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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: , , , , , , , ,

understanding of the numbers for business is very evident…

October 22, 2011 By Leave a Comment

I found your attitude to be infectious and enjoyable. Your understanding of the numbers for business is very evident and I had some ‘a ha’ moments. Thanks for a revealing workshop.

Regards Ray Briene – Craig’s Homestyle Furniture La-z-Boy Gallery Rockingham

Filed Under: Profits, Testimonials 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: , , , , , , , , ,

Do you know what your financial position is going to be like in three months’ time?

October 4, 2011 By 1 Comment

Most business owners do not know what their financial position will be next month let alone three, six or twelve months in advance. What impact would knowing where your business will be financially in say, three months’ time have on your business?

Here are five steps to get you on the road to foretelling the future in your business.

  1. Set a budget
    Plan your goals and set yourself targets in terms of your turnover as well as related costs. Consider what you want to happen in your business. What do you want to achieve in terms of revenue based over the whole year and then broken down on a monthly basis?
  2. Track your progress
    Track what you plan against what actually happens and compare the two outcomes. Measure and track, measure and track, measure and track. That is the only way that you are going to be able to forecast what your financial position will be in three, or six, or even twelve months’ time.
  3. Tweak your plan
    Adjust your plan to help you reach your goals. This is where you tweak your budget as the months go by. You want to make sure that the variance between what you plan to happen and what actually happens gets smaller and smaller each month giving you the ability to accurately forecast income and expenses for your business.
  4. Analyse the difference
    Find out why differences occur and what has happened to take you off track. This will enable you to narrow the difference between what you want to happen and what actually happens. The more you do this, the more accurately you will be able to forecast what will happen in coming months.
  5. Recognise the difference
    Now that you are forecasting pretty accurately in terms of the performance of your business, the performance of your revenue and the performance of your expenses, you need to consider off Profit and Loss payments – outgoings that are going out of your bank account which do not appear on your Profit and Loss Statement. These include payments you make to the tax office, loan repayments, hire-purchase agreements and business owner drawings that are not part of a wage or salary.

By encompassing what has happened in steps one, two, three and four, your Profit and Loss Statement, and then bringing in step five, your bank account, you are now able to see what the true financial position of your business will be in three months’ time.

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

Why is there a difference between my Profit and Loss Statement and my cash flow?

September 27, 2011 By Leave a Comment

The most confusing area for small business owners can be understanding what is actually happening in their accounts.

Product based industry

The biggest challenge that product based industries face is the actual product they sell – stock. The key element to understanding the difference between your profit and your cash flow lies in a number of variables:

  • How long you are holding your stock
  • How long it takes you to pay your suppliers for that stock
  • How long it takes you to get paid by your customers for that stock

Your Profit and Loss Statement shows purchases and sales. It records the sales transaction, but it does not record how long you are holding the stock item, how long it takes you to sell that specific item or how long it takes your customers to pay you. That is all shown through your bank account. Your bank account is your cash flow and this reflects the real transaction. These variables have the biggest impact in terms of the differences you will experience.

Service based industry

For service based industries the theory is essentially the same, as the challenge lies with your ‘stock’, that is your time. The variables you need to consider are:

  • How long you are keeping work you do for clients in a ‘work in progress’ state
  • How long it takes you to charge out your time
  • How long it takes you to pay your suppliers (i.e. contractors/staff)
  • How long it takes for your customers to pay you

General considerations

Identifying payments that go through your bank account that are not captured on your Profit and Loss Statement impacts all industries. Often small businesses don’t understand what these are. When working out differences, be sure to include the ‘off P&L’ items such as:

  • Loan repayments
  • GST payments
  • PAYG payments
  • Other Tax Office payments
  • Hire-Purchase payments
  • Business owner drawings (if you are not paying yourself a salary/wage through your payroll)

These items are not allocated to your P&L Statement/Report, so if you draw from your P&L and deduct these items you should be able to get a reality check in terms of what is truly happening in your business. To get the real picture you need to look at all these factors, not just your P&L in isolation.

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

The Missing Link Syndrome

September 20, 2011 By Leave a Comment

Did you know that more than 87% of small business failures are because they do not understand the money side of their business?  That is a scary statistic isn’t it.  And one that should not be taken lightly!  This statistic is the basis of my ‘Missing Link Syndrome’.  Most business owners do not have a financial or accounting background and many the numbers side of their business makes their head spin.  Does that sound like you?  If so, I have some bad news for you….

You  need to understand key numbers in your business and that the missing link in your business is you!

You most likely have a bookkeeper and an accountant, but what about all the in-between information that is really important for you to understand.  You are the only person that can get the information in order to gain an insight into your business’ performance.  You know your business better than anyone else; but you also need to know your numbers better than anyone else if you do not want to end up in that 87%.  I am not talking about knowing all your numbers, just the key numbers directly related to communicating how your business is really performing.

How?

You could enlist help from your bookkeeper to provide information; you could choose to go over this with your accountant  regularly, or you could partner with other people in the market  that can really help you.  Confident Cashflows was designed to fill this missing link for business owner providing products and services to help businesses fill the ‘missing link’.

If you need advice on which questions to ask to get the right information, check out either of my articles “How to choose a good bookkeeper‘ or ‘Why doesn’t my accountant give me more information on how my business is really performing’.

 

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

Why doesn’t my accountant give me more information on how my business is performing?

September 13, 2011 By 1 Comment

Your accountant’s responsibility is to tie your figures together for the year, to make sure that you’re complying with all legal requirements in terms of the Australian Securities and Investment Commission (ASIC) and also to ensure you’re deducting the correct amounts and paying the right tax. So, your accountant’s core focus in terms of what they call ‘financial accounting’ is to make sure that third parties are happy – those third parties being the tax man and organizations like ASIC. Accountants generally do not provide specific feedback on how your business is performing.

Unless you ask your accountant for the specific information you are looking for, in terms of how your business is performing, they are not going to give it to you. The best tip I can give you in this situation is to ASK for the information you require. It will likely cost you a little more in accountant’s fees, but you need to have correct and up-to-date information regarding your business’ current performance, how it performed this year compared to last year, how your balance sheet is looking in terms of your assets and liabilities, how your business has grown during the year etc. These are questions you need to be asking your accountant in order to get the answers that you, the business owner, need in order to fill the missing links.

You needn’t wait till the end of the year to ask these questions. In some cases, a business will only provide information to their accountant six months following year end. If you’re asking for information at that time, theoretically the information is already up to 18 months old. By that time any damage that has been done cannot be undone.

So, if you are not getting this information from your bookkeeper or accountant or if you are not able to interpret the information on your own, you need to find someone to help. This may be your bookkeeper, your accountant or a consultant such as Confident Cashflows.

Filed Under: Accounting, Business Financial Mangement, Financial Literacy, Financial Management

Choosing accounting software for your business

September 6, 2011 By 1 Comment

Choosing accounting and data entry software for your business is much the same as choosing a car. Some people prefer Fords, some like Toyotas, but what it comes down to is your preference. Accounting and data entry software is no different. It is a preference for the business owner and what works for you. There are many cloud based software solutions available with a range of features and benefits:

  • the software allows everyone to work on the same file at the same time
  • as a business owner, you can carry on with business (if using a Point-of-Sale system) while your bookkeeper or accountant accesses the system or enters data
  • simultaneous use of files and data without interruption
  • consultants can access information from anywhere
  • there is no confusion regarding the latest backup
  • it is easy to use

I personally like cloud based software as it means I can access detailed information without interrupting your business.

When choosing accounting and data entry software remember that there are many available and some are marketed more than others, but this doesn’t mean to say they are necessarily better. You really need to find what will work for you in your business and also consider what your bookkeeper and accountant prefer.

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

How to understand what your accountant is saying!

August 30, 2011 By 1 Comment

All professions have their own jargon and accountants speak a language foreign to most business owners called ‘accountanese’. Just the same as website designers and IT guys speak a language I call ‘ITgeekspeak’.

Do you sometimes feel overwhelmed when you leave your accountant’s office thinking, ‘Why can’t they just speak English?’ You have just spent an hour or so with them and you still have no idea where your business is actually at.

If you have ever experienced this feeling here are some tips to remember for the next time you meet or speak with your accountant and they are not speaking your language:

  • Tell them to STOP
  • Ask them to speak in layman’s terms
  • Ask for answers relevant to your business
  • Ask questions that will give you the information you need for YOUR business

Business owners do not necessarily want nor need to know what the ‘return on equity’ is, for example. There are a myriad of accounting ratios that indicate performance; however, they do not tell you what profit you are really making, what your profit is this month compared to last month or to the same time last year, what your cash flow looks like, why there is a difference between your Profit and Loss Statement and what is happening in your bank account, or whether your staff are performing efficiently and are bringing in enough revenue.

You need to ask your accountant how long it takes for you to get money in from your clients or customers, and how long on average it takes for you to pay your suppliers. These are questions that are paramount to understanding cash flow in your business. Questions like these are simple for your accountant to answer.

The best form of advice I can give you is: Ask specific questions related to YOU and YOUR business; don’t ask for general feedback. Think about the specific pain areas that you are experiencing in your business and the challenges you are facing. Asking specific questions directly related to your business will help your accountant identify the exact information you are looking for. With accurate, plain English answers in hand, you will be able to make the necessary changes that will improve your future profit and loss and the performance of your bank account!

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