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Succeeding in Tough Times: A Guide to Business Continuity

Succeeding in Tough Times: A Guide to Business Continuity

It’s no secret that times have been tough for a record number of businesses across the world in the wake of the global pandemic.

For business owners in every country, the question of continuity has been a big one over the last 18 months. Running a successful business is already challenging enough — but throw an unforeseen set of factors into the mix and many entrepreneurs find themselves navigating uncharted territory more now than ever before.

So, how do you keep your business succeeding in tough times?

Are there practical steps you can take to keep your business running in the black no matter what’s happening in the world?

Here at Insight CA, we have some good news: yes — and it’s far simpler than you might think. Upping your chances of business success actually isn’t that hard, even in tough times like these.

Before we dive into our ‘this-seems way too easy’ guide to business continuity and succeeding in tough times, let’s have a quick word about risk.”

A word about risk

At every stage in the game, risk management is a concern for small to medium (SME) business owners. And while each business is unique, we’ve found that business owners of all shapes and sizes have common experiences and share common concerns.

As a business owner, it’s easy to believe that you have a viable level of control over external factors that affect your business. You might be confident that you’re adequately managing your risks — even though this may not actually be the case.

Risk management can be a literal minefield littered with unforeseen circumstances and surprises around every corner. And while there is no ‘one-size-fits-all’ solution, the starting point is for business owners to identify and prioritise the risks that affect their business. 

Risks can develop quickly and unpredictably, even if your business operations are riding an even keel in the black. It’s not always safe to assume that the status quo is a given, and your business’s operating conditions are always subject to significant impact — even in periods of success.

For instance, take the global pandemic.

Who would have guessed that in the space of a few weeks, we’d witness the lockdown of entire countries, suspension of stock markets, international travel bans and massive market volatility. It’s a testament to just how interconnected we are as a world and how vulnerable our economies really are.

Success in our ever-evolving, modern world means more than just embracing change — it means understanding and managing the broader risks that come with running a business. And knowing just how quickly you’ll have to duck and dodge.

So, what are some reliable, foolproof ways to circumvent risk within your business?

Here are a few tried-and-tested tips from the experts.

Mitigating risks 

What do all the best athletes, entrepreneurs, and business people in the world have in common?

They’ll all tell you that when it comes to minimising risk, it is crucial to move quickly.

You may be thinking, “Alright, duly noted — but what is the first real step I can take to set this in motion?”

We hear you.

Many SMEs are looking for solutions, ways to lighten their load — but they can’t do it alone. Especially during uncertain times, SME business owners need the added support of a trusted business advisor.

A rising number of SMEs are being overwhelmed with surmounting challenges and increasing pressures facing their businesses, with a staggering 61% of SMEs reporting a high (29%) or very high (32%) degree of owner reliance, according to our 2021 SME Report.  The silver lining: business owners can alleviate the pressures behind these numbers simply by bringing in an advisory professional.

And while profit margins and bottom lines are what SME business owners scrutinise most, the support provided by a trusted adviser goes well beyond looking at the numbers.

Speak with your chartered accountant or business advisor as soon as possible about your concerns and business goals. They can help you to re-examine your business plan — and to do it with a sense of urgency.

It’s a great place to start, and a relatively small step that might just inch you closer to a successful outcome.

Don’t make the mistake of waiting. Procrastination can work against you when you’re dealing with risks like volatile markets and global economic concerns.

What is your current situation and how is your business planning for the future? After a careful assessment, you may find that it’s time to scrap your current regime and start fresh.

Another thing to remember: advice can go a longer way than you think.

Both independent and objective advice (from qualified and experienced professionals, of course) can help you to curtail risk and position your business for long-term success.

And it can ultimately mean the difference between your business thriving or simply surviving.

The bottom line: throw everything at the wall and see what sticks. When times are tough, it can’t hurt to gather as much knowledge and information as possible. Having more information at your disposal will enable you to pick and choose which practical applications work for your business’s specific situation.

To help you quickly assess existing risks within your business that may be affecting your profitability, check out our handy Risk Survey, a diagnostic tool designed to help you benchmark your company against the industry.

Protect your best assets 

Have you got a few select clients that are really your bread and butter?

It turns out that those high value customers are more important now than ever before.

As times change, so does your B2B and B2C dynamic. Rapid and unpredictable change on the global stage will likely shift how each and every one of your clients does business. For you, it’s about being there to accommodate that constant influx of change in your clients’ situation.

And to foster trust in the process.

Make contact. Reach out to your highest grossing customers to remind them what’s on your services menu and that you’re there to offer your continued support.

Even more good news: this slice of high ticket clients likely makes up just a small fraction of your overall customer base, so this process shouldn’t be too time-consuming.

Checking in often will help to establish a rapport with your most valuable clients, who are likely grasping for a helping hand now more than ever.

Protect these key relationships and you’ll construct a safety net that can not only carry you through tough times but also pave the way for more potential business down the line.

Reduce your costs

When times are tough, you’ll need to rethink many aspects of your business. And it may be time to take a systematic approach.

Perform a cost-benefit analysis. Place your current assets under the microscope. Are your fixed costs as low as they could be? How many variable costs does your business handle each month? Have you got any unnecessary expenses floating around under the radar?

For doing business in tough times, you’ll want to keep your fixed costs low. Try to eliminate any superfluous or extraneous expenses that don’t ultimately increase profitability, like non-trading costs.

Variable costs, on the other hand, could work in your favour. Investigate ways to migrate your business’s expenses from fixed to variable. Outsourcing is often an effective variable cost strategy.

For some valuable guidance about improving your business’s performance, check out our 2021 SME Report, a comprehensive guide for curtailing risks and optimising your business in the current climate.

Take care of your own

Did you know that you can use periods of risk as opportunities to touch base with your staff?

It doesn’t stop at keeping your highest-grossing clients warm.

So, go ahead — give your staff some added incentives to remain with your company. Is there a holiday coming up where your employees could use a day off to do some shopping? Do you have a few star employees that deserve some recognition to boost morale?

Ask yourself: why not take a human approach when dealing with your staff? This can go a lot further than you might think — and keep your best and brightest from jumping ship.

Simply put: increase morale and you’ll also increase employee retention. The two are directly proportional.

Highlighting achievements within your team is actually one of the smartest moves you can make as a business owner, and it costs you absolutely nothing. Employees who feel seen, heard, and recognised will often make efforts to maintain consistency, synergise with other employees, and generally work happier. And as the old adage suggests, happier workers work harder.

Taking care of your own is a simple, low-cost, and effective way to keep your business strong and strengthen your bottom line.

Because at the end of the day, your high-profile customers aren’t your only asset — your staff is the behind-the-scenes driver of these key business connections.

Collect Cash

Collecting cash from your customers in these tough times may prove more difficult than it used to be.

Watch your cash flow carefully. You may even consider amending your policies to focus more on debtor collection and stock management.

This means placing tighter limits on the amount of credit you extend to your customers. 

And if you have exposure to large customers, it may be time to obtain some assurances or guarantees about how they will pay their account. Speak with their accounts payable or billing departments to make sure a concrete, ironclad arrangement is in place.

Be proactive. Take decisive action in a predictive way — rather than a reactionary way.

Follow up on your largest customer accounts before they become overdue. This practice will insulate you from having to chase down your highest grossing customers later. Protect yourself now by exercising a little more caution than you normally might. In the long run, you’ll be glad you did.

But what about investing?

We’re glad you asked.

Keep your stock ordering proportional to customer sales. If your sales are falling, lean out your investment strategy and take fewer liberties than you ordinarily might.

Desperate times call for desperate measures, so trim the fat by exercising a bit more frugality during uncertain times. This will allow you to save capital for when markets bounce back to better numbers.

Remember: if your customers’ tendencies, spending habits, and general behaviours are trailing in a certain direction, you must adjust course to suit. Trends within your own customer pool are usually good indicators of what’s on the horizon — so act accordingly.

Hiding in plain sight

Risk isn’t always external, and it doesn’t always look so obvious. It often hides in plain sight — and it could be lurking between the lines in your own company.

And the answer goes far beyond HR.

Before you take a gander at restructuring your internal job structure, we urge you to reconsider reducing your staff or eliminating job roles from within your company. Cutting your workforce scarcely solves long-term expenditure issues — and it could leave you shorthanded (and vulnerable) once market fluctuations die down.

A viable solution? Perhaps some of your existing employees could learn how to multi-skill to increase their per-hour employee returns.

We think it goes without saying that as a business owner, you must be prepared to make some hard decisions — especially during tough times. Multi-purposing your already existing staff, while challenging, could be one of the smartest plays to make sure you’re better prepared to face ongoing external risks.

Remember: tough times don’t necessarily call for staff reduction!

Risk, meet Reward. 

A precariously wise man once said, “There can be no reward without risk.”

And while we are inclined to agree, we think that risk can and should be curtailed at every opportunity.

When you implement the simple, effective, and low cost strategies we’ve outlined in this guide, you’ll find that risk transforms into reward. And that reward is the impenetrable continuity of your business.

Want to know more?

If you’d like to speak to someone about mitigating risk and keeping your business running successfully in these tough times, get in contact with us today to organise a free, no obligation chat. We will listen and formulate the best strategies to help you achieve your goals. Alternatively, click on the Book A Call button now to get started.

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Are you looking to improve your cash flow and make it more consistent? If so, we recommend reading this article next for just the right strategies you should know about.

The Key to Managing Debt for Small Businesses

The Key to Managing Debt for Small Businesses

Challenges for small businesses coping with debt

Taking risks is part of running a small business and debt is one of those risks, but it is also a positive tool for small businesses that is usually necessary in order to fund your growth or keep you afloat. You can’t easily plan for recession, pandemics, natural disasters, or other negative events, because if you take a too-cautious approach then you’ll never succeed. But sometimes the odds will go against you.

If you find yourself unexpectedly further in debt than you’d like, don’t panic. There are options available but they require action. If you sit back passively and wait for the worst to happen, it just might.

So take action. Manage what you owe before it becomes unmanageable. Here are some useful tips to help you take control of your debts.

Understand your situation and take action

If you’re facing increasing debt, take action instead of hoping for the best. If you fail to make payments on your debts, the consequences are often disastrous. They can include loss of employees, seizure of stock and costly court cases brought by your creditors.

Potentially worse than that is the risk of government intervention. If you fail to pay the taxes you owe, the government will come after their money.

Depending on where you live in the world, governments have the authority to get their money any way they can. They can seize your business assets, help themselves to the contents of your bank account, declare you bankrupt and even take personal assets such as your house or car. Sometimes this can be done without even a court hearing.

So stay sharp and aware of your situation. Use good quality accounting software to keep a close eye on your outstanding debt and monthly payments. This information should be at your fingertips at all times.

After that, your priorities will depend on the type of business you run and how flexible your suppliers are willing to be. The following payment priorities are suggestions, but the actual order is for you to decide:

  • Payroll
    If you don’t pay your employees’ wages on time you may be penalised for this. You may be able to renegotiate contracts with some staff, but that’s likely to affect their morale.
  • Suppliers and business partners
    Avoid losing valuable goodwill with your most loyal suppliers and business partners.
  • Aged payables (60 days or more)
    If you don’t pay, your credit score will be impacted, which will affect your ability to borrow money in the future.
  • Bills
    Outgoing costs such as rent and utility bills need to be paid to keep the lights on! And again, not paying these could affect your credit rating.
  • Secured debts
    If you run your business as a sole proprietor or partnership, you might be held personally liable for debts, and creditors could try to take your assets. This is one good reason to form a corporation or limited liability company.
  • Insurance
    Especially professional indemnity and public liability cover.
  • Credit cards
    Avoid penalties or interest charges as these can pile up quickly.

Good accounting software is vital here. Without it you’ll have little idea who, and how much, you’re paying each month.

Renegotiate, refinance or consolidate bank loans

You may be able to renegotiate your bank loan so it’s spread over a longer term, to reduce the interest payments and also the monthly repayment cost.

The bank may want to charge a higher rate due to the perceived increased risk of default, so you won’t save as much money as you might like. Even so, this can give you some breathing space.

You may be able to combine your business loans into one payment that will reduce monthly costs and not adversely affect your credit score? Talk to debt consolidation companies about this, but read the small print carefully.

Consider refinancing, if your credit record will allow it.

Discuss more favorable payment terms

Talk to all your creditors. Explain the situation and make it clear you have a comprehensive plan for resolving it. Stay positive – tell them you want to pay in full but need to renegotiate terms for that to happen. They should understand that it’s in their interest to accommodate your request. After all, if your business fails they’ll get nothing back.

Be proactive here. If you approach your creditors before they start chasing you for missed payments, they’re more likely to take you seriously and agree to your terms.

Increase your revenue

Easier said than done, of course, but there are ways you can boost short-term revenue. By taking action, you could reduce your debt payments enough to get you back on track.

  • Offer your customers mark-downs or reduced prices
    Discounts for fast payment can help improve your cash flow.
  • Get to know your customers better
    Get their feedback on your business so you can tailor what you sell to meet their needs better – and maybe charge a mark-up for doing so.
  • Meet with your accountant, financial planner or banker
    Share your business plans and see if they can introduce you to some of their other clients, perhaps in exchange for a small finder’s fee.

Reduce business costs: Three tips to consider

Think about where you can cut costs. Use accounting software to list your largest outgoings and see where you can make reductions. For example:

  1. Reduce the amount of space you rent or lease, especially if you’re not using it all.
  2. Consider making some employees redundant, but be careful about hiring too many short-term consultants instead – as that can work out to be more expensive.
  3.  Negotiate with suppliers. Don’t be shy about asking for discounts, especially if you buy in bulk or place regular large orders and have a good payment history.

Be intelligent about where you cut costs

You might feel like you need to cut costs to the bone when debt looms over you, but sometimes it can be counter-productive. For example, consider the global economy. Some countries chose ‘austerity’ because of excessive debt – yet they suffered with more sluggish economies than those that tried government stimulus exercises (at least in the short term).

There are different schools of economic thought about this, but don’t assume cutting costs will automatically save you money. It’s where and how you cut costs that matters.

For example, if you slash your marketing budget you might save a lot of money in the short term, but you will lose potential new clients. Cut your shop floor space and you’ll save rent, but reduce the range of stock you can display to customers. Make some of your staff redundant, and you won’t be able to handle any larger contracts that come your way.

Cut when you need to, but do it sensibly. Before you start, use accounting software to forecast the financial impacts of different cost-cutting options. Trim the fat out of your business, not the muscle.

Raise funds to pay your debts

This will be difficult. A new business that’s free from debt is a better investment proposition than one that’s having financial problems. Still, you have choices:

  • Borrow from friends or family
    This can be awkward and could strain your relationships, but you may get favorable rates.
  • Liquidate assets
    Creditors are likely to accept this because they’ll want to be paid at least something, and this way they’ll get a better deal than if you went bankrupt. Their only other option might be litigation, and that’s timely and expensive.
  • Look for new investors
    Be aware that any new money will be expensive for you. Investors who might have wanted 5% of your new business in exchange for their money might want 30% now you’re in difficulties.

Read more about ways to finance your business in our guide.

Be realistic about your options

More than a third of business owners are less than comfortable about their levels of debt, so you’re not alone. Do everything you can to keep your business running, and talk to local business advisory agencies to see what help they can offer.

With luck and perseverance, you’ll be able to turn your business around. But if things don’t improve, you may have to consider closing your business and declaring bankruptcy. That would hurt, of course, but it doesn’t have to be the end of your dreams.

Many entrepreneurs fail in business at least once before finding a successful strategy. And as long as you learn from the experience, you may be able to bounce back stronger next time.

Contact Us

If you’re struggling to find a debt repayment plan that works or if you need help understanding your numbers, let’s chat. Through our CFO Program, we aim to provide you with accurate financial information to help you manage debt or grow your business. Book a free, no-obligation call below. 

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Cashflow Forecasting Will Save Your Business During a Crisis

Cashflow Forecasting Will Save Your Business During a Crisis

How cashflow forecasting can save you

To properly navigate the future path of your cashflow, you need to start forecasting – so you can map out your financial position over the coming months and can take the appropriate action to safeguard your cash position.

Plus, when you have access to detailed forecasts you can scenario-plan, search for cost-savings and look for strategies that will preserve your cashflow position.

Projecting your cashflow pipeline forwards during a crisis is vital.

Forecasting your future cash pipeline

Remaining in control of the cash coming into (and going out of) the business is the real focus, so you can accurately predict your financial position and can resolve any issues.

Key ways to get more from your forecasting

  • Run regular forecasts – The financial landscape is changing on a daily basis at present. A cashflow forecast is not a document that remains static. Variables and external drivers are literally changing each day, so it’s vital that you run frequent forecasts and react swiftly to any projected cash issues as they become apparent.
  • Use the latest cashflow forecasting apps – cashflow forecasting apps, like Fluidly, Float, or Futrli, integrate with your Xero accounts, giving a drilled-down view of how your cash inflows and outflows will pan out over the coming months – information that will inform and justify the decisions you make during these extremely challenging times.
  • Explore the right revenue streams – most sectors will have seen their face-to-face sales drop to absolute zero since quarantine restrictions came into place. To overcome this, there’s a real imperative to explore revenue streams and new opportunities for income. An example of this is coffee shops that now sell roasted beans online (this will depend on lockdown restrictions). The idea is to find ways to increase the money that’s coming in the door and balance out your unavoidable expenses.
  • Get proactive with cost-cutting – if you can reduce cash outflows to a minimum, that will have a real impact on the health of your future cashflow. Pare back your operations and aim to reduce things like unnecessary software subscriptions, or over-ordering of basic supplies. Negotiating cheaper rates with suppliers, if possible, will also help.
  • Review your staffing needs – now’s not the time to make anyone redundant, but you can look at ways to reduce the costs of staffing and resourcing. Reducing working hours or redeploying staff in different roles are all options that reduce payroll costs, while also looking after your staff’s welfare.
  • Run a variety of scenarios – changing the financial drivers in your forecast model allows you to scenario-plan different strategies and options. Many of these will be in a long-term plan when restrictions ease. Scenario-planning lets you answer questions and will give you some hard evidence on which to base your decision-making and strategic outlook over the coming months.
  • Look at various ways to access funding – if forecasts show a giant cashflow hole coming up, you’re going to need additional funding to get through this crisis. We can assist your business to investigate funding opportunities from grants, banks, loan providers, alternative lenders and crowd-sourcing funders.

Contact Us

Do you need help with creating a cashflow forecast for your business? Forecasting is an important step to give you the business intelligence to support your decision-making, if you need any help, let’s chat, book a free, no-obligation call with us.

cash flow management

Want to know if you’re managing your cash flow properly? Click here to find out the signs of poor cashflow management.

Increase Your Sales Without Increasing Your Advertisement Budget

Increase Your Sales Without Increasing Your Advertisement Budget

Are you looking for ways to increase sales without blowing through all of the advertising money? Have you explored every opportunity to extract the most value from your current contacts and customers? 

Here are five suggestions that will get us where we want with less cash outlay. 

Referrals 

If every customer referred one person to you, your business would double. Most businesses say they rely on “word of mouth”, but very few have a system in place to generate those referrals. Do not assume that customers are reluctant to make referrals. Your customers like you, trust you, and believe you provide quality and value, exceeding that offered by your competitors. Otherwise they’d be using someone else! But you have to make it easy and rewarding to refer others to you, (they won’t always be thinking of you; it is your responsibility to remind them).  

The best way, is to just ask them for referrals. Identify your good customers and tell them you appreciate their business and want more loyal customers like them. Most people will be flattered and only too keen to help. Give them a voucher to give away, and another one to keep for themselves.  It’s a great way to generate low-cost advertising and increase your sales: your customers send visitors and earn a small reward (or receive a small percentage of every sale), then those new customers refer their friends, who refer their friends, and so on! 

Another idea, is to invite your best customers to a Customer Appreciation evening, (whether it be in person or virtually) and ask them to bring one or two friends along. This must be an event that provides genuine value. Make it all about them, not you. Do not make it a sales pitch.  

Before long, you can have an army of loyal customers actively promoting your business – with every new referral, you exponentially increase the chance of getting more customers. And all for the price of a small commission on each sale or some other loyalty reward. 

Joint advertising 

If your advertising or lead-generation ideas have failed in the past, it’s very likely to have arisen because you have targeted “cold” prospects, i.e. people who don’t know you and/or have never bought from you before. But you will achieve much better results, (300-400% better results) if you seek leads/referrals through your existing database. This is because you have an existing relationship with these people. They know you, trust you and are more likely to act on any offer you make – compared with people who haven’t dealt with you before.  Also don’t be afraid to re-target your historical database of either closed or lost opportunities, you never know, they may be in the market for your product again. 

But you don’t want to limit your marketing efforts to your existing customers only. There are thousands of new prospects out there to target. But how can you tap into this lucrative market, without approaching them cold? Easy – by approaching them through someone else, who has a pre-existing relationship with them. It’s called “joint venture marketing”, and in my opinion, it is the most exciting and under-utilised form of marketing. Here’s how it works … 

Who do you know locally, (a friend, family member or customer) who owns a business with lots of customers that fit your target market profile; and someone who really looks after their customers? Imagine how great it would be, if they were to tell their customers about you.  

But very few, if any, business owners will help you, if it takes too much time, effort or money; or if there is no benefit to them, in doing so. Therefore, I suggest you print out vouchers or referral cards, for the other business owner to give away to their customers. If done properly, it can make them look like a hero to their customers.  

I know of a mechanic who works with a panel beater. He gives the panel beater the following vouchers to give away to customers, (with a short note to say nice things about the mechanic): 

  • A free set of wiper blades (fitted); 
  • A free WOF; 
  • A free engine steam clean; 
  • A half price service; 
  • A free safety check. 

The more generous that your offer is, the more likely it is the prospect will take up the offer. The cost of the offer is your investment to gain a new customer.  

Let me finish by saying, that this tool has the ability to return tens of thousands of dollars in extra business, especially when you consider the lifetime value of a customer. It costs very little to implement and will set you apart from all your competitors – how many of them are doing this? 

Here is what you need to do: 

  • Find a joint venture partner, whose customers fit your target market; 
  • Develop a special offer or giveaway, that would appeal to those customers (low cost to you; high value to them); 
  • Create the offer as a voucher, flyer, letter etc; 
  • Approach the other business owner and sell the benefit of the idea, in terms of their interests, not yours. 

Note that joint advertising is rarely an equal proposition: one party almost always pays more than the other, as they stand to gain more from the advertising or bring less to the combined project. Be flexible and ready to compromise. 

Most relevant advertising medium 

Choosing the most relevant advertising channel is absolutely critical in decreasing your advertising costs. You’ll have to do thorough demographical research, or invest a little money in trial-and-error learning to figure out the best medium for your business. 

For example, television and radio offer a massive return on investment for some companies, but if your business targets young adults who spend the majority of their time online, they may be a bad choice. You would almost certainly be better off investing in a combined multi-channel approach using online advertising and running a social media campaign as normally no single advertising channel provides the magic bullet.  

Create loyalty 

It is often said that it is more expensive to get a new customer than to keep an existing one. For this reason, it is important that you strive to build a relationship with your customers. Answer queries quickly, make sure complaints are dealt with swiftly and always try to exceed their expectations. This will ensure that you build a positive, rewarding relationship with your clients, and allow you to decrease your advertising costs in the long run. 

Also, if you want customers to keep coming back, give them a reason to do so. They have already bought from you, so it doesn’t take as much effort to get them to make subsequent purchases. Cafés know how powerful this is, because they offer their coffee cards, e.g. buy 10 coffees and receive your next one free. They know that the free coffee only costs them less than a dollar. 

This strategy works well for businesses who offer products and services that customers buy on a regular basis, as opposed to items they buy rarely.  

Don’t forget the real world 

Depending on your target market, “real world” advertising – as opposed to online, virtual adverts – can still be the best choice. For example, flyers and leaflets can be a very successful, yet inexpensive, form of advertising. The important thing is to ensure that your ads reach the right audience. 

For example, if your target market is women, you should distribute your flyers or leaflets in areas frequented predominantly by them. Ideal areas are near beauty stores, clothes shops, hairdressers, and gymnasiums. This will help ensure that your flyers are reaching the right audience, and are therefore more effective. 

Most successful businesses spend a large chunk of their money on advertising, so it is critical that you get the best possible returns. Don’t just assume that throwing money at an ad campaign will make it work better: research the best medium, consider all the options, then run tests to figure out where and how to invest most effectively. 

Want to know more on how you can grow sales? I have the answer in my new book Starting a Business, Growing A Business. 

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Wondering how you can manage your workload better?

Read: Business Automation Can Ease Workload

6 Reasons To Look at Your Financial Reports

6 Reasons To Look at Your Financial Reports

Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are 6 reasons we recommend that you should start to.

But before we get our 6 reasons, let’s talk very quickly about which reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:

  • The Statement of Financial Performance – also known as the Profit and Loss report (P&L) or the Income Statement – tells you, as the name suggests, how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
  • The Statement of Financial Position – also known as the Balance Sheet shows the value of the business’s Assets, Liabilities and Equity.
    • Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
    • Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
    • Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced
  • Accounts Receivable Ageing report (Aged Receivables) – this shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.
  • Accounts Payable Ageing Report (Aged Payables) – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.

So why bother?

  1. Understand your business better – by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing month by month and it will give you a better understanding of what makes up your profit. It can be helpful to compare periods, or to look at a month by month P&L, so you can clearly see on one page the revenue and expenses month by month. This will help to identify trends in your data and many also help to highlight anomalies in coding/categorising.
  2. Accurate information for lending purposes – If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
  3. Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
  4. Better relationships with your suppliers – Assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
  5. Better cashflow – having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
  6. Better business decision making – Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.

If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business , then get in touch so we can make a time to go through them with you.

Your business success is important to us and we are here to help you.

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ACCOUNTING BASICS: THE PROFIT AND LOSS AND BALANCE SHEET REPORTS

 

 

Accounting basics: the profit and loss and balance sheet reports

Accounting basics: the profit and loss and balance sheet reports

Understanding your finances is a vital part of running your business. But getting down into the nitty-gritty of the company accounts isn’t every entrepreneur’s top skill. If you are new to company accounting, or simply want to expand your knowledge, we can help explain accounting basics.

The profit and loss report and the balance sheet are both key reports when it comes to getting in control of your company’s financial health.

What’s a profit and loss statement?

Your profit and loss statement is commonly called your P&L, but is also referred to as your income statement or statement of earnings. It’s a full breakdown of your company’s revenue (money coming into the company as sales and other business income) and your expenditure (direct costs, overheads, expenses and other costs).

As a business, you obviously want to turn a profit and make money from your venture. Careful observation of your P&L allows you to track your revenues and expenses over a set period of time. You can then look back over the period and see exactly where you’re making money, and where you’re losing money. The more you make, and the less you lose, the greater your profits will be at year-end – and your P&L is your barometer for measuring these metrics.

The P&L statement is good for:

  • Giving you a breakdown of all revenues and relevant costs and expenses
  • Showing the profit and loss figures over a set period of time
  • Summing up your profit and loss for the period to gauge if you’re profitable.

What’s the balance sheet?

The balance sheet gives you a snapshot of your company’s financial health at a given point in time, based on the following accounting equation: ‘Equity = Assets – Liabilities’

The balance sheet shows shows you the company’s:

  • Assets (the things the company owns, including cash)
  • Liabilities (the things the company owes other people)
  • Equity (retained earnings plus the funds you originally invested as shareholders)

Unlike the P&L – which shows you the revenues and expenditure over the course of a given historic period – the balance sheet is best seen as a ‘screenshot’ of your current finances. In a nutshell, it shows you what the company is worth on paper right now, based on the current numbers in your accounts. So it’s a vital tool in your accounting toolbox.

The balance sheet is helpful for:

  • Assessing the current financial position of the company
  • Providing evidence of your financial position to banks, lenders and investors
  • Giving potential buyers an idea of the company’s tangible net asset value, if you plan to sell up.

Talk to us about expanding your accounting skills

If you don’t know your assets from your equity, we don’t blame you. Accounting can be complicated and it takes time to fully grasp all the different terms and processes.

But if you’d like to know more about the basics of your company accounts, we can help. We’ll be happy to run you through your latest management or statutory accounts and explain exactly what each report means – and how it reflects your current performance as a business.

Get in touch to find out more about your accounts.

Find out more about our CFO Program here.

Our Client Onboarding Experience

Our Client Onboarding Experience

We know it can be daunting switching to a new accountant. It might feel like a mammoth task so you just keep putting off. Kind of like making it to the gym to cancel your membership after not going for the last six months. This is why we made sure that our client onboarding experience is as convenient as possible.

Changing accountants doesn’t have to be hard. In fact, our onboarding process makes it seamless. We even contact your accountant to obtain all your information, so you can avoid any awkward conversations about why you’re leaving them.

We start with a complimentary meeting. This helps us get to know you and your business and make sure we’re the right fit for each other. We want to know your goals and how we can work together to ensure these are achieved. We want to ensure we have similar values and expectations. We want to show you how we can add value to your business to ensure you can achieve time, mind, and financial freedom.

After the meeting, if we both agree we’ll work well together, we’ll complete all the boring admin stuff. We’ll request your info from your accountant, iron out any historical creases, and ensure your books are up to date.

Next, we like to meet with our clients to develop their Business Plan. We don’t mean a 30-page plan we create and send to you to gather dust in the bottom drawer. Our Business Plans are succinct and dynamic to act as a decision-making tool for your business. We’ll help you set your goals for the year and break these down into 90-day goals and actions to ensure success. Not all clients choose to have a Business Plan, but our most successful clients have one – it’s best practice.

Then, the work begins. Depending on your selected service plan, this could be a Cashflow Management Coaching so you can plan for inflows and outflows, Tax Planning to ensure you put away enough money for tax, or ongoing Accountability Coaching so you stay on track to achieve your goals.

This is just a handful of the services we offer; we’ll work out your ideal service offering at our initial meeting. Along the way, we’ll keep in touch to review our performance and make sure we’re on track to achieve your goals.

On a side-note, our Quick Queries service means you can get in touch with a question at any time. If it can be raised and resolved within 10 minutes, there’s no charge.

After a year together, we’ll review your progress and celebrate your wins. We’ll also reset your key initiatives, and goals and redefine what success will look like for you in the coming year.

If this sounds like a bit of you, get in touch for your complimentary meeting or to find out more about our firm.

“Progress is impossible without change.” – George Bernard Shaw

How does an accountant save you money?

How does an accountant save you money?

Turning a profit will be high on your list of goals as a business owner. And if you want to generate the best margins, that means keeping an eye on the money that’s going out of the business, as well as what’s coming in. So, how can your accountant save you money?

The days where your accountant just did the bookkeeping, compiled your accounts and filed your tax return are well and truly over. Modern accounting firms are far more interested in helping you with your financial performance, your business strategy and offering flexible value-add services that put you in better control of your finances.

If you partner with the right accountant, we can actually save you money – in both the short, medium and long-term. And that’s good news for the growth of your business.

Key ways your accountant save you money

The less expenditure you have as a company, the bigger your profit margin. It sounds incredibly simple, doesn’t it? – The smaller your costs, the larger your profit. But if you’re not fully in control of your financial management, it’s very difficult to know WHERE you’re spending money, and WHY you’re not achieving your profit targets.

This is where working with a finance professional adds a huge amount of value. Your accountant helps put you back in the driving seat of your finances – and that’s never been more needed than in the current economic climate.

So, what specific things can your accountant do and what will the impact be on the future of your business?

  1. Tax advice and planning – tax costs can be one of your biggest outgoings as a business, so we’ll focus on getting your tax planning under control, applying for all the relevant tax incentives and ensuring you minimise the taxes on your profits. By paying only what you’re legally required to pay – and making use of any reliefs – we can significantly cut your tax spend in the business.
  2. Cashflow management and advice – ‘Cash is King’ may be a cliche, but it’s true. Unless you can balance the cash inflows and outflows from your business, you’ll never have the liquid cash to pay your bills, cover your payroll costs or cover your operational expenses. We’ll show you where money is going out, and coming in, so you achieve the ideal positive cashflow position.
  3. Cost control and spend management – to improve your cashflow, you need to reduce your cash outflows. An important way to do this is to focus on cost control and spend management, reducing your expenditure, removing unnecessary costs and negotiating better deals with your suppliers. The more you cut costs back, the better your cashflow will be and the easier it will be to thrive, grow and become more profitable.
  4. Forecasting and financial modelling – when we understand the key financial drivers in your business, we can build you a full financial model. This allows us to change the variables, run different scenarios and forecast the various future paths of your business. Being able to project these numbers forward gives you a clearer view of the path ahead – and that’s invaluable in the challenging economic times that we all face at present.
  5. Better management reporting and information – your decision-making stands or falls on the information you have available to you. We provide detailed management accounts, breakdowns of key metrics and forecasts of your cashflow, spending, aged debt and revenue – all of which helps you to save money, make sound decisions and keep the revenues flowing into your business.

Talk to us about cutting costs and boosting profit

Rather than running your business on a wing and prayer, by working with an accountant you get a clear picture on your business financials. We’ll help you cut unnecessary costs, optimise the most profitable parts of the business and increase your overall return on investment. You can check out our Financial Awareness Coaching and our Cashflow Management Coaching.

Let’s talk about how we can work together to support your ongoing business profitability. Feel free to drop us an email or a message if you have any questions or book a free, no-obligation call with Murray today.

The Top 6 Things Lenders Want to see in your Financial Reports before they will Lend you Money

The Top 6 Things Lenders Want to see in your Financial Reports before they will Lend you Money

Do you know that financial reports are key documents that enable lenders to make a decision about whether they lend your business money?

You are probably aware of the 5 C’s that lenders look at when they assess an individual’s credit worthiness, namely: character, capacity, capital, collateral and conditionsIn a similar way, lenders can tell from your business’ financial reports whether those criteria are met.

However, financial reports provide a lot deeper insight into assessing the risk the lender takes on when a business borrows money. So it stands to reason that if you want the best chance of borrowing success, then it pays to provide the lender with accurate, high quality information that is available in a timely manner.

It is also important to be prepared for the following questions:
  • How much do you want to borrow?
  • What time frame and how will it be repaid
  • What is an alternative way the loan could be repaid should the business fail
  • Is the loan application request reasonable in the circumstances

Like the 5 C’s of creditworthiness for an individual, there are 6 aspects to creditworthiness for a business that stem from financial reports. They are:

  1. Ratio Analysis
  2. Cash Flow
  3. Operation Risk Assessment
  4. Accuracy of Records
  5. Break Even Analysis
  6. Business Forecasting

The Ratio Analysis and what it reveals about your business

Well, actually there is more than one ratio. A lender may use four different ratios when assessing a lending application for a business.

  • The Working Capital Ratio.(which is Current Assets  / Current Liabilities) Working Capital represents a company’s ability to pay its current liabilities with its current assets. Working capital is an important measure of financial health since lenders can measure a company’s ability to pay off its debts within a year. Assessing the liquidity of a business, or how easily a company can convert assets into cash to pay its short term obligations, is crucial to the Working Capital Ratio. For example: if your company has assets of $10 million and liabilities of $5 million there is a straight forward ratio of 2:1 i.e. Current Assets / Current Liabilities. The lower the ratio, the longer it may take to pay back the lending or subject the borrower to undue stress on working capital.
  • The Quick Ratio or ‘Acid Test’ Ratio. (which is Current Assets-Inventory/ Current Liabilities) This ratio shows how well current liabilities are covered by cash and by items with a ready cash value. Inventory, on the other hand, takes time to sell and convert into liquid assets. This ratio subtracts inventories from current assets, before dividing that figure into liabilities. For example: if your company has assets of $10 million less $3 million in inventory and $5 million in current liabilities the ratio is 1.4:1. Ideally, you want to show a 1:1 ratio, but if your business has less than that it could mean that you turn your inventory over quickly in which case the lender may seek clarification.
  • The Debt-to-Equity Ratio. This ratio shows a potential lender if you are borrowing too much. The debt-to-equity (D/E) is calculated by adding outstanding long and short-term debt, and dividing it by the book value of shareholders’ equity. For example, your company has about $2 million worth of loans and has shareholders’ equity of $10 million. That works out to a modest ratio of 0.20, which is acceptable under most circumstances. However, like all other ratios, the metric has to be analysed in terms of industry norms and company-specific requirements.
  • The Return on Equity Ratio. This ratio determines how valuable a shareholders investment in a company is.  Return on equity is calculated by taking the company’s net earnings (after taxes), subtracting preferred dividends, and dividing the result by common equity dollars in the company. For example, if your company has net earnings of $1.5 million and preferred dividends are $500,000. Take that and divide it by the common equity of $8 million for arguments sake. That gives a ROE of 12.5%. The higher the ROE, the better the company is at generating profits.

The Importance of Cash Flow

You are probably aware that there are two forms of accounting that determine how cash flows within a business; accrual accounting and cash accounting.

Accrual accounting is used by most public companies and is the accounting method where revenue is reported as income when it’s earned rather than when the company receives payment. Expenses are also reported when incurred, even though no cash payments have been made.

Cash accounting is an accounting method in which payment receipts are recorded during the period they are received, and expenses are recorded in the period in which they are paid. Therefore, revenues and expenses are recorded when cash is received and paid, respectively.

From an accounting perspective, your company might be profitable, but if the receivables become past due or uncollected, your company could run into financial problems. Even profitable companies can fail to adequately manage their cash flow, which is why a cash flow statement is a critical tool for lenders to analyse.

How Operational Risk impacts a lender’s decision

Operational risk is the risk of loss resulting from ineffective or failed internal processes, people, systems, or external events that can disrupt the flow of business operations. The losses can be directly or indirectly financial.

Lenders view Operational risk as part of a potential chain reaction of events which may result in an organisational failure that can harm a company’s bottom line and reputation.

As part of this process, a lender may ask you to provide a summary of the following:

  • Any breaches of private data resulting from cybersecurity attacks that have occured
  • Technology risks tied to automation, robotics, and artificial intelligence
  • Business processes and control weaknesses
  • Physical events that can disrupt the business, such as natural disasters and health pandemics for example
  • Circumstances of Internal and external fraud

Why your business must have accurate Financial reports

Having  reports is critical for your business for a range of reasons, including preparing accounts, evaluating tax liabilities, decision making, planning, forecasting and borrowing money.

The many financial reports that must be prepared for your business, provide you with the information needed to establish your business strategy, make management decisions, and understand whether your business is facing a challenge or an opportunity.

Lenders rely on you as the business owner to provide them with accurate financial information. The documents they will request from you are:

  • Statement of Financial Position
  • Statement of Profit and Loss
  • Statement of Changes in Equity
  • Statement of Cash Flows
  • Statement of Balance Sheet
  • Any notes to the financial statements

In addition to the above, lenders may ask for supplementary information that gives a narrative to explain the businesses performance and financial position. Narrative may also be sought for information on business strategies, and prospects for future financial years.

The quality and accuracy of the information you provide a lender supports your case for funding. But not only that, it is a best practice standard to adhere to. And by following best practices, if the time comes that you want to exit your business then it makes the process of compiling your Selling Memorandum that much easier.

What is your Break-Even Analysis?

Break-even analysis involves calculating and examining the margin of safety for a business based on the revenues collected and associated costs. In other words, the analysis shows how many sales it takes to pay for the cost of doing business.

Let’s say that your fixed costs are $3.5 million and your gross margin is 55%. Divide the fixed costs by the gross-margin. This gives us a break-even point of $6.3 million. This determines that your minimum weekly sales requirement is $131,250, based on a 48 week sales funnel

How accurate is your Business Forecasting?

Like any forecast, business forecasting involves making informed views based on modelling.

In the case of a business, the forecasting will involve metrics, regardless of whether they reflect the specifics of a business, such as sales growth, or predictions for the economy as a whole.

Financial and operational decisions are made based on economic conditions and how the future looks taking into account a degree of uncertainty.

A lender may look at how accurate your past forecasting has been and whether you have used qualitative and/or quantitative methods to make your assumptions.

In Summary

So there you have it, 6 things a lender will look at before they will lend you money and how you can demonstrate your businesses creditworthiness.

  • Constantly monitor your financial ratios
  • Understand your cash flow and the impact it has on your business
  • Know your operational risk factors and how to mitigate them
  • Demonstrate Best Practice Standards by having up-to-date accurate information
  • Know your break even point
  • Use qualitative and quantitative methods in your forecasting

Get in touch

If you are confused by accounting and not confident that your financial records will stand up to the scrutiny of a lender, then get in contact with us today via email to organise a free no obligation chat. We will listen and then formulate the best strategies to help you achieve your goals. Alternatively, click on the Book A Call button now to get started.

The Obvious and Unexpected Benefits of Having a Personal Budget

The Obvious and Unexpected Benefits of Having a Personal Budget

Having a personal budget is essential to gaining control of your personal finances. Budgeting doesn’t necessarily mean restriction; it frees up your money, so you know exactly what’s available to spend.


The top 10 benefits of personal budgeting:

  1. Gives you control. Developing your personal budget gives you control over your money. You’ll know how much cash you’ll have coming in and can make a plan for how to spend it.
  2. Focuses you on your money goals. Everyone should have goals for their money. Whether this is paying off debt, increasing your savings, or freeing up more cash to invest in your business, a personal budget will keep you focused on achieving these goals.
  3. Creates awareness of where your money goes. Have you ever looked at your personal drawings from your business and thought ‘we can’t possibly have spent that much money last year!’? You’re not alone. So many people really have no idea what they spend their money on.
  4. Builds better money habits. Reviewing your actual results against your budget each month will encourage you to think about your spending before you spend.
  5. Helps manage debt levels. You’ll be able to plan for unexpected expenses instead of obtaining debt to pay for emergencies. You’ll also be able to allocate more money to debt repayments to become debt free faster.
  6. Helps you achieve your wealth goals. Wealth goals are your long-term financial goals; saving for retirement or major life events. Because these are long-term, you need to start planning the steps to achieve your wealth goals now.
  7. Provides an early warning system. By regularly monitoring your spending, you’ll quickly identify upcoming costs and adjust your spending if required.
  8. Aids communication. Spending time developing your personal budget with your spouse will ensure you’re aligned with your spending plan.
  9. Provides you with more money. If you have a personal budget and stick to it, you’ll end up with more money at the end of the year than you would’ve had without a budget.
  10. Ultimately, it gives you a better life. Not only will you end up with more money, you’ll likely have less conflict and stress over money.

Personal budgeting doesn’t have to be a time-consuming process. Dedicating 1-2 hours a month to budgeting will result in a huge improvement; not only to your bank account, but to your stress levels too.

“A budget is telling your money where to go instead of wondering where it went.” – Dave Ramsay

Contact us if you need help developing your personal budget!

Need a boost? Download a personal budgeting template here.

You might also find our Financial Awareness Coaching and Cashflow Management Coaching relevant and helpful.