!
Good cash flow planning cannot be automated because there are too many business owner decisions and nuances in those decisions that must be applied along the way. But the building blocks can be modeled. And if done right, the building blocks will inform and enforce best practices in a business, like AR days and correct percentages of marketing spend to revenue (right back to those fundamental KPIs!). And that’s how the whole cycle really works so well together. Never divorce cash flow planning from the notion of broader business planning. It all lives together.
Beyond that, the ultimate goal of Strategic Advising is helping businesses maximize their profitability, and grow their value and net worth. Over time, as you become more comfortable with forecasting, you will see that all of these components are just one more piece of the puzzle. No more complicated really than the simple sales forecast you began with. Just steps on the staircase. Kind of like the notion that accounting for three million dollars isn’t any different than accounting for three dollars—it’s just where you put the decimal place!
You can certainly be great at Strategic Advising if you want to. Start where you are, and grow from there.
Kathy Gregory has over 20 years of experience in business development, including: financial forecasting, strategic planning, process development, project management, and mergers and acquisitions. She has worked in public and private, small to mid-size organizations doing business development, and strategic planning and implementation, working with executives, boards and their investors. At LivePlan Kathy runs the specialized program for Strategic Advisors. She is a graduate of the University of Oregon.