Owners don’t start a business to pay themselves a salary and essentially break even. That’s called a job. They start a business in the hope that they can create a profit over their salary – a real cash return on their time, smarts, efforts, etc.
But the hope of profitability, while motivating, can still be financially shortsighted. A business may operate at a profit over two weeks, only to dip below the line when payroll hits. For business owners to fully benefit from their work, what’s needed isn’t only a static idea of profit at a certain moment in time – although balance sheets are certainly helpful, they aren’t the whole story.
A longer-term view of how cash flows in and out of a business is necessary, too. Outsourced accounting can help to create this understanding.
Even better, outsourced accounting can instigate improved cash flow.
1. Better accounting improves cash flow visibility.
With better accounting, businesses can achieve greater visibility into cash flow.
That’s important, but it’s also uncommon. In fact, around 80% of the businesses we work with have poor cash flow visibility coming into the engagement, often due to unstandardized accounting. As a result, they may not know how much cash they really have.
For example, many of the quick-service restaurants (QSRs) we work with initially have inaccurate understandings of how much cash on hand they need in order to safely maintain operations. We’ve worked with 20+ location QSRs that have missed their working capital cushion by more than $20k per store. Over 20 stores, that is $400k that could be too conservative or too aggressive. In other words, it could be your ROI if too conservative or insolvency if too aggressive.
That disparity is dangerous, and it comes through a lack of (or simply inaccurate) information around upcoming expenses and expected income.
With better accounting, all of the present data can be known. This does take time; we generally find that over a 90-day period, accounting processes can be standardized, and income and expenses can be documented to give cash flow clarity.
2. Improved cash flow visibility enables optimization.
Without clarity, there can be no optimization of cash flow – but once cash flow is understood, improvements can be made.
For instance, once our example QSR understands that, based on expenses, cash on hand should consistently have a working capital base per store of $50K, they’ll need to designate more money to cover that reality (in principle, this will be like paying for insurance to protect against possible issues).
But, through the visibility that better accounting provides, they may also be able to identify areas of unnecessary expense that can be culled to reduce the amount of working capital they’ll need to safely maintain operations.
Again, these actions are only possible when cash flows are known.
3. Optimization can be measured against industry benchmarks.
Finally, at Global Shared Services, our services empower businesses to optimize cash flows through measurement against industry benchmarks.
While we don’t necessarily consult on the financial structures of a business, we can (and often do) provide helpful guidelines for businesses to consider as they evaluate business expenses.
For instance, we may find that, for the highest-performing businesses within a given industry, labor costs amount to about 21% of income. If one of our clients is sitting at 25%, we can bring the disparity to light. The same goes for insights in other realms: real estate expense, income per location, etc. can all be used to inform our clients decisions based on our knowledge of industry cash flows (additionally, it’s important to note that we never disclose our clients’ data; we only disclose information in general industry terms).
Accordingly, our clients can both more easily identify potential areas for optimization and more effectively measure the success of their optimization efforts. The end result is that our clients’ businesses are more intelligently designed – and, ideally, more profitable.
Ready to improve your business’s cash flow?
If you’d like to learn more about how outsourced accounting can improve your business’s cash flow, get in touch with us.
At Global Shared Services, we offer dependable outsourced accounting services that can provide a foundation for your business’s success by ensuring visibility into financials and empowering optimization.
Want to learn more about how we could help your business become more profitable? Let’s talk.
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Founded in 2003, we’ve worked with large corporations and small-to-medium businesses alike. Here’s what we’ve learned: access to expert financial and accounting services is a major factor in a business’ ability to succeed and scale. We believe that it shouldn’t be restricted by location or company size. Our mission is to empower restaurants and technology firms with that access.
With GSS, we meet our franchisor requirements on time and with accuracy. The local CPA could not handle our volume. We are so happy to have made the change. GSS knows our business and our franchisor requirements.Multi-unit fast sandwich Owner