One of my favorite parts of my university studies in the field of accounting was cost analysis and break-even analysis. When a B.C. business has been operating for a number of years and has been profitable, tax planning is always a priority and I am often not asked to improve the business.
However, when a new client is a business that lacks profitability but still operating, tax planning is not the main priority. Instead, the focus shifts to determining if the business can ever be profitable, and if so, different kinds of strategies are explored in order for the business to return to profitability.
Many BC business owners are passionate about the goods or services they are providing and are very knowledgeable about their product lines. Unfortunately, many of them do not know or understand cost and break-even analyses, which can help them turn their businesses around. This is where a Vancouver-based chartered accountant can add value.
Chartered accountants can do a comprehensive cost analysis to explain how much revenue is needed to break even and how much revenue is needed to get a fair rate of return on their business investments. This is a critical first step for businesses that operate in very competitive or declining industries where unmet revenue targets can often be the difference between success and failure.
In addition, due to the varied industries and businesses that public accountants deal with, often they can help businesses cut costs as well. A business owner may have an emotional attachment to a specific way of doing business/handling customers that is no longer practical and profitable. They are not aware of this habit. Hiring a chartered accountant can add a fresh new perspective on the current existing business process.
For example, during a recent visit with a client, I noticed that the business owner spent a lot of time during the purchasing process explaining her services to customers, which was then followed by registering the customer manually, followed by manual payment procesing. When we discussed the length of time this process took with each customer, the business owner’s response was to simply pass it off as being the nature of the industry. The response is indicative of an old habit that may no longer make sense; we now live in an online world where software and information systems take care of processes like registration, payment, and bank deposits. An automated phone system can also direct calls to specific people without a secretary directing the call. This is an example of how businesses can cut labour costs – we live in an era of slim margins, and high labour costs are no longer feasible for many small business owners in Vancouver.
Similarly, a chartered accountant can provide analyses on how much to charge for services or programs based on current operating costs and the desired profitability.
Overall, the accountant can crunch the numbers in various ways under different “what if” scenarios with the business owner. This will help the owner get better focus of the marketing, labour, and capital investments needed over the next few years to turn the business into a profitable venture.
For more information on business consulting services or tax planning for BC businesses, please contact us as we are your Vancouver Accounting Firm.
Disclaimer: All Rights Reserved for Mew & Company. This blog post is designed to provide information for personal use only. Please consult your professional tax advisor for further information. Mew & Company is not responsible for any legal disputes resulting form the content of this blog post.