software costs service gross margin Archives

BELOW GROUND

You have little to no engagement with your accounts.

The qualifiers.

No vendor relationships, you resell retail products
No differentiation between cost of good and expenses
You digitally submit and approve time cards
No collection of sales tax
Late payments on account (tax return is in arrears, late loan repayments)

Some big (and simple) changes would reshape your position but you’re gonna want to take action pretty quickly.

Stage 1

You can pull data from your numbers. You’re in a position to use this information strategically to grow your business.

The qualifiers.

You review accounts payables and receivables on a monthly basis
You’re cloud based and accounts are synced with third party apps
You digitally submit and approve time cards
You close accounting records within 30 days of month end
You’ve documented the monthly close procedures
Your Professional Services Automation (PSA) is connected to your accounting file

You’re on the right track! Now it’s time to pull your accounting processes up to the same standard as your client-facing procedures. If you do, you’ll gain powerful insight into your business.

Stage 3

You’re able to use your finances to inform business decisions.

The qualifiers.

You use a standardized industry chart of accounts for robust reporting and benchmarking
You measure 5 important KPIs
Your income statement outlines profitability for each service
You digitally receive all client payments (no more than two different methods)
You divide payroll, payroll taxes and benefits into COGS, administrative and sales expenses according to each employee

You’re in a position to use your financial data to strategize, forecast and implement long-term goals.

BASECAMP

Accounting is an afterthought but you get around to it.

The qualifiers.

You reconcile all transactions within 90 days
You allocate revenue and expenses to the right P&L accounts
You divide distributions proportional to ownership
You split loan payments between principal and interest
You separate personal and business expenses

A shift in mindset will bring stability and growth within your reach.

STAGE 2

You’re fully in control. You’re compliant and engaged.

The qualifiers.

You digitally record, approve, sync and pay all invoices
You digitally capture and store receipts and expenses
You gauge pricing on expected profit margins
Your payroll is automatically synced to the accounting file
Owners are compensated at market rate to ensure accurate profitability metrics
Owners know the net profit and cash flow at month end

You can pull data from your numbers. You’re in a position to use this information strategically to grow your business.

STAGE 4 (THE SUMMIT).

Peak performance. Your finances and systems are operating at maximum efficiency.

The qualifiers.

You’re maintaining a cashflow forecast
You use an industry benchmark and identify where you can improve
You maintain policies and procedures regarding assets, sales tax and core accounting processes
You identify and document characteristics of ideal companies
You cultivate a network of trusted (and potential) financial partners

With streamlined processes, readily available data and dynamic long-term strategy, the backend of your business supports powerful growth.

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