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How do I overcome ‘Missing Link Syndrome’?

November 16, 2011 By 1 Comment

Every business spends money on either a bookkeeper or an accountant and in some cases, both. So, why do 87% of businesses fail because they don’t understand their numbers?  This is what I call the ‘Missing Link Syndrome’.  The missing link is you, the business owner. The information you are missing is what is happening on a monthly basis, throughout the year. In order to be successful it is your responsibility to know what is actually happening in your business.

How do you do this?

  • Review what is happening in your business on a monthly basis
  • Regularly print out your Profit and Loss Statement
  • Ask your bookkeeper or accountant specific questions in relation to your reports
  • Initiate discussions with your bookkeeper or accountant to find out how your business is really performing – in real time
  • If you don’t understand the terms they are using, ask them to speak a language you can understand

You can’t just leave it up to your accountant and bookkeeper to deliver this information; it is your responsibility to fill the missing link in your business, to find out what’s really happening and how your business is performing. Once you begin looking at your reports regularly and asking the right questions you will be able to get the correct information you need to increase profitability and cash flow.

Filed Under: Accounting, Business Financial Mangement, Cash Flow, Financial Management Tagged With: , , , , , , , , , , , ,

Why budgets in business are a must have!

November 7, 2011 By 2 Comments

Many business owners fail to set a budget and don’t consider this to be important for them. They either think they are not big enough to need one or they have one ‘in their head’. So, why is it important for every business to set a budget?

A budget is the success plan for a business. As the famous proverb says: ‘Those who fail to plan, plan to fail.’

A budget helps you plan to reach goals within your business, making sure you are earning the income you want and are in control of the costs related to that income.

Firstly, you need to know how many items/hours you must sell per month to reach your goal income. This is phased over a 12 month period. If you are currently not able to work out this part of how you will earn your goal income, then you are not setting your business up for success.

Secondly, you need to match the costs related to your goal income in order to achieve that goal. If you’re a service based industry, you will have direct costs related to each hour that you charge out. You need to work out exactly how much each hour actually costs you i.e. subcontractor/staff costs, rent, electricity and other regular costs such as subscriptions and memberships.

By having a firm plan in place you can easily see, over the year, in which months you are making a profit and you can track this against each individual month to see how your business actually performed in relation to your budget. When you are able to see what you planned and what actually happened, you will then be able to easily identify any differences – where they occurred, why they happened and how you can adjust your budget or spending to get on track.

As the business owner you know your business and can come up with the answers you need. You are the one who will know if there is a seasonal impact, a change in the economy, or any other relevant variables.

Remember, if you do not have control over your costs you won’t know if you are on track to your goal profit. A budget also helps you to identify the standard for cash flow within your business. You cannot maintain cash flow without setting a plan in terms of what is happening with your income and expenses.

So setting a budget is really important for making sure you achieve the profit and obviously the cash flows that you want in your business.

Filed Under: Accounting, Budgets, Business Financial Mangement, Financial Management Tagged With: , , , , , , , , , ,

How do I set a budget?

October 26, 2011 By 1 Comment

How businesses set and follow budgets is obviously very important. Setting a budget can actually be easier than you think. You need to look at the past three years within your business and ask yourself: how did the business do in terms of revenue and expenditure? Look at trends within your business. What regular payments you are making at certain times of the year e.g. insurance or subscriptions. From there, work out the standard flow of income and expenses within your business.

Putting this information ‘down on paper’ is the key as then you can easily see what has happened at any given time. To make this process easier, I suggest tracking this information in an Excel spreadsheet.

I offer a set of Excel templates for use in your business. One of these templates will simplify the process and make it easier for you to set and work with a budget.

Filed Under: Accounting, Budgets, Business Financial Mangement, Financial Management Tagged With: , , , , , , , ,

How do I increase profit with limited time available?

October 19, 2011 By 2 Comments

If your small business falls under the service based industry category and are charging by the hour, increasing profit can often present challenges. There are two aspects to profit: the first is your income, and the second is the expenses you deduct from that income to get your profit.

In the Service Based Industry Webinars I run, I spend a lot of time with service based industries on what I call a ‘Revenue Model’. This revenue model looks at marketing and moving people down your sales funnel, but also helps you determine your costs for each hour that you charge out. So rather than only looking at your charge out rate you need to look at your costs for each hour. For example, you need to consider staff that you have working with you – how much do they cost you per hour?

For example, I recently worked with a client who runs a gardening service. When looking at his revenue model, we considered the following:

  • Staff costs
  • Vehicle running and maintenance costs
  • Machinery running and maintenance costs

By considering these additional factors we were able to determine what his ‘true costs’ were. We then looked at his hourly rate to ensure he was making a profit and that this was the best profit for his business.

Another way you may be able to increase revenue in your service based business is to look at the information and knowledge that you can share with the outside world. Sharing this information can enable you to earn passive income. Adding information marketing to your business can add a revenue stream that can be working for you 24/7, 365 days a year!

Filed Under: Accounting, Business Financial Mangement, Cash Flow, Financial Health Check, Financial Management, Profits Tagged With: , , , , , , , , , , ,

What is the difference between a bookkeeper and an accountant?

October 11, 2011 By 1 Comment

There is quite a difference in what your bookkeeper can do for your business and what your accountant will do for your business.

A bookkeeper deals with the source documentation of your business. They record data for payments and receipts, they reconcile your bank account, in some cases they can deal with your customers e.g. following up on outstanding debtor accounts, and they may also help you pay your suppliers. In Australia, they may also complete your BAS (Business Activity Statement) on your behalf. However, it depends on the size of your business as to exactly what role your bookkeeper plays.

Your accountant, on the other hand, is only concerned with year end. They are interested in what has happened over the whole year and making sure you comply with legislation and are getting the right deductions in terms of tax. Your accountant then helps you work out what tax you need to pay at the end of the year.

So, your bookkeeper looks at your figures on a monthly or quarterly basis whereas your accountant is really only looking at your figures on an annual basis.

In some cases your accountant can fill both roles, bookkeeping and accounting, but your bookkeeper cannot complete accounting functions. Obviously there are different qualifications and experience required to fill an accountant’s role.

Filed Under: Accounting, Business Financial Mangement, Financial Management Tagged With: , , , , , , , , ,
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