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Four questions this work exists to answer.
The answers come from costing, pricing, forecasting, budgets you check against, and the systems underneath them.
The work that fills the calendar is not always the work that pays best.
Seen in week one, the week eight dip is a scheduling decision. Seen in week eight, it is a phone call to the bank.
It is a vague word, so here is the substance of it. Four things shape this kind of reporting, and each is a choice made to fit the business rather than a rule applied to it.
What it is for is the decision a bank balance cannot answer: whether to take the big contract, whether to hire, whether the price is right, whether the equipment pays for itself.
The most useful question a small business can answer is which work makes money. Getting to it is usually a structural problem: books set up to produce a tax return put revenue in one account and costs in another, with nothing tying either to the job that generated them.
Set up properly, it can change how you sell. One thing worth testing is whether your largest work is your best work: big jobs carry more management time and longer payment delays, and are more often won on price, so the revenue ranking and the margin ranking need not agree. Sometimes they do. The point is that it becomes a measurement rather than an impression.
What it takes:
This is more natural in some businesses than others. Trades and contractors and manufacturers get the most out of it. It is also why the setup work matters more than the reporting: get the structure right and the reports are a by-product.
The same exercise run by customer rather than by job answers a different and often uncomfortable question. Customer profitability accounts for what an account actually costs to serve, including the revisions, the chasing, the callbacks and the payment delay. A customer who takes up a quarter of your week at standard prices can be worth less than a smaller one who takes up none of it.
There is a more elaborate approach, activity-based costing, which traces overhead to the activities that drive it rather than spreading it over labour hours. It is the more accurate method and for most owner-managed businesses it is more machinery than the question warrants. A sensible allocation you understand and apply consistently will get you to the same decisions.
If your capacity is limited by one thing, and in a small business it usually is, the profitability question changes shape. One crew. One machine. One truck. One person who can do the specialized part.
When something is constrained, the work worth taking is not the work with the best margin overall, but the work that produces the most margin per hour of the constraint. A job with a healthy margin that occupies the bottleneck for three days can be worth less than a thinner job that clears it in an afternoon.
Job A earns two and a half times as much and is worth less than half as much per day of the thing you cannot make more of. This only holds while the machine is the binding constraint and there is enough Job B work to be had. If the calendar has gaps, the comparison changes.
Identifying which resource is genuinely the constraint is most of the exercise.
Profit and cash are not the same thing, and the gap between them is where businesses get into trouble while trading well.
Four things sit in that gap, and none of them appear as an expense on your income statement:
None of the four middle bars is an expense, so none of them appears on the income statement. The business made $180,000 and has $16,000 more in the bank.
A forecast does not need to be elaborate. Thirteen weeks forward, updated as things move, is enough to see a squeeze in time to do something about it: chase early, delay a purchase, draw on a facility while a bank will still discuss it calmly. The value is entirely in the timing of the warning.
A budget prepared once and filed is a document. A budget compared against actual results every month is a management tool, and the difference is the comparison rather than the budget.
The useful version is short. A handful of lines that matter, reviewed regularly, with attention on the differences rather than on the total. When a cost runs 20% over, the question is whether something changed, whether the estimate was wrong, or whether it is timing. All three answers are useful and all three lead somewhere.
Alongside it, a handful of calculations worth having. None take long once the cost structure is understood.
If your contribution margin is 30% and you cut your price by 10%, the margin on that work does not fall by 10%. It falls to 20%, because the discount comes out of the margin rather than out of the costs.
To make the same total contribution, you now need to sell half as much again, and that assumes the extra volume costs nothing more to deliver.
It runs the other way too. A 5% price increase on the same margin means you could lose around a seventh of your volume and be no worse off.
Two limits on this, because it is arithmetic rather than a pricing strategy. It tells you the volume change that would leave you level; it does not predict how customers will actually respond, which is a judgment about your market. And it assumes the extra work needs capacity you would otherwise pay for anyway. Where a genuine gap in the schedule would otherwise sit empty, work at a lower margin can still be worth taking, which is the opposite conclusion from the same numbers.
Two businesses with the same revenue and the same profit can respond quite differently to the same slow quarter, depending on how much of the cost base is fixed. High fixed costs, premises, salaried staff and financed equipment, amplify the result in both directions. Knowing which kind you are tells you how much cash to keep in reserve.
Sensitivity analysis sits on top of that: take the forecast and move one assumption at a time. Volume down 10%. Materials up 8%. Your largest customer gone. The point is not the individual answers but finding which variable moves the outcome most.
Five to seven measures, reviewed consistently, are worth more than a comprehensive monthly pack. Which ones depend on the business, but they tend to come from a short list:
There is a well-established idea behind this, the balanced scorecard, developed by Kaplan and Norton in the early nineties. The argument is that financial measures are all lagging indicators. They report faithfully on a quarter that has already happened and cannot be changed.
So it looks at a business from four angles instead of one: the money, the customers, how the work actually runs internally, and the capability of the people doing it. The last three are leading indicators. They move first, and the financial numbers follow.
In practice this is less abstract than it sounds. Revenue tells you what happened last quarter. Your win rate, your rework rate and whether you are losing experienced staff tell you what next quarter is going to look like, and they tell you now, while there is still time to act. A small business does not need the full framework. It needs two or three measures that are not financial ones, watched with the same seriousness as the bank balance.
Reports are only as good as the structure underneath them. A default chart of accounts is written for a generic business: revenue on one line, costs grouped by supplier rather than by purpose, nothing separating the parts of the business that behave differently. It produces a correct tax return and little else.
What is worth doing:
Done once, this is the work that makes everything else on this page cheap. Skipped, every report is a reconstruction.
I work mainly in QuickBooks Online and Xero, and can work with most cloud systems. Which platform you are on matters considerably less than how it has been set up, which is why almost all of this section is about the setup.
So if your books are already somewhere and working, that is rarely a reason on its own to move. Migration costs real money, loses history, and tends to arrive at a bad moment. Where a change is genuinely warranted, it goes better done deliberately at a year end than partway through one.
A dashboard shows the few numbers above without opening the accounting software or waiting for a month end. At its best it turns a monthly conversation into a glance.
One caveat worth stating. A dashboard built on records that are behind or miscoded presents wrong numbers confidently, and people act on them. Reporting is the last step rather than the first. Where the bookkeeping is current and the chart of accounts is right, it is cheap to add and gets used.
Most small businesses run on several systems at once: the accounting file, a spreadsheet someone maintains, the invoicing or job management tool, the point of sale, the bank. Where the numbers disagree, reconciling them by hand each month costs somebody real time.
The work here is unglamorous and pays back quickly. Connecting the systems that will talk to each other. Replacing a spreadsheet only one person can run. Agreeing which system is the authority when two disagree.
Receipts are the usual place to start, because it is the one everybody feels. A capture tool such as Dext reads a photographed receipt or a forwarded supplier invoice, pulls out the figures and posts it through to the accounting file, so the record is made at the point of spending rather than reconstructed from a folder months later. It also means the receipt itself is stored against the transaction, which is exactly what you want if the CRA ever asks to see it.
Reporting is not the point of any of it. These are the questions the work exists to answer.
Quoting is where costing turns into money. The costs that get missed are rarely the materials. They are the travel, the return visit, the scheduling time, the equipment idle between stages, and the share of overhead the job should carry.
Once direct costs are separated from overhead in the books, quotes can be built from the same structure that later reports on them. The actual result then comes back in the same categories the quote was written in, which is what makes the next quote better than the last.
Worth checking on any quote: whether it covers its own direct costs and contributes to overhead, what happens to the margin if it runs 15% over, and whether the price assumes payment on time.
A wage is the smallest part of the answer. The real cost includes CPP and EI, vacation pay, WSIB and Employer Health Tax where applicable, equipment, and the unbillable weeks at the start while someone learns the work. See payroll for what the employer side involves.
Against that sits the question of what the hire releases. If it frees the owner from work that pays less than the work they would otherwise do, the arithmetic can be strong even when the wage looks uncomfortable. If it adds capacity that is not currently constrained, it adds cost and nothing else. The bottleneck question above decides which of those you are looking at.
The other half is cash rather than profit. Payroll runs every two weeks from the day they start, while the revenue they enable arrives later, so a hire that is profitable over a year can still be a squeeze over a quarter.
Three separate questions get compressed into one here, and separating them helps.
Borrowing changes who your reporting is for. A lender is reading for a different purpose than you are, and being able to produce what they want, quickly and without drama, affects both the answer and the terms.
What tends to be asked for:
If you already have loans, the agreements likely contain covenants: ratios you have promised to maintain, tested at intervals. Common ones are debt to equity, a coverage ratio measuring whether earnings comfortably cover the payments, and limits on further borrowing or on how much the owners can draw.
Two things follow. A covenant can be breached by a profitable year, if that year involved heavy borrowing or large drawings. And a breach is far more manageable raised in advance than discovered by the bank at testing, when the options narrow considerably. Knowing where you sit against the ratios before the year closes is most of the value.
Almost everything on this page depends on your books being on an accrual basis, because job costing and margin by type of work need revenue sitting in the same period as the costs that produced it. Cash-basis records cannot do that: they report the month the money arrived, not the month the work happened.
That choice carries its own consequences for the tax return, for what your lender sees, and for a set of related decisions about how your statements are prepared. It is enough of a subject on its own that it has its own page.
Cash basis or accrual covers what Canadian tax actually requires, the farming exception, why guidance written for US businesses leads people wrong, how the year end conversion works, and the accounting policy choices that sit alongside it.
The advisory market is largely built around monthly retainers, and a full outsourced finance function in Canada runs into thousands of dollars a month. That is the right answer for a company doing several million in revenue. For most businesses around here it is more than the question needs.
| A project | One defined piece of work with an end. Setting up the system properly, building a costing model, putting together a forecast for the bank. Fixed price, and then it is yours |
|---|---|
| Training | I set it up and show you or your staff how to run it, so the ongoing cost is your time rather than my fee. This is the better answer more often than it is offered |
| Ad hoc | By the question. Lease or buy, price this contract or walk away, what does this covenant mean. No retainer, no minimum |
| Monthly | Reporting and a standing conversation each month. Worth it once the decisions are frequent enough that starting from scratch each time is the expensive part |
Most of this work fits into one of the first three, and it is worth being clear which one you are buying before anything is priced.
Plainly, because this is discretionary work and I would rather you spent it well.
It is usually worth it when:
It is usually not worth it when:
If the honest answer is that your year end and bookkeeping are all you need right now, that is a perfectly good place to be, and I will say so.
A conversation first, to find out what decision you are trying to make. Most of these engagements start with a specific question rather than a wish for better reporting.
Then a fixed price in writing before anything begins, and a scope that says what you get. Some of this work is a one-off, such as setting up a system or building a costing model you then run yourself. Some of it is monthly. Neither is better, and it is worth being clear which one you are buying.
Bookkeeping records what happened, accurately and on time. This uses those records to answer questions about what to do next. They depend on each other: reliable bookkeeping is the precondition, and without it none of this work is worth commissioning.
Often not. More frequently the software is fine and the way it was set up is the problem, particularly the chart of accounts. Changing software is disruptive and worth avoiding unless the current one genuinely cannot do what you need.
Yes, and it is usually the better arrangement. They know your day to day and cost less per hour for the recording work. My part is the structure and the interpretation. The two roles fit together without difficulty as long as it is clear who is doing what.
No. This is management accounting for your business: costing, forecasting, budgeting and reporting. Advice about investments or financial products requires separate registration, and is not something I provide.
For most businesses the tax return is prepared on an accrual basis regardless, since income for tax purposes is computed on ordinary commercial principles. Farmers and fishers are the significant exception and may use the cash method. Plenty of small businesses keep cash-based records through the year and convert at year end, which is workable but is where errors tend to sit. If you want the reporting to tell you which work is profitable, accrual is what makes that possible, because it puts revenue in the same period as the costs that produced it.
More than most people expect, because the discount comes entirely out of your margin. At a 30% contribution margin, a 10% price cut takes the margin on that work down to 20%, so you need to sell half as much again to make the same total contribution. And that assumes the additional volume costs nothing extra to deliver. The same arithmetic in reverse is why a modest price increase is usually worth more than it feels.
Usually some combination of four things, none of which reduce reported profit: money tied up in receivables, money tied up in inventory or work in progress, loan principal repayments, and tax instalments. A short cash flow forecast makes the pattern visible, and the fix is often a change in timing rather than a change in the business.
This page describes services in general terms. What is useful depends on your business, and the honest scope is worth settling in a conversation before anything is priced.
Management reporting is prepared for internal use and is marked accordingly. It is not financial statements, it carries no assurance, and it is not intended for a lender, an investor, a purchaser or anyone else outside the business to rely on. Where figures are needed for someone outside, that is a separate engagement.
That is usually the fastest way into this. Twenty minutes, no charge.
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