Traditional accounting is crucial for tax reporting, but how do you plan for a more profitable future? While history is important, this knowledge isn´t valuable for businesses preparing for future growth. That´s where proactive accounting comes in. This is also the key to making sound business decisions in real-time.
What is Proactive Accounting?
Proactive accounting is a forward-thinking approach to financial management. Proactive accounting aims to anticipate and plan for potential financial challenges and opportunities rather than waiting until the end of a reporting period to react to financial data.
Examples of proactive accounting include:
- Establishing financial goals and strategies to achieve those goals.
- Identifying key performance indicators (KPIs) to track progress toward financial goals and make data-driven decisions.
- Implementing financial forecasting techniques to identify potential financial challenges and opportunities.
- Creating a target profit and planning the business in a way that allows you to achieve that profit. E.g., increasing expenses!
Essentially, this approach is designed to create your business´ future rather than just looking at it in the rearview mirror.
Did you say increase expenses? Surely, you mean decrease expenses?
Surprisingly, there are times when I suggest that you invest in your business. This may involve increasing software and/or staff so that you can offer additional services or a better-quality service as part of the step-by-step action plan to increase your profits.
Many business owners want to increase profits, and I help them do so by following a three-step process.
Step 1: Have a clean set of books
Having a clean set of books is essential for proactive accounting. This means maintaining accurate and up-to-date financial records, such as income statements, balance sheets, and cash flow statements. With clean books, it is possible to review financial reports, make informed financial decisions, and track progress toward financial goals.
Step 2: Financial forecasting and future KPIs
Once you have clean books, financial forecasting is the next step (and often the most challenging as it takes you out of your comfort zone). This involves analyzing financial data to identify trends and anticipating potential challenges and opportunities so that we can adjust your strategy as needed.
Financial forecasting is a crucial component of proactive accounting, as is establishing financial KPIs:
- By forecasting future financial performance, business owners can make informed decisions about resource allocation, investment decisions, and other financial matters.
- By monitoring KPIs, business owners can make data-driven decisions and adjust their strategies to achieve their financial goals.
Step 3: Implementing the plan
Implementing a plan of action isn’t easy – otherwise, coaches, consultants, and trainers wouldn’t exist! This is because it takes changing habits, accountability, and often, a trial-and-error approach which may result in having to go back to the drawing board and revising the plan altogether.
When it comes to implementation, setting up the right processes to review your financial reporting regularly is critical, and this is where cloud-based accounting software comes in. This software is an essential tool for proactive accounting as it allows business owners to access financial data in real-time from anywhere with an internet connection – so that they can make informed decisions about their finances quickly and easily.
With cloud-based accounting software, you can instantly get answers to these questions:
- Am I making the money that I set out to make?
- If I am, why does it not show in my bank account?
- Why can’t I pay my bills?
- Is my gross margin better or worse than my competitors?
- How can I keep my tax bill to a minimum?
- How can I take money out of the business most efficiently?
Whether you want to review your data weekly or monthly, we can help you implement your action plan with the right tools to streamline your financial reporting process. What’s more, is that we also do a thorough review of your monthly expenses. Knowing your carrying costs are essential – as you need to know what you need to cover your expenses even if you don’t earn a penny one month – and we can also help you determine what you can cut out or cut down on.
Start looking through the windscreen rather than just the rearview mirror
Reactive accounting is looking back, and while that’s important for its reasons, you can’t drive your business forward unless you’re looking in that direction. You wouldn’t drive a car without looking through the windscreen, so don’t do the same in your business. To drive your business successfully, you must look at both to know where you’re going.
Proactive accounting is a powerful tool for business owners to take control of their financial future. Why? Because this forward-thinking approach to financial management leads to intentional business growth and resilience, both of which are essential in an ever-changing economy.
Want to take your business ahead of the game and achieve long-term success?
Get in touch with us today to discuss how a proactive approach can benefit your business. Whether it’s monthly bookkeeping services, accounting, or CFO services, a proactive approach is needed to keep you competitive.
