Developing a Business Snapshot Part 1

In the last episode we talked about profit and how to think about it for product and service based businesses at a high level.  Now we are going to start diving into more of the details.  One word of caution:  When it comes to shifting to a profit-focused expert, it is easy to get caught up in the details – details on where to start tactically while still being more strategic and providing a holistic profit view to your clients.  It’s a balance to be sure!

What if instead of checking, reconciling and laboring over monthly reports you worry that no one is reading, you were able to craft a monthly or weekly snapshots of 3 key profit drivers that caught the attention of that same CEO?

So what does having a snapshot actually mean?

Well, what it doesn’t mean is a whole bunch of extra busy work.  This isn’t the episode to talk about your services or pricing, but I want you to understand that this approach can make your monthly work easier not just add tasks to your list.  Yes, there is a transition, but it’s worth it – for your business and your clients as well.

The goal of the snapshot is to stay focused on 1-3 business drivers that are key to the business success in both the short-term and long-term.  Ideally, they complement each other and aid in making business decisions with confidence.  There can be any number of variables that are specific to each business but the 3 key things that should be true with the snapshot business drivers are:

• It is easy to understand.  If you have to explain it with a Powerpoint, it’s out.

• It will be foundational to the business success no matter season or year or cycle the business is in.  That means you need to talk to your client about what they see as important and what they want to have a pulse on.

• It can be measured consistently in any period whether that is weekly or monthly.  Consistency is fueled by easily available data and no need for massive effort to manipulate it.

Using these criteria is why I always start with revenue for the snapshot.  And, yes, while I do believe that revenue can be a vanity metric when used incorrectly, I also know that it is one of the quickest ways to gauge how business is going.  All that foot traffic in a retail store and all those website visitors need to translate into paying customers (aka generate revenue) – and that’s what revenue tells us.

Remember:  You can’t have profit without revenue, so let’s start using that to our advantage.

Here’s the first thing to think about with revenue:  raw numbers are okay but they become great when there is context.  Context is what tells you and the business owner how revenue is moving and changing so that action can be taken as needed.  For example…. 

• You can measure actual weekly revenue against sales projections or goals

• You can compare it to a similar week in the prior month or past year

• You can add weeks thoughout the month or year to gauge progress on longer-term objectives

• You can set baseline revenue goals based on average expenses and know by the last day of the month what your profit range will be (a whole 10 days before the financials would!)

How would your clients feel about having these type of insights each week or really early after the month ended?  Would they make different decisions about their business?  Would they start paying attention to key financial data points because they have become more consumable?

Your job as the bookkeeper or financial expert isn’t just to be precise and accurate and knowledgeable.  It’s to communicate what that means about your client’s business to your client.  It’s to help them see as quickly as possible how the business is performing as timely as possible in ways that make sense to them.  

Revenue snapshots with a blush of analysis are an ideal way to do that.

I can hear the objections as to why this won’t work for you or your clients.  

Just stop.  It will.  

Let me give you three examples from our clients in completely different industries and how we have made this work for their revenue snapshot.  I recommend starting with monthly so you can get your snapshot developed, but where possible moving to weekly when you can.

Client A:  Construction company – Weekly revenue snapshot using projections

Client A has customer invoicing every day.  They also have bigger, longer-term projects that get a portion billed towards the end of the month.  The revenue doesn’t get recognized in a steady stream throughout the month, so weekly invoicing data is lumpy.  Our solution was to use a combination of actual billing combined with expected sales via the project management systems to get to a projected revenue monthly total.  The weekly projections started in the 2nd week and ran through the end of the month.  We also used these to record work in progress in the month-end close process when needed.  We only do monthly trending, year over year and budget comparisons as part of month-end close.

Client B:  retail services with product sales in-store and online – Weekly cash revenue snapshot using POS and Shopify data

Client B has customer revenue every day from in-store services and product sales as well as online product sales.  They’ve got revenue data in a retail point of sale system as well as in Shopify.  The first week of the month, the fall/winter season and holidays are big revenue times for them.  Their revenue snapshot included same month, year over year comparisons and a breakdown between service and product sales by brick and mortar vs online.  (As a side note, this became super important to the next-level profit analysis at a later point because of pandemic issues and FB ads costs.)

Client C:  Professional services company with recurring retainers and project work – monthly revenue snapshot with projections at beginning of month

This applies to almost any professional services like accounting, legal or graphic design.  In this case, I am going to use my agency, Peek Advisory, as the example.  We have monthly retainer invoices that go out on the first of every month.  Then we have project invoices based on the terms of the engagement (a deposit followed by final billing).  The retainers are billed in advance; the projects are billed upon completion so there are two completely different cycles compared to when the work is done.  Because they act differently, we track retainer revenue as one line and project revenue as another and add in projections on the project side to get a fuller picture for the month.  Because of our cycle time on projects, this is pretty easy to do.  Most professional service firms have a similar revenue mix and timing structure.

See…It can work for all different businesses!   And designing a revenue snapshot for your clients doesn’t need to be overwhelming.  In future episodes we’ll also cover other drivers you can include that will add even more value to your work and to your client’s businesses.  You can also check out additional resources at powerofprofitability.com 

See you next time!

How can you use this example with your clients (or maybe in your own business)? Grab our Profit Leaks checklist below. It’s free and will get you into action immediately.