When Your Small Business Client Is Down

When your Pennsylvania small business clients are struggling, they will come to you for help. Providing business diagnostic services is an excellent service offering for a CPA or accountant because you have the expertise to analyze their business, diagnose problems, and help them develop strategies to correct the issues and move forward successfully.

Your first step is to diagnose where the problems lie. In a small business, there are likely multiple issues that should be addressed. Cash flow and revenue problems are the most critical and could have many sources:

• Poor pricing of goods or services

• Lack of budgeting / excess expenses

• Delayed invoicing / long accounts receivable cycle

• Unexpected or poorly-managed growth

• Lack of proper funding

• Inflation cutting into profitability

• Excess inventory tying up cash

• Unexpected expenses

• Excessive overhead

• No emergency fund

Besides financial analysis, analyze the company’s market and its marketing outreach. How do they compare with their competition in quality and pricing? How do they compare with other similar companies in industry benchmarks? Do they have any competitive advantage? Are they distinguishing themselves from the competition, and are they marketing in the spaces where their target audience will find them?

Internal issues may also be causing the company’s problems. Are there management problems? Underqualified employees? Difficulty in retaining good employees? Inefficient procedures that waste time and money?

Review the company’s customers. Are customers satisfied? Do they have any positive or negative feedback to share? Any suggestions that can help the company improve?

Evaluate their business model. Is there a clear business plan? Do they need to adjust their offerings or adjust their expectations? Have they set any short- or long-term goals?

Cash flow is the most immediate concern for your client; without being able to pay the bills, their doors close. So, with the information that you have collected, discuss with your client the important steps that need to be taken.

The problem could be as simple as improving collection, starting with customers who are delinquent for more than 60 days. Creating an incentive for clients to pay early (for example, a 2% discount for payment in 10 days) may make a big difference in the future. 

Evaluate their accounting procedures to ensure that invoices are being sent immediately, with timely reminders. At the same time, evaluate expenses and work with your client to eliminate unnecessary costs. Improving marketing and client outreach should also help bring in additional revenue.

Consider the need for a line of credit or a small business loan. There may also be some county-level programs for entrepreneurs or opportunities through the local Better Business Bureau. Rollovers as Business Startups (ROBS) are another option. An ROBS allows a small business owner to dip into a 401(k) or other retirement fund to finance a business.

Once you have put out the biggest fire—cash flow—it’s time to discuss the big picture with your client: the business model and business strategies. If the client and their key team members have never taken that step, guide them in analyzing their industry, product, and goals to create a plan that can direct them in future decision-making.

Guide the management in evaluating inefficiencies and implementing necessary procedures to save time and money. Examine their employment package to see what changes they can make to attract and retain high-quality employees who can help the company grow in the direction that they have determined in their newly-evaluated business plan.

Providing this level of service for your business clients builds long-term client loyalty. Your training as an accountant or CPA has prepared you for the financial analysis necessary to help your clients, but you may feel less confident with some other aspects of business advising. If you are not prepared to advise on other services, such as marketing or operational efficiency, consider outsourcing these steps or developing these skills yourself.

If you have any questions about the steps you need to take in order to help your business clients with business diagnostics, analysis, and strategy, reach out to our PSTAP team members through our member portal. PSTAP members are always willing to support each other in growing their firms.