5 min read

How to Use Your Client's P&L to Create Advisory Opportunities

It’s one of the most valuable reports a business owner can have: the profit and loss statement. But too often, entrepreneurs obsess over the bottom line and gloss over everything above it.

Why? In a world where more than 25% of all small businesses fail in the first year, how can this simple yet helpful report be underutilized?

As a CPA, you have an opportunity to endow your clients with financial know-how, and it starts with a P&L. From your educational background to your experience on the job, you have a wealth of knowledge to provide immense value to your clients. This opens up advisory opportunities and new revenue streams for your firm.

But you can’t simply jump straight into accounting jargon or assume your clients know what you consider to be the basics. We’ve all been there when tech support talks above our heads and expects their expert knowledge to be commonplace!


So here are some strategies on breaking down a profit and loss to provide more value to your clients.

You can also grab a copy of this ebook:
Tech & CAS | How Advisory Benefits From the Use of Automation


Educate on the Different Types of Profitability

Net profit is important. After all, every business should aspire to bring home more money than they spend. But there aren’t a lot of insights that can be had from the net profit number.

Instead, take the time to go over different types of profitability. Maybe a business isn’t profitable at the moment, but showing them they’re making a gross profit can provide a light at the end of the tunnel. Or, if a business is making big sales numbers but taking little of it home as net income, you can break down their profit margin for them.

For so many business owners, net profitability is all that matters. It’s what keeps the lights on and operations running. Showing your clients the other measures of profitability can empower them to make informed decisions to grow their operations. Once they understand they need to look beyond how much money stays in the bank at the end of the month, you can elevate the conversations you have with them. 

Yes, this is all about improving your value as a trusted advisor!



Identify Fixed and Variable Costs

To help with the understanding of profitability, walk your client through the fixed and variable costs of their operations.

Identify Fixed and Variable Costs | Botkeeper

Business owners are told to cut costs whenever they can, but spending too much time reducing costs that don’t consistently impact the business is a bad use of time. For seasonal businesses or earlier businesses still trying to find their equilibrium, focusing on reducing fixed costs can be the better option. But if a business is projecting growth in the immediate future, switching to cheaper variable costs will have benefits that grow with the business. Different businesses will need to focus on reducing different types of costs. 

By discussing the difference, you open the door for better discussions on cost-cutting. But down the line, this will allow you to start having conversations on cash flow and forecasting. 


Highlight Interest and Merchant Fee Expenses

As the saying goes, nothing in life is guaranteed except death and taxes, but statistically, business owners can expect to encounter debt and processing fees, too.

According to a 2016 Experian report, small business owners on average have $195,000 in debt. Meanwhile, ecommerce has grown to be 21.3% of all retail sales in 2020. So what connects these two things?

Both have costs that are an inevitability for business owners: debt makes for interest costs and online payment processing has hidden fees. It’s these kinds of costs that are easily forgotten about while they eat away at a business’s profits.

By discussing these costs and where they come from, business owners can start exploring ways to reduce them. It can be the talk that pushes them to explore refinancing through a line of credit or hosting their goods on their own website to cut down on selling fees. These kinds of changes can’t be done without first being aware of how costly their current state is.


Contextualize Discussions with the Bigger Picture

A profit and loss statement is a robust picture of a business over a period of time. Use the entire picture as context to each line item. What are the costs of goods sold relative to the sales revenue? Should the utility expenses be as high as they are relative to the rent costs?

Contextualize Discussions with the Bigger Picture | Botkeeper

Business owners will look at a P&L line by line. But looking at lines individually doesn’t tell the full story. To make the most amount of impact on clients, use each line to craft a narrative that communicates the points you want to highlight. If you can talk about total revenues and operating expenses in a way that uses the full statement, you’ll push your clients to understand the report more robustly. Soon, they’ll be coming to you with more meaningful questions, elevating the dialogue and your services—and giving you an avenue toward selling them on advisory!



Use Your Experience to Compare Clients to Other Businesses

While there are some moguls out there managing multiple businesses, many business owners have just one. And sometimes, these businesses are side gigs to drum up extra income.

Because of this, your clients will have different levels of understanding of what a “normal” business’ profit and loss statement will look like. This is where you can step in and help them define what success looks like in their industry.

We all have memorable stories about looking into a business’ finances and being blown away for better or for worse by what we’ve seen. Focusing on what these businesses did right or wrong can guide your conversations, making for impactful examples that will resonate with your clients.

When looking at a business’ profit and loss, add value to the conversation by highlighting what they can’t see. That could be insight into the finances of similar businesses in their industry.


Expand the Discussion to Cash Flow

Once your client is starting to engage more meaningfully with their profit and loss statement, expand the conversation by helping them think about cash flow—in particular, the timing of payments.

Expand the Discussion to Cash Flow | Botkeeper

What’s lost in a profit and loss statement is when transactions are happening. When thinking about just the bottom line, businesses can start to lose sight of how to sustain operations by preparing for expenses before they happen. 

Your clients will be coming to you with a document that they believe will show whether they are fiscally healthy. But what isn’t shown is the mental health aspect of being in the red for a short period of time due to an unexpected payment or a drop in revenue or sales.

Use the profit and loss statement as a stepping stone to discuss cash flow. Ask questions to determine if they felt as profitable as the document says they are or if there were any periods where they felt money was particularly tight. This can open up topics around money management that will greatly impact your clients quality of life.


Show Empathy in Your Conversations

Whether it’s sharing in their excitement or relating to their struggles, showing compassion and understanding with your clients creates a strong bond and makes your message more impactful.

Business owners want to know they have someone on their side looking out for them. Remember, you’re as much an emotional support as practical. They took a step outside of the comfort zone of a 9 to 5 and consistent paycheck to pursue their dreams or achieve true independence. And with that comes a lot of fear and uncertainty!

Be sure to keep it human when talking to your clients. Relate to their experiences, empathize with their difficulties, share in their successes, and invest in that bond. It will make you an invaluable part of their business.


Keep Yourself Engaged by Minimizing Your Workload

You’ve categorized transactions, sorted through receipts, and balanced the books. Now it’s time to talk about it all.

Keep Yourself Engaged by Minimizing Your Workload | Botkeeper

Mental energy is an important thing to monitor, as it ensures you’re performing in every appointment. Having a meeting in between menial tasks makes it difficult to bring your best self to the conversation.

Taking these tasks off your hands will open up more time in your day for planning and preparation, creating an increase in capacity for your firm. Automation is key for this purpose, and even if you’re already using it, you might be able to get more value. This means more time interpreting a profit and loss statement vs. putting it together in the first place.

Beyond taking the most dreaded tasks off your plate, automation makes your firm more efficient and opens up new revenue opportunities. And right now, you can get $25 just for exploring how automation will impact your firm’s bottom line. Click below to learn more and get started!


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