According to a 2023 survey by Datarails, a small or medium-size business (SMB) spends an average of $54,000 per year for finance and accounting software. Millions of pages of financial data are produced every year! But as Henry David Thoreau once observed, “It’s not what you look at that matters, it’s what you see.” (Emphasis added.)
The language barrier
When Wealthpreneurs review the vast volume of financial data generated by their software, they often become frustrated. “I don’t speak accounting, tax, and financial analysis. I speak business. These traditional financial statements are worthless to me!” What Wealthpreneurs need is a Business Blueprint: a plan inspired by the insights from their accounting data that is designed to help them achieve their vision.
Wealthpreneur Lesson
The Omaha Oracle Speaks!
“Accounting numbers, of course, are the language of business and as such are of enormous help to anyone evaluating the worth of a business and tracking its progress.”
“Charlie and I would be lost without these numbers: they invariably are the starting point for us in evaluating our own businesses and those of others.”
“Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it.“
Warren Buffett
CEO of Berkshire Hathaway, Inc.
What are we building?
An architect creates a blueprint when planning the construction of a new building. This blueprint is a vital resource because it provides a clear and concise plan. Each team member involved in the project knows what needs to be done and when to do it.
For Wealthpreneurs, a Business Blueprint bridges the gap between raw accounting data and actionable business strategy. An effective Business Blueprint distills your vision into actionable tasks so you can create measurable goals and identify impactful levers. This means you can implement strategies to accelerate growth and enhance profitability within your business.
With a Business Blueprint, you can:
- Make more informed business decisions
- Monitor key performance indicators
- Minimize identifiable risks
- Improve cash flow management
- Free up management time
- Facilitate business valuation
- Experience strategic transformation
5 Steps to create a Business Blueprint
- Set goals
- Identify drivers
- Build the model
- Discover insight
- Connect the model
Set your GPS
Lewis Carroll once said, “If you don’t know where you are going, any road will get you there.” The first step in turning your accounting data into actionable business strategy is setting goals. I recommend you avoid investing time and effort in difficult and time-consuming budgeting. Instead, focus your efforts on planning and forecasting to achieve both short term and long term goals.
Right On Target
- Establish period-based (quarterly or annual) revenue goals.
- Monitor pretax profit margins and compare them to industry averages.
- Adjust your goals if needed to achieve your core capital target.
Your business is a machine
Archimedes discovered and used the power of the lever. This Greek mathematician and inventor once said, “Give me a place to stand and rest my lever on, and I can move the Earth.” Think of your business as a machine. What levers can you pull to move your business closer to your goals?
Push the Right Buttons
- Analyze historical revenue per product, product line, salesperson, and location.
- Use forecasting to plan headcount additions. This will ensure you fulfill your targeted number of orders and satisfy customer support needs.
- Develop targeted levels of investment in equipment and operating costs to reach sales and profitability goals.
Everything is connected
To build a successful financial model, Wealthpreneurs need to understand how business drivers are connected. The synergy among drivers can often impact the business’s ability to generate cash flow.
Connect the Dots
- Determine which expenses strongly drive new sales.
- As sales increase, identify necessary expense increases.
- Evaluate the overall impact on cash flow from changes in expenses and sales.
Time to reap the harvest!
Once you have set your goals, identified the success drivers, and built your forecasting model, you are ready to enjoy the fruits of your labor! Your Business Blueprint will highlight insights and maximize the informational value of the data generated by your accounting and financial analysis software.
Taking Action
- Identify levers you can pull to grow your revenue faster than your expenses increase. You could expand the use of automation in customer service, invest in an inbound or outbound sales strategy, or change your mix of products and services.
- Consider pulling one big lever or several small levers. The results of this effort will drive your forecasting and cash flow planning.
Putting the pieces together
Manually executing the Business Blueprint process takes time and effort. Instead, try connecting your forecasting model to compatible cloud-based accounting software. A connected data flow will simplify the data import process and increase the accuracy of your forecast. The software will be able to roll your quarterly and annual projections forward by comparing forecasted results to actual results.
A shortcut to success
As Yogi Berra once observed, “If you don’t know where you are going, you might wind up someplace else.” Most software packages come with a high cost and a steep learning curve. To connect the dots effortlessly, many Wealthpreneurs work with a fractionalized CFO services provider like us.
