I’ve heard so many event business owners talk about how they can’t stand accounting or say that they “have an accountant for that”. If you’re one of those people, then this article is for you!
It’s easy to pass off the elements of your business that you don’t understand (or don’t want to understand), but the challenge is, how do you know that it is being done correctly? The simple answer is, you don’t.
Understanding your business financials isn’t simply about keeping the books in order, it’s about really knowing where the financial health of your event business stands and how well it is performing today, as well as in the future. Accounting can be daunting but taking the time to understand it can payoff tenfold when it comes to the success of your business.
Wondering if you need to understand your business financials a bit better? Here are some warning signs you need to take a closer look:
1. Do you have ups and downs?
If some months your business does extremely well and other months you are scrambling to pay bills, this may be a sign of poor cash-flow management for slow periods of your business, or that your client payment terms are too generous.
For example: You may pay your event suppliers within 15 days of the event, but your client takes 45 days to pay you. That means that you are carrying the cost of the event for 30 days. Your accountant can help you look at this and determine if a new policy is required.
2. Are you wondering where your money is going?
If you can’t figure out why you’re not making any money when your gross revenue and sales are doing great, then you may have poor control over your expenses or inventory. You might also have poor bookkeeping practices, which makes it nearly impossible to keep track of where your money is actually going.
3. Not all debt is bad, but… Are you paying it off or is your debt just getting bigger?
Maybe your sales are great, but your debt is increasing alongside of your revenue. This may be a sign of poor financial planning, a lack of a realistic budget, or little to no management of expenses.
Yes, in many cases your business will require access to borrowed funds to grow or expand, but before making the decision to make a purchase or to hire more staff with a debt cash injection, make sure that you can afford the debt and have a plan to pay it back. In other words – you need to have realistic projections and a debt repayment plan in place. Knowing how much your monthly payments are on a loan is not enough.
4. Do you keep saying that you “just need to increase your sales” and everything would be better?
That may be true; however, increasing your sales may not be the right solution. In fact, it may bring a whole host of other problems if your business isn’t set up to handle the additional workload. Increasing your sales is not a magic bullet that’ll make your financial problems go away. Some businesses are more profitable with lower gross revenues than larger companies with higher gross revenues. Take a look at your margins and profitability first before attempting to increase your revenue.
5. Do you know your monthly break-even amount?
If you don’t know how much you need to make in revenue each month to cover your expenses before making a profit, you’re working in the dark. Knowing your numbers intimately and monitoring them on a frequent basis will help you understand where your business stands.
6. Are you even paying yourself?
Is all your money going back into the business? Is your personal salary extremely low? Many people love to volunteer for the love of their business, but if your business is your only source of income or if you’re having to maintain other jobs on the side to survive, then you need to investigate why this is happening – unless you’re happy to continue working in this way.
7. Have you ever said “I have no idea what I’m looking at” when looking at your financial documents?
If you feel intimidated of accounting, it’s not because you’re incapable, it’s because you haven’t taken the time to learn. Businesses that know their numbers inside and out tend to perform better over the long term.
When you look at your financials frequently, it can help you make better strategic decisions. One of the first places you should look is your books, especially if your business is struggling, as they can give you a better idea of the financial health of your company.
8. Have you ever signed a tax return without looking at and reviewing the accuracy of the enclosed documents?
Finding a great bookkeeper and accountant that you trust is crucial but remember that relying on them completely is a mistake. If they make errors on your tax returns or financial statements, the government will be coming after you and not your accountant. That’s why it’s important to learn some basic accounting, monitor your financials often, and read the documents you’re asked to sign.
9. Do you avoid your accountant or would rather focus on other areas of your business?
Avoidance or claiming that you’re too busy to worry about your accounting is the equivalent of hiding from your problems with your head in the sand. Even if you don’t have any specific problems, you might be missing out on an opportunity to save money or prepare for the growth of your business. If you don’t like or understand your books and financial statements, it’s time to learn or have your accountant explain them to you.
10. Don’t trust your accountant?
Time to find a new one or work on your relationship. Accountants can help you identify opportunities for growth and increased profitability, investigate current or potential problems, and even find possible efficiencies. They are there to help you do better.
However, make sure to find an accountant that will help you figure out a way to make things happen rather than just saying “no” to everything. Develop a strong and trusting relationship with your accountant and treat them as an important member of your team. Involve them in strategic planning of your business or hire a CFO as they will have valuable input, harmonizing creativity with feasibility.
Bottom line is, don’t just hire an accountant, LEARN and pay attention to your accounting. You might be surprised what you find.
How do you keep on top of your event business’ financials? Let us know in the comments!
President, COO, Event Leadership Institute
Michael Granek, CSEP, MBA is a successful entrepreneur and award-winning event producer with over two decades of experience in the special events and entertainment industries. As President, COO of the Event Leadership Institute, Michael applies his diverse background of business management, adult education and special events experience to connect event professionals with leading industry education, training & professional development.
Previous to the Event Leadership Institute, Michael discovered his passion for fostering the next generation of event leaders during his role as Academic Director at The Art Institute of Vancouver. In this position, Michael managed the program’s department and faculty, designed and developed curriculum, instructed various events-related courses, and developed un-paralleled partnerships between the events industry and education. He has also participated in the MPI Meeting and Business Events Competency Standards (MBECS) Faculty Forum, has judged various event industry awards, and has delivered numerous seminars and training workshops at leading industry conferences, colleges, and universities.
Passionate about the growth and development of the events industry, Michael has served on the board of ILEA Vancouver Chapter for eight years, three of those as Chapter President. Currently, he is a member of the ILEA education council and sits on the board of the MPI BC Chapter.