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Salt Lake City Bookkeeping Blog

Harnessing the Relationship Between Bookkeeping and Business Strategy

Posted by Leanne Armstrong on Jun 6, 2018 9:00:00 AM

Harnessing the Relationship Between Bookkeeping and Business StrategyEffective accounting strategies are vital for business growth. In fact, gathering, recording, and analyzing your company’s financial information is the best way to gain valuable insight into your short-term and long-term operations.

Your financial statements and other accounting records form the foundation of your company’s individual story. And it’s in the numbers supporting this unfolding tale that we find the power to harness the critical relationship between bookkeeping and business strategy.

Define Your Financial Objectives

Not only does drawing on your company’s historical financial information let you devise the growth strategies most likely to succeed going forward, today’s accounting data is key for determining what you can reasonably expect from your business in terms of tomorrow’s performance.

With that in mind, most business strategies are geared toward a handful of common financial objectives:

  • achieving and maintaining positive cash flow,
  • generating more capital, and
  • growing or expanding your operations

Suffice it to say that any information about the financial health of your organization will show you where improvements can be made to achieve goals like these.

But you should also bear in mind that the smaller or less established your business is, the fewer options you may initially have for turning financial information into complex growth plans. Especially since so many entrepreneurs take advantage of external financing to help get their businesses off the ground.

There’s no ignoring the fact that many financing opportunities promote negative cash outflow in the short term. Why? Because the regular repayments your business must make to benefit from such infusions of capital also take priority where any income is concerned.

But just because you’ve elected to take on a bank loan or some other form of short-term debt, that doesn’t mean you can’t also be working toward a long-term goal of financial success!

Common Growth Strategies

Keeping debt obligations under control is crucial for every business – and it’s particularly important when you’re just starting out. While a large portion of your earliest revenues may be going toward repaying loans however, keeping an informed eye on your financial situation as your business gains traction not only helps you to manage debt better, it’s instrumental in navigating the path toward profitability down the road.

Managing your finances with accurate bookkeeping records is the first step in ensuring that you wring the most value from every sale your company makes. Then, depending on the size and strength of your operations, some viable growth strategies for your business could include:

Boosting Income – This often involves re-evaluating and increasing your prices or finding new ways to cross-sell and up-sell.

Cutting Expenses - A common method for cutting expenses early on is to waive owner salaries until your income supports them.

Streamlining Processes – The key to streamlining the production and supply of goods and services is combining more efficient techniques with less waste where costs and labor are concerned.

Diversification - Increasing or varying your product or service lines may extend your customer reach and help you expand into new markets.

Promoting Key Alliances - Courting and building strategic business relationships or contracts can encourage growth through increased revenues or access to lower-priced resources.

Whichever direction your plans for growth take, finding success with these very different strategies requires both a focus on the individual aspects of your business, and an understanding of how the numbers associated with each element also work together as a whole.

Get Help with Your Harnessing Efforts!

Creating and carrying out a successful business strategy works best with the help of some expert advice. Agencies like the Small Business Administration, for example, are valuable sources of information about:

  • current economic trends,
  • market competition, and
  • consumer demographics in various industries

But when it comes to exploring the specific accounting strategies most relevant to your business, don’t overlook the importance of working with a financial forecasting professional or small business consultant with proven experience in your niche.

Developing a successful business strategy means recognizing that there’s a very delicate balance between income and profit. If your plan to ramp up revenues results in charging more than what most clients will pay, your sales will inevitably suffer. If, on the other hand, your scheme to attract more customers includes dropping your prices, you could end up not earning enough to meet your expenses or debts.

Knowing how to side-step financial landmines like these, while also achieving an internal economy of scale, is one of the biggest benefits of working with a bona fide strategist. In fact, the very best growth opportunities are often those suggested by accounting specialists with the ability to analyze your financial story - past, present, and future – and suggest the most lucrative edits.

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Topics: CFO Consulting, Strategic Planning, Growth Coach