Matt McMichen, CEO and Co-Founder of Margin CFO, recently sat down with Flavia de la Fuente, Director of Operations at Skimmer, to discuss how accounting can help you grow your pool service business. Read the blog for a quick recap of the session, or scroll down for the link to the webinar on demand!
Top takeaways from ‘What Great Accounting Can Do for You’
The first thing that Matt points out is that accounting is not just taxes. It includes filing your taxes, but it’s more than that. It’s bookkeeping, financial reporting, capturing and reconciling expenses, and basically all the financial transactions that impact your business.
Matt says that it’s important to examine your financials in order to analyze your business performance and make decisions accordingly. The financial statements that come from the bookkeeping process are not just for your CPA (though they definitely appreciate it). Rather, they serve a much higher purpose: they inform the business owner (you) on what decisions to make to grow your business.
“The real value that you get from accounting comes into play when you use that same data in your day-to-day process of running the business. So it’s the financial insights that you gain from good accounting that really moves the needle.”
Using financial insights to grow your business
Most people know cash and cash management are the lifeblood of your business. But surprisingly, it can still be neglected. In fact, Matt says the number one reason businesses fail is because of cash flow issues.
“It’s the single most important aspect…The unfortunate truth is that even good businesses that are providing a valuable service fall prey to that and there are countless occasions where businesses have to shut their door because they failed to appropriately manage their cash. So it's definitely a topic that's a bit of a passion point for me because it's so critical,” he says.
Matt says there are two types of financial insights a business owner can use to better manage cash flow, get strong insights into business performance and make strategic decisions for growth: current and historical information, and future and strategic insights.
Current and historical information
This data shows you how healthy your business is today. It can answer the question on every entrepreneur’s mind: Am I profitable?
“Good accounting will give you a very clear objective view into the current health and performance of your business. It gives you information that you need to answer questions like: How am I doing? Am I profitable? Is this service line profitable? How is that profit translating into cash flow? Can I pay my upcoming bills? Who still owes me money?
You get the point. It gives you the information you need to know how you’re doing today, how last month went and allows you to assess if you're on track for your goals.”
These are the numbers that can tell you the current health of your business via line items such as:
- Cash balance
- Where you ended the month, financially
- What payables and receivables you have
- What inventory you have
- Your net incomes
- Your gross margins by revenue stream (regular pool cleaning, repairs, openings and closings etc)
For a refresher on cash flow, watch Skimmer’s webinar on best practices for getting paid faster.
Matt cautions that if you’re only looking at your books once a year, at tax time, it’s too late to get these insights– you’ve already missed out on so many opportunities to optimize cash flow and improve performance throughout the year.
That’s why every CFO will tell you it’s important to look at your numbers regularly (if not every week, then at LEAST every month). These insights will help show you what you can and should correct and how to do it before small inefficiencies become much bigger problems.
Future and strategic insights
According to Matt, your books can be your crystal ball, and give you insights into the future of your business. And this is probably the most value you can get out of accounting. You can see how to get from point A to point B financially. And – arguably more importantly – you can map out what happens if and when you get to point B.
“It's one thing to be able to look at your financial data and past performance and the current health of your balance sheet, but that information can be somewhat useless if you don't then actually act on it and you don't actually change your course of action accordingly,” says Matt.
“So in in addition to answering questions like ‘Where am I today?’ and ‘How did I do?’ through accounting you have the data to answer questions like ‘What should I do next?’.”
Let’s say you want to grow your business from 250 pools serviced to 1000 pools. Yes, that will bring greater revenue for your business, but what about the downstream effects? How much more human resources will you need to keep up with 4x more business? Do you need more trucks? Do you need more personnel? Can you afford full-time or contract employees?
What about charging flat fees for fluctuating chemical prices? Sure, flat fees are easier to manage and explain to customers, but how do they affect your business if prices keep going up? You could be more profitable if you consider alternate pricing models. Mapping this out using your books can help you make a more informed decision.
Modelling out these scenarios from an income and cash flow standpoint will help you better understand how all of this growth will affect your bottom line, and how the added revenue ultimately translates to profits.
The good, better, and best of accounting and finance
Depending on where you are in your business, different levels of accounting may work for your company.
Best is always… best, but realistically not everyone can afford this, especially in the beginning. So consider this scale to help you as your pool company becomes more and more profitable.
“Good” accounting
According to Matt, this is the bare minimum for accounting. Having a decent bookkeeper should be table stakes for all businesses. This is the difference between scrambling at the end of the year trying to catch up and put some semblance of financials together for your CPA versus being able to go into that with financials that you already trust because they've been kept by by someone who knows what they’re doing.
However, this baseline is just the tip of the iceberg and Matt urges folks to not spend too much time at this stage, and aim to quickly move to “better”.
“Better” accounting
Better accounting involves an experienced bookkeeper doing the book regularly and you looking at that data every month.
This means getting into a cadence with your accounting and financial reporting that centers around the month's close. So every single month you and your bookkeeper should come in and close the books which means they should take all of the financial activity and transactions that have happened over that month categorize them in the appropriate places, reconcile your bank statements and your credit card statements, and then generate a set of financial statements for you to review.
This is where you’ll start to understand where you are today and how your business is performing.
“Best” accounting
This is the level where you start getting into actually unpacking and understanding your financials – where you can start to interpret the numbers and plan accordingly.
According to Matt, this top level is where you start to engage somebody in a fractional CFO capacity to help you understand what you're looking at and make decisions accordingly. At this stage, you need somebody that's more trained in accounting, beyond what your day-to-day bookkeeper can do, hence the need to look into a fractional CFO or similar role.
The stages of growth outlined in the graphic below provide a little more information on what your accounting setup should look like per business stage.
Best software for better pool service accounting
When it comes to great accounting, people are only half the equation. It’s also important to understand what different platforms and software can do to help you grow your company.
We recommend having two key systems: A primary accounting system (something like QuickBooks Online or similar) and a system to centralize and manage all your financial transactions. This needs to be something that lets you request, collect, and manage payments all in one place, issue invoices, and send payment reminders without switching software.
Here are a few things to look for considering when looking for the latter:
Is it made for pool service businesses?
Pool service businesses have unique accounting needs, and you want to make sure you have a system that was designed with those needs in mine
Is it standalone, or part of an all-in-one solution?
Ideally, you should look for a solution that’s part of an all-in-one solution for pool and spa service businesses. Systems like Skimmer let you manage all aspects of your business, including routes, scheduling, customer information and billing, which means you can cut down on the number of systems you’re using to run your business.
Does it integrate with your accounting software?
If you’re using something like QuickBooks Online as your accounting system, any software you bring in must be able to pass information to QBO. This helps ensure that all systems are kept up to date and saves you from having to manually enter information.
Does it let you automate key processes?
Part of the value of software is that it automates tedious manual workflows to save you time and cut down on human error. So when you’re looking for software to help make your accounting better, make sure you find one that lets you send electronic invoices, collect payments, and automate billing workflows.
Does it let you accept digital payments?
Your software shouldn’t just make your life easier, it should also make payments easier for your customers. They want convenient, digital experiences, so choose a software that lets you email invoices and accept payments via credit card, ACH, Google Pay, or Apple Pay.
Get the full webinar on demand
This blog is just a small snapshot of everything Matt covered in this webinar. We highly recommend checking out the full session on-demand to learn more about what great accounting can do for your pool business.
