Turn your accountant into asset for your ecomm business

Accountants have this really important role within an organisation, which is to provide accurate financial data and insight or for accurate financial data. Usually, the relationship revolves around closing the books each month, so getting you to a completed financial statement of actuals once the period has closed. And then also it often has a lot to do with tax preparation, so it has to do with tax planning and making sure that the tax returns for HMRC are legally compliant and accurate at the year-end.

Occasionally, accountants may become involved in transactions or liquidation events to ensure accurate and compliant financial records.

And that is a lot of times the sort of nature of the relationship is, again, it tends to focus on compliance and accuracy of information as the gold standard of what they're attempting to accomplish.

However, there is so much more to it. Below, I'll share a few suggestions on how to make your accountant a valuable asset, helping you better understand your finances and make informed decisions based on data.

1. Understand your financial reports.

There are three main reports that you need to ask for and see every month: the Profit and Loss, the Balance sheet and the Cashflow statement. You should develop a habit of reviewing them monthly with your accountant. And if you don't understand a single line in these statements, ask a question. This is your accountant, your consultant and adviser. If you don't understand the advice or what it means, you should ask.

You will be surprised how many business owners receive their management accounts, look at the profit, and that's it. They don't understand many of the lines and figures, but they never ask because they are embarrassed, confused, or just don't care enough.  The first few monthly meetings with your accountant should be a constant exchange of questions back and forth. Your accountant asking questions to understand your business, and you asking questions to understand financial performance. There has to be interaction; don't just receive things by email. Establish a habit of reviewing line items together to ensure you understand them, so you can present them to your management team as needed. I am shocked how many business owners and even CFOs don't know what each line references. That is not allowed. You, as an entrepreneur, are not allowed not to understand. You need to know what every line item represents in your P&L, on your balance sheet, etc. Ask questions, and I promise you, you will find costs that you didn't know were there, or they are not what you thought they were.

If you could commit to spending an extra hour reading each financial document upon receipt and reflecting on how to strengthen your relationship with your accountant, I believe your business would greatly benefit.

2.     Speed and timely, frequent meetings

There is no need to wait for the quarter end or the year end to see your accountant. Monthly management accounts provide the tool to generate ongoing insight and action to make your ecommerce business better,  and speed is of the essence. Set timeframes for when to expect your month-end to be closed.  With today's technology and especially if you have only one sales channel, it is reasonable to close the books within 15 days of the previous month's end and demanding that is really important because you need that information to make decisions on a go-forward basis. I actually have a client whose turnover is in the mid 7 figures, and he gets his management accounts on day 10 after the month end. Later, when I talk about the reports, I will explain why it is essential to receive them ASAP.

 You need to make sure that your assertions about things like your COGS, your actual OpEx, and your expected profit from the previous period are exactly what you thought they would be. And if not, you probably need to make changes. And so it's really important that speed and accuracy are components that go together. For your accountant to produce these monthly reports, all records like invoices, receipts and credit notes must be provided on time.

Occasionally, some can be missing or delayed. Then there is the concept of materiality.  Is the missing invoice material and how much does it alter something, so that the context of the accounts changes? I always encourage my clients to provide all the information for the month, but I would not sacrifice the speed of preparing the management reports for something that is not material. If your employee is on holiday and can not provide the receipt for a coffee she had with a client, that is fine. It is not material and not a reason to delay the management reports. Again, there is no need to sacrifice speed to get down to the penny accuracy that isn't material. If I were the entrepreneur and my books couldn't be closed within 15 days, I would ask what the reason is, and whether it is material or not. If yes, then we need to look into the company's systems and procedures to provide all information on time. If not, I would expect to receive a full set of management accounts on time so I can review them with my management team the next day and see if there is anything that causes us to change the plan.

 The concept of materiality is specific to each business. Feel free to discuss with your accountant what is material and agree on it together. Ask for your accountant's opinion and view during monthly meetings.

3.      Increase Specificity in Your Chart of Accounts

The Chart of Accounts is the way your accountant groups items by type of expense, asset or liability. The problem with grouping is that sometimes it hides individual changes that are surprising for the business owner. If you are a 7 or 8-figure business, you want it customised to your business and as detailed as possible.  You want to see more individual items on your Chart of Accounts. I will give you an example. Many times when I look into management accounts, I see a line item "Advertising media spent". I provide the breakdown like "Meta ad spent", "TikTok ad spent", "Google ads spent", Pinterest etc. By doing so, one of my clients noticed that the payments to Meta were 20% more than what was expected. Drilling down, she realised that one of the marketing consultants did not stop an ad for promotion that had expired. They were still paying for a sales campaign when the sale was over. Not only were they paying for it, but the clients who clicked were most probably disappointed, because in the ad, they were promised something that does not exist.  Because that business spends a lot on other advertising channels also, if it were all grouped by one heading, most probably it would have been unnoticed, as the total cost for marketing is much higher. This also happens with Software subscriptions, where everything is bundled up. Some accountants can be a bit lazy and use one cost centre for many vendors and group things. You need to make sure that the Chart of Accounts they provide you with serves your business, and if it doesn't, change it so it does.  Tell them in advance if there is something specific you need to monitor, if there is a new project coming, and you want to pay more attention to it. I have a rule for 7 – 8 figure businesses: if it is more than 1% of the monthly turnover or more than £1000, it gets an individual line item. For smaller companies, if it is more than £500. I want the business owner to see more individual items and fewer groupings. You need to know every single cost that exists. That creates a long and messy Chart of Accounts and reports. Not necessarily. I provide a summarised short version of the P&L and also the long version, so you, as the business owner, can go and see the details.

4.     Ask to see your P&L in percentages.

Every cost should be represented not just as an amount in pounds, but also as a percentage of your turnover for the month and compared to the average monthly percentage and the budgeted percentage. You should have the opportunity to view your entire P&L as percentages. What you are looking for are changes in cost as a percentage of total revenue. When you are looking at £££ only, it can sometimes be hard to understand if £76,000 is the right number.  But you know your margins and what they should be. You know your gross margin, you know your net margin, and you know your advertising spend should be 10% of your revenue.  By looking at the cost as a percentage of the revenue you start thinking like "OK, my OpEx was 35%, now lets see what percent are the salaries, what percent are the other subcontractors, what are the other marketing costs and which one of those I need to go after and improve, so I can get to the net margin I need" And that is part of the larger principle, that these numbers only matter in terms of relativity to each other and not relative to absolute standards.

You can start setting goals like "I want my net margin to be 25%! So my payroll cost should be 45%  of revenue, my other Opex needs to be 12% of revenue, and X should be no more than 3% of the revenue. And if I can accomplish that, I can be in a place where I can achieve a profit of X%".

Similarly, you can think about the relationship between sales and marketing. Think about how all these costs affect your sales and profitability, and how they are related to your forecast. You can start asking questions like "If I hire this salesperson now, will that break the boundary I have set and for how long? What will be the net benefit after 3 months, 6 months and a year?"

By looking at your costs as a percentage of the revenue, you start to get a better sense of what the cost should be versus these random pound figures that are really hard to understand how they sit within the context of your business.

5.      Non-financial metrics

A good accountant will look into these details and provide you with a set of non-financial KPIs together with your monthly accounts. These are things like new customers, returning customers, Average order value, aMER (Acquisition Marketing Efficiency Ratio), Conversion rate etc.  This is fully customisable, and it can be any KPI that matters to your business. The idea is to see how these metrics sit in the financial performance of the company for the month, how they contribute and change over time. This bridges the gap between operational performance and financial outcomes.

6.      Forecasting

Accountants generally provide a historical point of view of your business. All financial documents represent what has occurred.  A good accounting firm will step over the line and provide you with a weekly cash forecast for the next 3 months. This should be the most important thing in an entrepreneur's firm, and if you don't have one, you should build one now. When I prepare forecasts, I start with the revenue first. I am looking into sales channels, historical trends, into seasonal products, and expected marketing campaigns. I am building the revenue week by week for the next 3 months. Then I am mapping all the costs below it on a cash basis, when you actually will make the payments. This needs to reflect when the money is actually coming and leaving your bank account.  There are a lot of things that are recurring and automated payments. All your software subscriptions are on the same date, your payroll is always on the same date, and your payments to pension providers, or PAYE payments to HMRC.  Then you have the credit card payments and the supplier invoices due at a certain time. That is a bunch of things that you choose when to pay, as you have a window to do so. You can now think about how you can leverage and negotiate terms with suppliers, etc. If you have excess cash, you can negotiate a discount for a payment in advance with a long-standing supplier. You could also budget for a hefty VAT bill coming next month. Or you can switch to a credit card, which gives you better terms and cashback if you pay shortly after the statement date. There is a whole navigation system around what is possible to grow your bank balance.  I have a client who invested the excess cash in crypto and managed to make a decent gain, helping them to pay the corporation tax when the time came.