3 Basics of Financial Checkups

In a previous article, I recommended that accountants conduct a 30-minute financial checkup annually for all clients. Through simply sitting down with clients and reviewing financial statements, you can build a bridge from the past to the future. This session is not time consuming, and it is highly productive. At a minimum, it will deepen the relationships you have with clients. It may also generate additional fees for the practice -- clients will learn that you are more than a tax preparer/compliance professional. 

Here are some basic things that should be done in each of these sessions:

1. Explain the financial statements in plain and easy-to-understand language. The worst thing to do is turn these sessions into one-way communication where clients are lectured and may not understand the issues being discussed. Numbers from a balance sheet or income statement don’t mean anything to the average and highly intelligent business client. Break things down and make sense of the financial numbers for clients. This point is vital.

2. Develop some understanding of margin management. Most businesspeople don’t understand the importance of margins. In many businesses, either the gross margin or the net margin drives the business most. (Gross margin is sales less cost of sales divided by sales. Net margin is net profit divided by sales). Many good businesspeople think that the key to success is increasing sales volume. They don’t have an appreciation for how volume affects both cash and profit. Many times, increases in sales may decrease profits or cash or both.

3. Point out some very simple areas the businessperson can work on. In my experience, the vast majority of businesses are driven by three or four key pieces of data. If these are managed well, the business does well. If they are not managed well, the business does not do well. It is important to try to identify these before the session.   

The sessions should be informal and brief. If the session goes well, you will be viewed as a true strategic partner by your client -- as a friend and ally. If it does not go well, then at least the client will know you care. In all likelihood, your clients will be surprised and impressed that you took the time to help them. In my experience, you will also generate additional fees from these sessions since almost all of these types of sessions will lead to further questions, challenges, and work. 


Brian Hamilton is the co-founder and Chief Executive Officer of Sageworks, a provider of risk management solutions to accountants and financial institutions. Brian holds an MBA from Duke University and a bachelor's degree from Sacred Heart University. He is a noted expert in finance who has been published and quoted in most major national media outlets. He is currently a guest columnist for Forbes.com.