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  • Jeannie Doherty

The difference between bookkeeping and strategic bookkeeping

Real quick: Here's a short but punchy post that will help you SELF-ASSESS whether or not strategic bookkeeping will actually help you optimise your PROFIT and CASH – because what we find is that it does.

Mapping out strategy as a strategic bookkeeper

We find that when we hold our clients accountable to their numbers on a monthly basis with a mix of structured agenda tailored to them, they are able to decide on the ACTION needed in order to SCALE their business, in order to improve their profit, improve their cash flow, and ultimately pull that beautiful thing called prosperity out of their business.


I have a vision that every single business owner, certainly every single client of ours, be engaged in strategic bookkeeping. And primarily, it's because I see what happens when our clients are engaged in strategic bookkeeping, and I see what happens when they're not – which means they're not really paying attention to the numbers.


First of all, in a nutshell, BOOKKEEPING is about up-to-date accurate accounting numbers which we call bookkeeping numbers 101. Up-to-date accurate accounting records, which is, I've said it before and I'll say it again, globally recognized as pillar one for the success of any business because that's the only way you can see how your business is performing in terms of profit and cash.


And we all know, or hopefully we all know, the shocking business failure statistics:

Around 80% of businesses within their first five years shut-up shop, and one of the big reasons for that is because bankruptcy (and these kind of things) catches business owners off guard.

They don't know WHAT they don't know. They often don't know when they are getting into trouble in terms of cash flow. They don't know what's causing it – and I've got an entire separate podcast on that, The 7 Deadly Cash Flow Sins. I recommend you look into that.


So I ran into a past client the other evening, and she is now using another bookkeeper. She tried doing it herself before because she found bookkeeping was a cost. And let me tell you right now, it IS a cost. When she was leaving us, she said, "I don't think I can afford it. It's a cost I'd rather not have." And I actually said to her, "Yeah, I agree. It's a cost."


Bookkeeping is absolutely a cost.

Strategic bookkeeping is an INVESTMENT.


Back to this beautiful past client that I just love, she said to me, "Oh, Jeannie, this bookkeeper I've got, she's constantly behind. She's constantly late. I just received fines from the ATO." And I kind of pause at that point because I asked myself, number one, why is anyone putting up with that service? And number two, that means your numbers are not in a state that you can actually use them in order to do better in business, which is what you need to do. Anyway, she did ask me to give her a call and I'll absolutely be doing that and see if we can help her out – because we offer a platinum level of service and we work our bums off to keep your accounting records, your bookkeeping up to date and accurate on a weekly basis.


So, if that is bookkeeping, numbers 101, then let me tell you what STRATEGIC Bookkeeping is. Yes, bookkeeping is a cost; strategic bookkeeping is where this becomes an investment. Strategic bookkeeping is a five-step numbers methodology that I have developed myself, and it's very much like the management accounting process.


Our five-step numbers methodology goes like this:

  1. Numbers 101,

  2. Numbers in knowledge,

  3. Numbers strategy,

  4. Numbers targets, and

  5. Numbers monitoring

It's a beautiful five step simple methodology, as I said, akin to management accounting. And behind that, my team and I have structured agendas that we refine from time to time based on client feedback and based on the various results that we see.


Let's dive into HOW strategic bookkeeping helps you to optimise your PROFIT and CASH, which actually is reasonably simple. Basically, we know that successful businesses, successful business owners, they are looking at their numbers at least once a month. Sometimes we find we've got to do a little bit more often if a client's got a fair bit of pain or some pain points, but then within a short period of time, really we just want to stop once a month and have a really strategic structured look at them. This doesn't take a long time. This is about working smarter, not harder. This is about sitting down on a monthly basis, opening up the books, having a look at the profit and loss and the balance sheet and the accounts receivable and the accounts payable and everything else.


But we love to start with the profit and loss. And having a look at the revenue, the cost of sales, the operating costs, the gross profit, the net profit – in order to look at what's been happening retrospectively in the business so that we can understand the impact of income generating activities and of cost of sales, of wages, all those kind of things.


And so from there, we are able to start with the question and answer, because we're investigating the numbers and we begin to ask questions. Here's a real life example: Why did revenue go up that month? And you might say, "Oh, actually we did a partnership activity, or I did some social media marketing, or I had a flashing sign out the front of my shop," or whatever you did.


And then from one question leads to other questions. And in the early days of doing this process, often there's lots of questions. We're not always looking to answer everything at session one. But as the sessions progress, you're getting to know so much more about your business as you work this way, that the questions often get less because you're already on top of things.


Because, when we look at things retrospectively,

we want to get you working proactively.

And what we find is a lot of business owners are very, very reactive rather than proactive.


I remember asking a client, "Why did revenue spike in these two months of the year?" and that client said to me, "Oh, so over those two months of the year, we're engaged in a particular promotional activity with this particular kind of client." And in that couple of months, they made really high profits as well. So then the question is "Tell me more about that particular kind of work in that client." In that case, they really hated that kind of work, and profit and money is not the primary reason to do something. It still gives us great insights in order to make better business decisions in order to do better in business, but this line of questioning can go anywhere.


So then, we get to looking at if we're going from top to bottom, which is not always the way you want to go. But realistically, when we are looking at the profit and loss with you, we're looking at TRENDS. We're looking at a 12-month period at all times. Is income steady, or are we seeing some spikes or peaks and troughs here and there?


We are looking at trends constantly and you and I are getting a feel for the numbers.

We're reading the story that the numbers are telling us.


Then when it comes to cost of sales, let's say you're in a service-based business, then WAGES are probably your cost of sales expense there. And then, we will have a look at that and the impact on gross profit, and then we will look at the kind of gross profit you should be making. Going back to our five-step model: Numbers 101, and then numbers knowledge was the second one. In this process, you would learn and learn and learn. What you are learning on day one is very different to what you know on day 365 of this strategic bookkeeping journey.


Step three in our methodology is numbers strategy. Now that is about when we're working with you, we're making an effort to get more strategic around your numbers, which means we are RECATEGORIZING things. And an example of that is when we're first working with you, we might see that your wages is in operational costs, whereas 80% of it is a cost of sale.

And if that doesn't mean a lot to you, that's okay. But do you know what? The less you know, the more opportunity there is to optimise their profit and cash.


Step four is the numbers targets. So that's what I just touched on then. And what we do is we look to BENCHMARKS for your industry. Let's say you are an electrician and you do mainly residential electrical work, then, we are able to access the industry benchmarks for a business like yours. We also will combine that with the RULE OF THIRDS, which says that oftentimes a third of your revenue will go to cost of sales, and a third is operational, and then a third is profit.


We use benchmarks, the rule of thirds, and CONSULTATION with you over your business in order to come up with a realistic, meaningful set of TARGETS.


And an example, when we're working with restaurants, often their net profit benchmark that we might aim for is, say, 11% turnover. They're quite skinny margins. If we've got a restaurant that we're working with and they're struggling a bit, we go "Woo hoo!" when we hit 11% net profit, whereas there might be another business where we're like 11% is not okay, and the benchmark is much higher.


Meaningful targets – not a stab in the dark – is really, really important.

And when we know what targets to set, that's when again, you don't know what you don't know. You might not know that your cost of sales is too high and there are ways that you can get it down and those ways are a journey. So that is the targets, number four.


And then step five, numbers monitoring, is when you sit down monthly. Imagine we've been doing this process for say six months with you. There's a lot we know and we're able to go, we know your targets, absolutely back and front. And we know, the actual numbers, and the results for the month and the year, because we're looking 12 months month-on-month.


And then we might go, great, we've hit this target. Or if we haven't hit the target, why? And what is the action that we need to take in order to move from the actual to the targeted numbers? So even though some of this may sound very foreign, it is still a simple system and it's an age-old system.


Now in terms of the kind of return on investment you can expect from strategic bookkeeping: what you can expect are QUICK WINS early on. That's what I've always seen.


Sometimes in the early days, it's things that are more obvious to us – such as keeping an eye on subscriptions. We help you with consolidating costs that can save you easily. And then because of the insights you get, you're able to go about taking action. For example, a lovely client that I work with, some of the action he took was around management and team in order to free up his time, which allowed him to win more work. The impact was on revenue going up. And then because of that, and he's a smart operator, his gross profit and net profit went up as well.


The other thing I'll mention is we're able to see clearly where the pain in the business is, and it's always in one, two, or three areas. Let's say for example, your wages as a percentage of turnover is too high, but that's the only problem in the business and you are like, "Oh, okay, it felt like everything was wrong." And we're like, "Well no, actually some of the things are going really, really well." We can help you zone in on that area, and then we can help to create an action plan around what's going to get that cost of sales wages back into a budgeted and realistic number, a benchmark number.


In terms of the fee attached to strategic bookkeeping, our clients easily make that back over a year. Usually, they would make 10 times that amount back, sometimes even more than that. Whereas with bookkeeping... think of it this way, you've got your bookkeeping up to date and accurate, but you've got no one holding you accountable to the numbers.


And let me tell you right now, if I didn't have someone do it with me, I wouldn't do it either. I'm happy to do it with my clients, but I would put myself last. So, even bookkeepers need strategic bookkeepers. If your numbers are up-to-date and accurate, are you actually using them? Are you looking at them and using them? Do you understand what they mean and do you understand how to optimise your profit and cash?


What I see with clients and with business owners is, with the best intentions, they can't and they don't do this themselves,

which is why I highly recommend that you give strategic bookkeeping a try.


We are true technical bookkeepers, also known as accounting technicians. We're strategic bookkeepers versus working with your accountant. Oftentimes, there can be a misconception among business owners that accountants can do everything better. Now, I know accountants who privately tell me that the worst bookkeeping comes out of accountant's offices. Accountants aren't always best place to do the bookkeeping. And in terms of doing the strategic bookkeeping or the management accounting process, once again, they can offer up some really great solutions.


But, here's something I've noticed when it comes to the difference between us and them from time to time, and that is,


we are prepared to get down and dirty in the numbers with you, and come

into the meetings without the need to have all the answers,

but ready to ask all the questions.


And we don't want to give you static stuff that you'll never use.

Your business is evolving and moving, as is your life.

We want to be in the numbers working with you rather than giving you really static budgets and forecasts that often either you don't understand or you don't end up using, when really what you need is just help when you need it, and more realistic stuff.


So, that's something that I think is really great about the way that we do the strategic bookkeeping compared to some of what I've seen coming out of the accountant's offices – and it's feedback from clients. I've seen clients pay big money for a budget or something like that, and they're kind of frustrated at the end of it because things have changed so much and nobody's really sitting down with them and helping them with how it all works. That said, what I love is working with accountants. We want to be able to work closely with your accountant as well. It's always helpful.


To wrap up, like I said, I have a vision for all clients to be engaged in strategic bookkeeping. I would love to go to all Aussie businesses and say,

Fire your bookkeeper. Hire a strategic bookkeeper.

And that includes us. If you're just using us for bookkeeping at the moment, I really would encourage you to step up to strategic bookkeeping.


We don't have lock-in contracts either, so you can try strategic bookkeeping out. And if you find that you don't get the results you want, then you can pivot back to basic bookkeeping. But, I do encourage you to play the long game.


If you're still reading and you think, "Yeah, you know what? I've known for a while, I need to be paying attention to my numbers," then what I would get you to do is just reach out to us. Say hi, and let's jump on the phone or the Zoom for 15 minutes so I can do a quick needs analysis and answer any questions that you have got, and help yourself assess whether you'd like us to help you with strategic bookkeeping now or in the future.




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