This interview was pulled from the Sponsor Interview at the 2020 Grow Retreat.
Grow Retreat sponsors are carefully chosen and approached specifically because of their ability to support Retreat attendees in becoming powerful business owners.
Daphne, CEO of A to Z Helpers, has dedicated the past four years to transforming her bookkeeping practice into a true business. She has built in failsafes to ensure that her clients get their financials on time, every time so they can make smart business decisions based on up-to-date financial information.
So many business owners deal with all shades of embarrassment about their financials and the financial state of their business and that holds them back from trusting a bookkeeper to come onboard. But there are a lot of reasons people are afraid to get a bookkeeper. How do you deal with someone who is hesitant to bring on a bookkeeper?
I tell them, when I hired my business coach, the first thing she asked for were my financials; because how can you set goals and know how you're doing if you don't know where you are right now? It is a scary thing.
Everybody that starts a business tends to put bookkeeping to the side. Especially if you are a startup doing 10 or 15 jobs as one person, it’s easy to let it slide to the side. Even when I started my business, I put it to the side because I was working in my business.
But once you start getting those financials going, it's an amazing tool that you have to see where you're throwing money.
I have a lot of clients that come and say, “I know I'm making money but I don’t have anything at the end of the year and yet when I do my taxes, I have to pay all of this money for my income. But where’s the money?”
This is a paper profit. A paper that says you have $60,000 in the bank, without the actual money in the bank.
Bookkeeping will tell you where that went.
Once you get those reports, you can see where you’re spending a ton of money on things like office supplies and stop up those cash leaks. It’s a lot easier to get to the end of the year and actually have the money you’re paying taxes on.
Financials can be intimidating to a lot of business owners who don’t understand how it all flows together. What are some of the most important lines to check or things to do with your financials when you receive them?
Most people know about the Profit and Loss report and that’s really exciting to them because it shows you how much revenue you’re making, and supposedly how much profit you’re taking home.
So that can be exciting, and a bummer. You can feel like you’re doing terribly because there’s no cash in the bank, and then look at the revenue and realize you’re bringing in all this money and just need to figure out where it’s going and plug the leaks.
The Profit and Loss shows how much you’re spending on payroll, rent, technology, etc. in terms of percentages of total revenue. So if I know that I want my payroll to be 35% of my revenue, I can see where I’m at, and start working the payroll into the right percentage.
Working with percentages is the way to go. But you have to know where you are first before you can move those percentages around. If you want to keep 50% of what you make, you have to start with knowing what percentage you’re keeping right now. Even if you’re only keeping 10%, that’s a “Yay!” moment because you’re still keeping it and now you can work on changing those percentages.
(Side note from Stephanie: Percentages is what Mike Michalowicz has you run in Profit First. Daphne roughly explained this concept in our interview, but it’s explained in much more detail in Profit First. So if you haven’t read that book, go find a copy! Working with percentages of your income will change your business for the better!)
One of my favorite things to look at on the statement of cashflow is whether the amounts of cash on hand are increasing over time which helps me see if the profit is a true, cash profit.
With the balance sheet, it’s important to watch amounts of debt versus assets so you can keep track of the value of the business. If you’re carrying a ton of debt, it won’t show on the P&L, it will show on the Balance Sheet.
Really though, the most viewed sheet is your P&L. Even though I’m a bookkeeper, I still like easy. A lot of people are kind of scared of bookkeeping and reports, but I don’t want it to be confusing. Having just a percentage goal for the important lines on your P&L is the easiest way to use your financials effectively.
What is your favorite form of P&L report and why?
I like to run the Trended P&L report on a 12-13 month, monthly basis.
With this, you can see it on a monthly basis as well as an overall trend to see what is going on in revenue in your business.
For example, some of my restaurant accounts on spring break see a huge bump upward and things are pretty dry in January. So in the future, they can plan for both of those in the future.
You can also look at those bumps and compare them with what you did so that you can work on repeating bumps in your cashflow. On the flip side, you can look at those slumps in the revenue flow and try to figure out why those things happened and if it is something you can prevent in the future or if it is just something that comes with the territory of your business that business slows down in a specific month (like for the restaurant accounts).