Why Businesses Fail (and How Accountants Can Help)
Plenty of businesses get into trouble. The Big Four accounting firms realized the market for advisory services long ago. They got into management consulting.
Many neighborhood accountants have small businesses as clients. They might be Main Street businesses, insurance agencies, lawyers and small manufacturing firms. They often get into financial trouble. Can accountants help? How?
Nineteen Problems that Could Put Them Out of Business
Many of these problems will sound very familiar. As their accountant, you know their business better than anyone, possibly except their banker. As a fiduciary, you can give objective advice. Your level of involvement in the solution determines how you charge for your time.
Cash Flow Problems:
1. Debtor/Creditor Cash Flow Crunch
Business is slow. People you owe want to be paid immediately. People who owe you are stretching out payments or not paying.
Solution: Press people to pay. Credit cards charge late fees. Your creditors have high interest penalty rates if you don’t pay on time. Should they bring in a collections company for the aged receivables?
2. Paying for Services that Don’t Produce Results
Someone told them the marketing package they sell will produce a steady flow of prospects. It hasn’t. They are still paying.
Solution: Sit down with them. Review these service commitments. Have they given it a fair chance? Are they, the business owner, fulfilling their role in the activity? If it isn’t working, drop it.
3. Rising Expenses Meet Squeezed Revenues
Your client manufacturers clothing. When the economy slows or competition gets fierce, the companies buying sweaters and tee shirts want the same product, but at a lower price point. Meanwhile, bills come in regularly.
Solution: Your client should look for more customers. On the expense side, you and they can review expenses item by item, shop around for alternative providers and negotiate for better terms. They don’t want to lose a client either.
4. Business Has Accumulated Debt
Business has been slow. Your business owner client hasn’t cut their spending. Business credit card debt has risen. They are not paying down their bank line of credit.
Solution: You and they need to look at cutting expenses. Can they approach their bank and take out a loan, using the cash to pay off the high interest rate credit card debt? The interest savings will go towards paying down the loan amount.
5. Won’t Spend Money to Grow
They don’t believe you need to spend money to make money. They won’t spend on marketing or technology.
Solution: As an independent party, you need to show how investing in technology will reduce staff costs or speed up bill collection. They may want to see a guaranteed payoff. You need to show their business is in trouble. Problems don’t solve themselves.
6. No Business Plan
Your client has owned a storefront business for a long time.They think business plans are for startups. You suspect their plan is “I’ll muddle along.”
Solution: Sit down and create a plan with them.Their bank will want to see a business plan someday. They are operating in a constantly changing environment impacted by competition and technology. Business might be slow on its way to becoming a trickle. The business won’t have much value beyond physical assets.
7. Dependent on One Customer
The client owns a service business, like an ad agency. They have one major customer. They have become close friends. The revenue sent their way keeps the business afloat. What could go wrong?
Solution: Your client is in a dangerous position. They must diversify. Companies bring outsourced operations in house. The person sending business their way might retire or get moved into another role. Revenue can dry up completely.
8. No Prospect Pipeline
Your client is a registered investment advisor. (RIA). They have a book of business producing recurring revenue. Their business is fine as long as clients don’t leave.
Solution: Attrition will cost them clients. People die, move away or move to the competition. They need a plan to replace them. Accountants don’t do this, but they can make the case for hiring someone who will being clients with them or find new ones.
9. Takes Best Customers for Granted
Your client sells a service. They have many longstanding customers. Operating costs rise. Their solution is to pass these costs to clients by raising fees.
Solution: Advise them they need to spend money on client appreciation and teach them how to refer friends. Their best customers are someone else’s best prospects. They will lose clients if they raise fees.
Competition and Landscape Problems:
10. Industry Has Changed, but They Haven’t Adapted.
Your client sells a consulting service. The companies that bought previously have largely shifted to bringing the activity inhouse. Your client wonders why no one’s buying.
Solution: Since your client’s skill and knowledge are the major assets, there’s little overhead. You might suggest your client close their consulting practice become an employee at one of those firms.
11. Not Paying Attention to Competition
“Go big or go home” has brought big box stores into your town. Category killer stores have hurt your client’s hardware store. They didn’t see this coming.
Solution: It’s unlikely they can compete on price. Can they compete on service? Hours of operation? Getting into a specialty marketed segment? You can help your client research how similar businesses in their industry have adapted in other towns.
12. Charging Too Much
Your client runs a barber shop or beauty salon. A franchised operation opens nearby, offering lower prices. Your client is losing revenue.
Solution: You need to help your client compete by showing them their options. Someone needs to visit the competition and try the product. Do they offer styling and service the competitor doesn’t? Hire a Spanish-speaking barber and put up a sign attracting Spanish-speaking customers? Compete on price?
13. Product Quality Declined Because of Cost Cutting
Your client runs a diner. Costs have risen. They’ve reacted by buying lower-quality meats and produce. They are losing customers.
Solution: Your client needs to eat try their own food, then try the competitors. Instead of offering the same dishes at the old prices with inferior ingredients, they need to vary the menu to offer different dishes at the old prices with higher quality, different ingredients.
14. Hasn’t Leveraged Technology in the Business
Your client hasn’t bought into business technology. They are paying people to do tasks that could be automated. Their payroll expenses are high.
Solution: You need to show your client how an investment in buying or leasing technology can save them money. These people might not be laid off. They might be moved to part of the business where they can create revenue.
15. Don’t Have an Online Store
Your client owns a Main Street storefront. They assume customers will walk in when they want to buy something.
Solution: You need to show your client statistics on the popularity of shop at home services. Many people do online research first, before determine what and where to buy. If they don’t have an online presence, they aren’t even in consideration.
16. Hasn't Embraced Social Media and Texting
Your older client sells real estate. They think e-mail is the height of technology. They have no social media or online presence. They don’t text.
Solution: You need to explain “The customer is king.” They need to engage the customer through the customer’s preferred channel. They need to move with the times. ou can help them hire someone to get them up and running.
17. Key Employee Leaves
It’s a small business. One guy did almost everything. The owner won’t admit they are semi- retired. The key employee retires or takes another job.
Solution: You need to get the owner to see this problem before it becomes reality. The key employee should be training someone to follow after them. If it’s a problem now, they need to make it worthwhile for the person to stay. Should they have the opportunity to become a partner?
18. Owner Loses Interest
Your client is a lawyer or a funeral director. It’s a small operation. Business comes to them. Their days are pretty quiet otherwise. They’ve been doing it a long time. They are bored. They have no interest in growing the business.
Solution: You might suggest they explore getting the business valued and selling to a competitor. There are firms that grow by acquiring smaller firms to gain a local presence. They may or may not stay involved.
19. Good Salesman, Lousy Businessman.
Your independent financial advisor client is great and finding new clients and keeping current ones happy. They are hopeless with dealing with filings, regulation and running a business.
Solution: You might suggest a couple of options. They might return to the corporate world and join a big financial services firm. Someone else worries about overhead and regulation. They might bring in a partner or hire someone to run the business, freeing up time to find new clients.
In many of these examples, the accountant is acting as management consultant. If you aren’t offering advisory services, having clients like these is a good reason to start.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.