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Honey Anyone? A Strategic Look at the People Numbers

Fri, 28 Feb 2020 20:09:33 GMT

Whether or not you like honey, you probably know that honey bees live in large well-organised groups. As social (versus solitary) insects, they engage in complex tasks like delegating their workload, communicating clearly, building a nest, keeping a (compound) eye on environmental changes, collecting food, rearing the brood and defending against invading forces.

That’s a lot of work… so honey bees develop a hierarchy comprising workers, drones, and a queen – an organisational chart. Each member has a definite task to perform – a job description. Still, surviving and reproducing take the combined efforts of the entire colony.

Honey bees don’t have to keep a set of accounts. But your business does which means you have valuable data on your people, their roles and your organisation. Leaders are charged with managing the challenges and opportunities associated with your team and it’s smart to make use of that data.

In fact, business leaders are increasingly making personnel decisions based on ‘the numbers’. Accountants are uniquely positioned to help leaders access and interpret those numbers. Here are some business opportunities arising from personnel data:

1) Human Resource (HR)

An easy place to start. How much are you currently investing in HR? On the face of it, this refers to the payroll costs but training and HR systems should be included. HR investment can be expressed as a percentage of revenue or profit. And how is it changing? A large increase in HR investment while revenue stays the same implies a decrease in productivity.

2) Human Resource Structure

We can drill deeper into the components of the workforce. What proportion of HR spend is on middle management? Or factory labour? Or sales? Or marketing? Or customer relations? Are you satisfied you are getting value for your HR investment in these areas?

3) HR Budgeting

Businesses need to figure out how they invest in HR in the coming months and years. How will you fill critical vacancies and at what cost? Filling roles through internal promotions can have very different financial implications than hiring from outside. Modelling this will help management to make critical decisions.

4) Retaining Talent

It is easy to calculate employee churn rates, that is, the number of employees who leave voluntarily as a percentage of the total workforce. Is management comfortable with these numbers and what is the trend?

5) HR Risk Analysis

A large workforce implies some business risk which will vary based on certain contractual terms. Some of this risk can be mitigated by hiring contractors. What is the breakdown of employees / contractors and what is your risk profile?

6) Professional Development Investment

How much are you investing in training and what are you getting in return? Does this vary by employee group? What would happen if you doubled your investment? Or halved it?

Accessing this information may take some time at first but can then be rolled into periodic reports for further analysis. That will result in formulation of sensible HR strategy.

Here’s the irony: almost all leaders will say that ‘our people are our most important asset’ or words to that effect. But many have no sense of how to measure the impact of changes in HR strategy. How many public company annual reports have you seen with a lot of information on human capital?

We recommend clients get serious about understanding their workforce based on the numbers. The businesses who do so will taste sweet success … just like those honey bees!!

Protecting Your Assets and Securing Your Future

Fri, 15 Nov 2019 20:15:18 GMT

The dominant lion may lounge around the place… but when his territory and pride are threatened, he’ll stop at nothing to protect them. And a typical gorilla father will go to battle with other males, who are known to kill baby gorillas as they try to take over the group. Meanwhile, Emperor Penguin dads are super protective over their mates, their young and the nest, possibly because they play an important role in keeping the eggs warm – balancing it between their bellies and the top of their toes!

These animals are all involved in some kind of asset protection … and it’s often a matter of life and death.

No surprise that humans need to take asset protection seriously too and the stakes can be pretty high. Asset Protection involves keeping your property out of the hands of someone asserting a right against you, perhaps to satisfy a loan or because of litigation. It is sensible to engage in Asset Protection Planning, whereby non-exempt assets (those subject to creditors’ claims) are repositioned as exempt assets (those not accessible to creditors).

Let’s be clear that there are laws in most territories that protect creditors against the transfer of assets with the intent to hinder, delay, or defraud a creditor. These transfers will likely be deemed fraudulent and may be reversed by a court. So Asset Protection Planning needs to begin early on the basis that life is uncertain, business is uncertain and there is always the chance of claims against assets.

It’s essential to consider this early. And talk to an advisor. Your accountant is well-placed to help you!

Most humans will not have to fight an invader to the death but neglecting to plan can have devastating consequences.

Take this short questionnaire to find out if your assets are currently protected.

Lifestyle by Design

Mon, 21 Oct 2019 20:20:03 GMT

The concept of lifestyle design has certainly gained a lot of traction in the global community of entrepreneurs in recent years. Notable industry influencers including Tim Ferris, author of the 4-Hour Work Week, have pointedly made the assertion that owning a business needs to mean more than just balance sheets and bank accounts. Certainly, there are financial rewards for the effort, risk and ambition necessary to operate a thriving business. But, monetary success can be achieved with more reliability and definitely less stress in corporate employment. The real allure of entrepreneurship is the opportunity to design the business lifestyle based on your terms. This means making your own rules, setting your own goals, building your own path and pursuing what you value. For most of us, it’s this promise of living life on our own terms that drove us to leave the safe but unfulfilling work we had.

Unfortunately, not many business owners are living life by their own design. In fact, many business owners struggle to do much more than keep the operation going. Often jumping from one fire to the next, one day to the next. This happens for many reasons, but there are three excuses that stand out as both common and surmountable.

Excuse #1 – “I’m the only one who knows how”
Solution – Teach someone. While you are undoubtedly talented and experienced, you’re most likely not a rocket scientist. And as it turns out, even rocket scientists are taught by other rocket scientists. To be a strong leader means to be a strong teacher. Anything can be taught, given the student is willing to learn and a detailed plan is created and followed. The good news is you don’t need to teach one person how to do your job. Divide your responsibilities, evaluate the strengths of your team and then delegate individual responsibilities to the team members that are most likely to excel at each responsibility.
Excuse #2 – “I’m the only one my clients will deal with”
Solution – Elevate someone. If you really have the credibility you believe you have with your clients, use it. Introduce someone on your team as your protege, your right-hand man, the person behind the scenes really making things happen. Bring them to meetings, have them sit in on calls and demonstrate their competence. Relationships are definitely more delicate and complex than administrative responsibilities. The transition will take longer, but it’s critical in your effort to step away from operations and focus on growth, your family, your next business or even your golf game. What is it you want again?
Excuse #3 – “I don’t have time to work on this right now.”
Solution – How many times have you said those words? For how many years? This will never change if you don’t take action. If you dedicated 5 hours a week for 6 months and that yielded 20 hours a week to pursue projects you were passionate about, would you make that trade? Much of the time will be created by simply implementing the two previous solutions. Business happens fast and life happens faster. The time to act is now.

If your business isn’t providing you with the life you imagined, there are absolutely things you can start doing today to right the ship. Priority number one has to be assessing everything you do, right now, that no one else is doing. Once you’ve identified these, the next step is to build systems, policies and procedures that empower people on your team to take over three of those tasks. Finally, you need to delegate those tasks to the appropriate people and take responsibility for training them effectively. In six months, move on to the next three tasks on the list and repeat the process.

Is it that easy? Yes and no. To greatly increase the potential for success, it’s essential to accurately identify the opportunities and implement the correct solutions, which often takes a second or even third pair of eyes. We recommend working with a business advisor, who can provide clarity and guidance at each stage. We’ve worked with many of our small business clients in this endeavor and we’re confident just a conversation will produce powerful insight. When you’re ready, so are we.

Making the Most of Sales Opportunities

Tue, 24 Sep 2019 20:22:41 GMT

Sales opportunities are the lifeblood of many businesses, yet too often they are either missed or salespeople drop the ball during the sales process. This can be because they neglect important systems that contribute to sales success. In this article, we focus on key business processes that should be undertaken to help you manage your sales activity.

Evaluate your existing products

Does what you are selling today meet the market? Is it relevant, profitable, offer upsell opportunities? Does it have longevity – can you see it flourishing in the market in five years’ time? For those products you decide to keep, do you have a consistent description of what they are and their benefit to customers for all people in your firm to refer to when they are talking with customers?

 Competitor Analysis

What are your competitors selling? Is there something they have that you could do even better? How do they price their products? What is important to customers and how well do you provide those added extras relative to your competitors? If you can articulate your points of difference and how they benefit the customer, you will stand a better chance of growing revenue.

Sales Forecasting

How much do you expect to sell in the next six months? Is this linear, or are there seasonal variances? How do you plan to resource the sales that you make? Sales forecasting is important for budgeting, cash management and resource allocation, but also to create accountability within your sales team. If your team do not know what they are aiming for, there is little chance that they will hit it.

Pricing

How do you price your products or services? When was the last time you undertook an audit to ensure that everything you sell is profitable? Do you know how you compare with competitive products and can you articulate why you are more expensive – or cheaper? What methodology is used to compute a price for a particular customer? What is your business’s policy on discounting and payment terms? Pricing should be very transparent within your business so that salespeople are confident in answering the question, ‘What does this cost?’

Sales Training

Do your sales team know how to sell your products? Would they use (or are they already using) them themselves? Can they explain the business benefits of what they are selling in a succinct manner? Can they handle sales objections confidently? To what extent are you sure that each person selling to customers is saying the same thing?

Sales Management

Every opportunity should be managed in a sales pipeline. Each lead needs to be entered into the pipeline and monitored in a weekly sales meeting with a published agenda and internal accountability. This means someone needs to assume the role of sales manager. See the accompanying article on sales management for more details on this role.

Sales Documentation

What documentation exists in your firm in terms of proposal templates, contracts, engagement letters, master service agreements, template emails to welcome new customers and so on? Again, consistency is important in documentation. Businesses exude credibility when their documentation is underpinned with a strong brand book and the ‘voice’ of the business is coherent and reflective of the brand.

Conclusion
In terms of business goals, if you are aiming to increase revenue or profitability, the likelihood is you need to grow your top line. Whether you are focused on attracting new customers or better managing existing ones so that they buy more from you, it is clear that the systems underpinning the sales process should not be understated.

Feel free to get in touch if you would like to discuss your business’s plans for growth. We would be happy to help.

Your Business Dashboard: What Should You Be Seeing?

Thu, 15 Aug 2019 20:30:05 GMT

There was a time when cars didn’t have a fuel gauge. That meant you had to understand the size of your fuel tank, remember when you last bought fuel (and how much) and estimate the distance you’ve travelled since filling up.

None of that is particularly hard, but, depending on your risk appetite, you may be worrying and constantly filling up to ensure you have enough fuel. Of course, you may also get it wrong … and run out of fuel.

Whatever the case, you may feel stress and spend time doing calculations. That takes you away from something else you could do, like focusing on driving, car maintenance or talking with your passengers. I’m grateful we have fuel gauges in cars now!

What is the equivalent of the fuel gauge in your business? Often called Key Performance Indicators (KPI’s), when you glance at the “dashboard of your business”, what do you see? And what don’t you see?

Let’s look at some best practices in KPI monitoring:

1) You probably need less than you think

Three or four important indicators can give you a strong sense of what you need to do. You can then drill into challenges and opportunities as you see fit.

2) What you measure depends on the goals of your business

Revenue

If you have a strong orientation to revenue growth, you may want to measure how many leads you’re generating, where they are coming from and your sales conversion rates. You could look at this by product, by region or by sales team member.

Profit

If you have a strong profit orientation, you might look carefully at business expenses over time. Rather than measuring the absolute numbers for each expense, consider a category of expenses as a percentage of the total expenses. For example, if your marketing expenses are 10% of total expenses now but they used to be 15% of total expenses, that says you’re spending less on marketing (in relative terms). Perhaps you became more efficient or perhaps you need to spend more? You may want to drill into that question.

Efficiency

Perhaps your goals are around increasing efficiency, in which case you could measure the returns on your resources or assets. For example, in a services business, you might expect each account manager to invoice, say, $300,000 per annum. Some will … and some won’t but having a read on this will be very useful.

3) KPI’s are best viewed in the context of time

How does today’s data compare with one month ago or one year ago? Where do you want to be in six months from now? Are you on track to achieve that?

4) Set things up properly in the beginning

It used to be extremely difficult to access all the data we want and include it in easy-to-read reports. Thankfully, this has become much easier and many tools exist to help us. But you still have to think carefully about what you want to see and when you want to see it. A lot of time can be wasted due to a lack of preparation in this regard.

5) Use meaningful metrics

Make sure the KPI’s are meaningful to as many team members as possible. You want people to be “living the KPI’s“. They should be easily accessible and people should get excited when there are positive developments. If they are seen as “some strange management activity“, it will be difficult to drive them in the right direction.

6) Be ready to evolve

The first KPI’s you define might not make sense as the business and market changes. Always challenge whether your approach can be improved.

7) Ask what decisions you might make based on the KPI’s

Most importantly perhaps, ask what decisions you might make based on the KPI’s. If revenue is declining but the number of leads is rising, what are you going to do? What about in the opposite case? If you can’t easily answer this, you may have the wrong KPI’s.

Need help building and using a business dashboard? Your accountants are uniquely positioned to help with this so please get in touch.

Goals, Strategy and Plans: The Vital Fuel for Businesses

Sat, 06 Jul 2019 19:02:43 GMT

It’s a new financial year, and that means it’s a great time for small business owners to re-evaluate, set new goals and plans and work on their business strategy for the next financial year.

Many businesses (and certainly many of our clients) find themselves busy with the day-to-day selling, paying bills, marketing, hiring and firing, talking to the bank, managing the office and so on. They know they should plan for the future but who ever gets time for that? They get caught up in the endless cycle of tactical business management.

We encourage and help our clients to take the time to do some serious planning. Consider the following:

1) A strategy is not a plan. A strategy is derived from your goals, the long-term outcomes you want to accomplish. The strategy provides the guidelines on how you reach those goals. For example, if a company wants significant revenue growth, the strategy may be to get there by acquisition or through organic growth. Where a company wants to maximise profit, the strategy might be to launch a new product line in a new market or geography.

2) A plan is not a strategy. With the strategy understood, a plan can be formulated. The plan details what we need to do, who exactly will do it and when we need to take action to accomplish the strategy. Most plans will refer to finance, marketing, sales, product development, human resources, business processes, managing customers, technology and a variety of other items.

3) Who decides strategies and plans? This will depend on the organisation but, generally speaking, the owners of the business (or their board) articulate their goals and the strategy to get there. The more shareholders, the more difficult it is to come to consensus on goals. Ideally, formulation of strategy should be done in conjunction with senior management. After all, senior management needs to develop the plan and then execute it. If the goals, strategy or plan are unrealistic and unachievable, it’s unlikely any stakeholder will end up happy.

4) When should goal setting, strategising and planning occur? This will depend on the “maturity” of the business. A high-risk start up might revisit their goals and strategy quite frequently compared to a well-established 50-year old business with a significant market share. But plans should be revisited more frequently. The trick is to achieve the balance between persistence and flexibility. Certainly, we should never be locked into a plan which is not making sense.

5) Some parts of your plan will not make sense . Let’s be clear on something: making a plan is about predicting the future. How many people do you know that can accurately predict the weather, share prices, the outcomes of sports events, election results and so on? Sometimes we get it right based on reason and logic and sometimes we get lucky. But even the smartest people will get things wrong quite frequently, especially in the complex world of business. It’s better to accept that some aspects of your plan will be wrong – but still finalise the plan and start executing. Labouring over the details and trying to avoid being wrong will waste time and there will be no improvement.

6) Making plans requires some formality . Nothing about planning is flippant, flavor-of-the-month, capricious or flighty. Planning requires analysis and careful selection of actions, estimating time frames and delegation to team members. Good plans result when people have the time to focus intensely on these issues.

7) Revisit plans frequently. A good plan will enable you to track progress based on agreed metrics. You need to continually review those metrics and make changes accordingly.

8) Write it down . Simply put, a plan is not a plan unless it exists in written form all in one place. If you change the plan, amend the written version. Too often, conversations occur in coffee shops, on the golf course or over lunch which result in a new direction. That creates confusion and blurs the definition of success.

9) Share the plan. In addition to sharing the plan, it’s smart to share the strategy and the goals because they provide the context for the plan. People will naturally ask, ‘why are we doing this?’ and are more likely to conform to a plan when they understand its rationale.

10) Get some advice . The best goal setting, strategising and planning sessions are facilitated by third parties. It’s best to have access to someone who can ask the tough questions and intermediate where there are differences of opinion. The facilitator should have an understanding of business, especially finance, but not necessarily an in-depth knowledge of your business. In that way, they can bring a fresh perspective to the discussions.

Accountants are uniquely positioned to help with strategising and planning because of our knowledge of your business and our insight into many businesses like (and unlike) yours. It’s in our interests to see you succeed and the more we can be part of the process, the better! Please get in touch to discuss how we can help you set goals, agree on strategies, makes plans and track progress.

Selling Your Business – It May Not Be For You… But Keep Your Options Open

Thu, 06 Jun 2019 19:52:34 GMT

Selling your business might be far from your mind right now. Perhaps you just started and/or it’s going fabulously well. Don’t fix something that’s not broken, right?

But the changing business landscape requires that we think ahead not just six months or one year, but three, five or even ten years. Circumstances can change quite quickly and priorities shift. Here are some things to think about:

1) Who are the decision-makers when considering a sale?

Maybe it’s entirely up to one person or a small group of partners / owners. Maybe the board will need to decide. Often the sale of the business is a life changing event and spouses or other family members might weigh in. Figuring out who will influence the decision and to what extent their goals are aligned is a good starting point.

2) Who might consider buying your business?

Perhaps it’s a competitor? Perhaps it’s a customer? Perhaps it’s a strategic investor who wants access to your technology, plant, team or client base? Perhaps it’s a financial investor who is looking for aggressive returns? It might be someone inside the business. Clarity on this will influence how you manage your business and present it for sale.

3) How will your business be valued?

While there are many “models” which determine business valuation, the fact is that the final value will be a matter of negotiation. Different acquirers will value different things such as profit, revenue, growth rates, market share, future potential, assets, banking relationships, the client base, the CEO and so on. With clarity on this, you will prioritise the items which drive the value the most.

4) Other than cash, what else is important to you?

Do you want to work for the acquirer after the transaction? Do you need a lot of cash paid upfront or can you wait? Are you willing to consider an earn-out thereby taking risk on some of the sale price? If you remain in the new organisation, do you care what your title, role or job description is? A large number of transactions do not meet the objectives of both the acquirer and the seller. In most cases, it is not about the financial outcome but the other terms and conditions of the sale.

5) Are you familiar with the process of selling your business?

The acquirer may be very sophisticated and buy many businesses each year. In that case, they will probably dictate the approach. But you will still need to present your business setting out the strategy, the plans and the history. You may need to appoint advisors and engage in due diligence before closing the deal. It is highly advantageous to have access to people who have been through this process. Keep in mind, in many cases you will not share transaction discussions internally which can make the process of selling your business a very lonely one!

6) What about timing?

This is pretty simple. Things will take longer than you think and you want to be dictating the terms as much as possible. Selling under pressure seldom brings a positive outcome. Start early.

7) How do you know if selling your business is right for you?

Perhaps you don’t. And you never will know for certain. The outcomes are unpredictable but then business is also inherently uncertain. While you may lose independence and autonomy, you might also reduce stress, learn new skills and expand your horizons.

These may seem like “big questions” but you shouldn’t delay too long. The best exits happen because of early planning, detailed preparation and careful strategy. We can help develop this strategy and interpret what drives the value in your business. That will help you put a plan in place to maximise the value and increase the chances of success.

Here at Black & White, we offer a wide range of Small Business Solutions, including preparing your business for sale.

What You Should Expect Out of Your Financial Reports: Don’t Settle For Less!

Thu, 23 May 2019 19:57:30 GMT

We come across business owners and managers who diligently study their financial reports soon after they are available. They sometimes challenge the data and presentation of the reports to make them more relevant. Some managers share (parts of) the reports internally for further analysis and action.

We also come across business owners who never view financial reports. Never. They may sign tax returns and take care of other compliance issues but they see little or no merit in studying what relates to their past business performance. Some managers explain they are not skilled at reading financial reports so should focus on other tasks such as selling, hiring and general management.

And then there are owners / managers in between these extremes.

The quality and relevance of financial reporting is likely to influence a manager’s attitude to financial matters. The fact is a good understanding of finance is important and can greatly improve decision making. We believe all business owners / managers should expect to get AT LEAST the following from their financial reports:

Financials Tied to Business Strategy

If your business strategy involves revenue growth, ensure your financials tell you how much you are growing. If your strategy involves cost reduction, ensure you can quickly see whether you are cutting costs. The people who prepare the financial statements should be familiar with your strategy so they can ensure the strategic message is captured in all reports.

Incorporate Metrics or Key Performance Indicators (KPI’s)

The dashboard in your car summarises important data even though there are thousands of other data points you could consider. Your financial statements should do the same; provide a few key metrics which describe business performance. You can then drill into areas that need attention.

Customisation

Each business is different so it’s reasonable to expect that the ‘traditional’ Profit & Loss and Balance Sheet will not provide everything you need to make business decisions. Previously, it was hard to generate customised reports because data was difficult to access and manipulate. But that is seldom the case now with modern software and better business processes.

Timely Access to Statements

Sometimes businesses become obsessed with generating and viewing monthly statements soon after the month-end. But are these really required so soon? And do you need everything in those monthly reports or is it better to get a comprehensive set of quarterly reports so you can reflect on trends more easily? There’s no ‘rule’ but you should get what you need when you need it.

A Market or External View

Financial statements can be very inward looking meaning they only capture data on what your business has done or will do. But what about your competitors? Maybe, for example, your profits didn’t increase in the last quarter but your market share increased. Or maybe your revenue increased but the total market size has decreased impacting your long-term prospects. Your financial reports should at least trigger discussion on these ‘external’ influences.

Forecasts

This one is simple. Financial reports should indicate what the future looks like AND how the future will be influenced by changes you might make. Many forecasts (or ‘budgets’) capture expenses but don’t focus enough on sales forecasts.

Cash

All to often, we see businesses which seem healthy but will face challenges due to a shortage of cash. Your financial reports should highlight any associated risks.

Fraud

Fortunately, most businesses will never experience instances of fraud but financial controls are important and management should be alerted to risks associated with fraud.

In conclusion, equip yourself to make the best business decisions possible. Insist on financial reports that reflect your needs as a manager. We’re eager to help you accomplish your goals through financial reporting which empowers management.

Insurance – Don’t Leave Your Business Future to Chance

Mon, 06 May 2019 20:01:06 GMT

Anyone for blackjack? How about a few spins on the roulette wheel? Or a bet on your favourite sports team for this weekend’s game? Gambling, in moderation of course, can be a fun pastime which gets the juices flowing and enables banter with friends and colleagues.

How is insurance different from gambling?

Think about it. You promise to pay someone (usually an insurance company) some cash (a ‘premium’, payable in instalments) related to some ‘event’ which may or may not occur in the future. If that event occurs, you suffer some loss and the insurance company compensates you for that loss. If the event doesn’t occur, the insurance company gets to keep your cash.

How is this different from placing a bet on the name of a newborn member of the royal family? Or next week’s weather? The difference is that, when buying insurance, there must be the risk of some ‘loss’ – what lawyers call an ‘insurable interest’. That loss can have serious consequences and is something you want to avoid. (No, the heartbreak of seeing your local team lose does not constitute a ‘loss’ for these purposes!)

Your business faces a whole host of risks which can have devastating effects. Understanding and managing the risks is important but achieving the right balance can be tricky. Some businesses neglect to buy insurance with catastrophic consequences and others are ‘over-insured’ resulting in waste.

Tips for managing your insurances

You may want to take advice on your approach to insurance and here are some quick tips:

1. Think broadly about your risks: Could your customers experience harm? Or the general public? Or your directors or shareholders? Or your employees or vendors? What about your facilities or assets? You may need insurance as a matter of statutory compliance or because it is required by contract or constitution. You should thoroughly review your needs.

2. Get expert advice: No two businesses have identical insurance needs. Insurance contracts can be complex, and an expert can ensure you are properly protected. Choose your expert wisely since they tend to specialise by industry or by the kind of coverage.

3. Shopping around: There are usually many providers of similar insurance policies, often competing on price. Always consider a selection before deciding.

4. It’s not only about price: For complex policies, especially in business, there may be specific items you want to insure against. Be diligent about reviewing the entire contract and pay attention to different charges, types and levels of cover, ‘cooling off’ periods and how excesses are calculated.

5. Already have insurance? You can drive prices down by taking a cheaper quote to your existing provider. They may be willing to beat or match your quote immediately or when you need to renew.

6. Consider different ways to buy: You may have an insurance broker or financial adviser who should be proactive in assessing your needs and coverage. Banks might offer this service and there are numerous comparison sites which help you evaluate online insurers. Each channel has advantages and disadvantages, but it is usually best to work with someone who really understands your business and goals.

7. Answer the insurer’s questions accurately: Sounds obvious, but many claims are unsuccessful due to errors or a lack of proper documentation.

Ready to consider your insurance coverage? The starting point is to assess your business goals and the main risks you should protect against. Your accountants are uniquely positioned to support you and then ensure you access the right coverage from the best possible providers.

Three Financial Mistakes Made by Many Businesses

Sat, 06 Apr 2019 20:05:16 GMT

Many of our clients tell us that they got into business to make more money, achieve a better lifestyle, or simply because they felt they could do a better job than their old boss. Although many do possess business skills, financial acumen is rarely high among them. In this article, we list three common financial mistakes that we observe frequently.

1. Fail to plan, plan to fail

Not enough businesses have a working budget and cash flow forecast that is frequently updated and compared to actual results. Consequently, they make important financial decisions without all of the information that they need. A strong budget requires the following information, presented on a month by month basis and adjusted for seasonality:

Sales – Your sales forecast should be broken down by product or service line and calculated as number of sales multiplied by average sale value.
Variable costs – These are costs that go up or down in line with sales and, as such, should be driven by your sales forecast.
Fixed costs – Unless there are any significant changes, these can be taken from your most recent financial statements and adjusted for any known or expected increases. They are the costs that you incur irrespective of sales volume.

Once you have a budgeted profit and loss account, you should then create a cash flow forecast. This differs from the budgeted profit and loss account because it is takes into consideration other cash inflows and outflows. As such, it needs to take into account of how long it takes for customers to pay you, how quickly you turn over inventory, how quickly you pay your vendors, any loan repayments due and any forecasted capital expenditure or drawings that will not appear in the budget profit and loss account. With this information, a forecast balance sheet can be created, which will almost certainly be a requirement should you require finance from a bank.

2. Financing capital expenditure out of cash flow

As a general rule, it is good practice to match cash flow with the lifetime of a purchase. For example, if you are purchasing inventory to sell in the short term, then you should use day-to-day working capital. But if you are buying a new delivery truck with a five-year life, then you should aim to finance it over five years.

Similarly, don’t fall into the trap of spending your business’s money on impulse purchases out of your cash flow if you have one good quarter. Unless you are confident that strong sales will continue, you could be digging a hole for yourself if sales regress back to prior levels.

3. Failing to understand the difference between profit and cash flow

One of the most frequent questions we hear from our clients is, ‘I can see there is profit in the accounts, but I have no cash in the bank – what’s going on?

What is typically happening in that scenario is decisions are being made with reference to ‘book profit’ without properly understanding how cash flow can differ – sometimes quite significantly – from profit. For example, excess drawings by the business owners do not appear in the profit and loss account, but they clearly drain cash. Also, you might close a big deal with a major customer and book the revenue as sales, but if they don’t pay you for 90 days, you could find yourself in a tight spot. Similarly, you might commit the business to a large loan to finance new machinery, but the capital element of the loan repayments will not show up on the profit and loss account.

Solid financial reporting can improve decision making by demonstrating the difference between profit and cash and forecasting the cash position over the next few months.

Our firm has the skills to help you avoid all of these mistakes and we’d be delighted to talk with you about strengthening your financial reporting processes so that you can make more informed business decisions.

Getting More from Your Accounting Data… to Generate Sales

Wed, 06 Mar 2019 18:32:49 GMT

Accounting data is full of ‘stories’ and telling these stories can help you improve your business. An example that we see all too often looks something like this:

A Business with Top Line Growth Goals…

Nothing unusual there. Many businesses want to grow revenue to reward their shareholders or just stay competitive. The amount of growth and the timeframes may vary depending on the age and size of the business.

A Sales Strategy…

To achieve that growth the focus is on:

better marketing (to generate more leads) and/or
better sales (to attract new customers) and/or
better customer service (to retain customers)

Making sense so far? Anything wrong with this picture? Not necessarily ‘wrong’… but what about SOME focus on selling to EXISTING customers. Data often reveals that this is an under-exploited source of new revenue. So, let’s ask some questions before spending money.

Question 1: What’s the cost of acquiring a NEW customer versus selling to an EXISTING customer?

Think about any one of your newly-acquired customers. Were they exposed to your marketing efforts? Did they buy from your sales team? What did it cost to close this deal? That is, how much were you ‘out of pocket’ before you started to derive income from this NEW customer?

Now let’s think about your EXISTING customers. What would it take to attract some ADDITIONAL income from these businesses – who know you and have already bought from you?

Example:

“Business A” is a large provider of engineering services to manufacturers with 150 current customers. For years, they have been advertising extensively, holding marketing events and publishing white papers, all at considerable cost. They calculated that acquiring a NEW customer cost 2.5 times more than attracting the same amount of (new) revenue from EXISTING customers – who already trust the business, its brand and its products.

Question 2: What’s the lead time to close business with NEW customers versus with EXISTING customers?

This is related to Question 1 but a longer lead time will usually consume more resources costing more money and increasing ‘opportunity cost’. (Couldn’t those resources be deployed more effectively elsewhere)?

Example :

“Business B” is a seller of software to small and medium-size businesses. They found that the lead time to ‘close’ a NEW customer was 3 months but, when ‘upselling’ to EXISTING customers, the average was 7.5 weeks. By having more of the sales team focus on EXISTING customers, they were able to grow revenue (and their ‘selling efficiency’ improved).

Question 3: What are your sales ‘conversion rates’ for NEW versus EXISTING customers?

Another related question… which speaks to the probability that you will be successful when selling. The sales and accounting data of most businesses will usually show they are less successful closing business with NEW customers compared to EXISTING customers.

Example :

“Business C” sells automotive parts to operators of large vehicle fleets. They diligently measure the number of ‘inbound’ and ‘outbound’ leads generated each month. Some of these are turned into ‘opportunities’ after an initial review. The data shows that, over the past 18 months, 11% of these ‘opportunities’ were turned into customers. They also started to approach their EXISTING customers to seek new business opportunities and found they were able to ‘convert’ 34% of these opportunities – a 3-times better result than with NEW customers!

In the above examples, there is strong evidence (data) to suggest that focusing on sales to EXISTING customers can drive impressive growth.

So, what does this all mean? Should you abandon all your sales efforts, forget about customer service and just focus on selling to customers? Absolutely not! But you should have a handle on the data referred to above. It will probably reveal that there is at least SOME opportunity to grow revenue through your EXISTING customers. In that case, here are some tips.

Tips:

Review your current product and service offering. Are you selling what you should be selling? Are your products ‘bundled’ and priced correctly? Important to be clear on this as you look for additional opportunities;
Classify your customers based on what additional products / services they may need from you. Some won’t need anything else. Some may need something… but not for a while. And some could be looking to buy immediately – that’s where you want to focus. Take the time to understand your customers’ businesses and their needs. Focus on their Lifetime Value (LTV) to your business;
Tidy up your communications. Make sure your website, presentations, social media and sales team all communicate the same message on what you can sell and deliver;
Make interesting offers to your customers. Don’t just try to sell them more. Make it compelling for them;
Expect to reach out repeatedly to customers. This is not a one-time deal. Track how they respond to your communication and tailor your future approach;
Make a plan and follow it. Decide who will reach out to customers. When? How? Track your progress and do more of what is working well; and
Get started. There’s no great time… but it’s always a good time to talk to customers. So, get on with it!

Finally, accessing and analysing this kind of business data used to be considered a luxury, but now it’s a necessity.

Talk with our team of small business experts to help get you on your way.

How Millennials are Redefining the Workplace and How to Engage Them

Wed, 20 Feb 2019 18:38:36 GMT

Millennials certainly get a lot of attention. Born between the early 1980’s and the early 2000’s, this demographic is taking over the workforce, already representing a majority of employees in many sectors. Before we begin to look at how best to manage this shift in your business, it is important to reflect on a couple certain truths. First, generational disruption is inevitable. Second, while discussing generalities is useful, remember that each person on your team, regardless of age, is an individual and should be viewed and treated as such.

Research and surveys conducted over the last few years have revealed that younger workers want to feel good about what they do.

This is an important factor on both a micro and macro level. On the micro level, Millennials want a firsthand view of the impact of the work they do. Is there a clear connection between their daily tasks and the greater vision of the organisation? Can they have real influence over that vision and the end product your organisation produces? If you can define the significance of the role each member of your team plays, they will be more internally motivated and committed. On a macro level, Millennials want the companies they work for to be change agents in the world. This generation is very engaged in social issues. They have a strong belief that what they do 40 hours a week should contribute, in some way, to making the world a better place. Highlighting philanthropic efforts your organisation participates in is crucial. Another way to demonstrate your sense of social responsibility is to organise volunteer activities. Pick a cause, allot some time during the workday, encourage your team to get involved and spend time volunteering together. These events can also serve as team building opportunities, which make them even more important to consider.

Another theme that is emerging as Millennials take over the work world is flexibility.

They want more control over when they work, where they work, how they work and what they work on. Coming of age in the digital world, they have a hard time accepting the arbitrariness of the traditional 9 a.m. to 5 p.m. schedule. Younger workers also understand more about flow states, inducing peak performance and creating conditions that foster creativity. They believe they can be just as effective working from home a couple hours in the early morning, taking a long lunch, and then coming into the office or meeting clients out for coffee. Making these accommodations, when appropriate, will go a long way in getting buy-in from your millennial employees. It’s also likely to result in better work and more effort from your team. Similarly, younger workers are looking for roles that are more fluid and flexible. It’s important for them to continue to learn and develop new skills. The way they do that is to stretch their responsibilities and tackle new opportunities as they are presented. Rewarding well-done work with money is easy. But, offering new responsibilities and being open to new approaches really communicates to your team that you value them and that you want for them, what they want for themselves.

Finally, members of the millennial generation consistently mention authenticity as a trait they value.

Possibly a reaction to their heavy exposure to marketing, Millennials really respond to genuine, direct communication. As a group, they are quick to identify when they are being told something less than the truth. They are also quick to judge accordingly. So, be upfront and give feedback that is clear and honest. Your team will be confident they know where they stand which will alleviate anxiety and increase their sense of loyalty.

Regardless of the kind of business you’re in, Millennials will soon dominate your workforce.

Don’t let this intimidate you though, it’s something to be extremely excited about. Millennials are incredibly creative, adaptive and competent. In order to best harness that talent, you have to create a culture and environment that empowers younger workers. That means being committed to authenticity and flexibility while taking opportunities to make the world a better place.

Don’t Underestimate the Power of Client Communication

Wed, 06 Feb 2019 18:48:41 GMT

Since the beginning of time, humans have communicated using primitive drawings, bartering, nonverbal actions and face-to-face conversations. These early forms facilitated the spread of knowledge, ideas and the formation of relationships. As times advanced, communication took on an entirely new face – a digital face in an increasingly technology dependent world. Through the best of change and the worst, no matter how fast-paced, communication has always played a fundamental role in all facets of life.

Effective communication is essential to developing a strong business. Successful client communication is key to gaining new business. Initial contact establishes the tone of the relationship. As the relationship progresses, it’s critical the communication does too. Regular conversations with your client base guarantees you’re always adapting and growing to meet their requirements. However, maintaining regular communication can be difficult at times. It’s imperative that you implement a client communication plan to effectively manage conversations with your clients.

Communication is an effective tool to gauge client satisfaction with your business, products and services. Utilise your communication plan to outline and monitor which techniques best attract your ideal prospects. Once you onboard that prospect, adjust your communication plan to better support the relationship. Identify how you will communicate – phone, email automation, social media, personalised email, etc. – with each client or group of clients. Address how often you will communicate with each client. Follow up quickly, request feedback, provide useful information and update clients regularly. Use new information gained for potential upsells and new client projects.

Understand that, more often than not, over-communicating is more beneficial than under-communicating. That being said, there’s a fine line between effectively versus ineffectively over-communicating. You don’t want to come across as if you’re bombarding or pestering your clients. A strong communication plan will ensure all of your communication efforts are valuable, powerful and effective. Not to mention, it will provide clarity around timelines, deliverables and what’s important to both client and business.

Demonstrate your company’s high communication standards and hold your team accountable to following the communication plan. Your client relationships will thrive, leading to increased client satisfaction, retention and referrals. Ultimately, this will support your main goal of generating more revenue.

Developing a client communication plan will be a difficult, time-consuming task for many business owners. There are many details that are incorporated into an effective communication plan . We recommend working with someone who has experience creating and implementing different strategies. A business advisor is a perfect resource to complete this process. When you’re ready, we’re here to help.

Video – Task Prioritisation: The Key to Designing the Business that You Want

Wed, 30 Jan 2019 18:53:32 GMT

Take control of your business and design the business that you want, start with prioritising the tasks and projects you have to get done.

Get What You Want out of Your Business

Mon, 21 Jan 2019 18:58:16 GMT

As business owners, there is an endless stream of things, people, events and information that can overwhelm even the steadiest of leaders. We win or lose big sales, team members come and go, costs change, competition arises, and bills and payroll must get paid. We get to the end of the year, we look at some numbers and evaluate what kind of year it’s been. Often, we spend so much of our time and energy battling to simply keep up, that we never ask if our business is providing us the life we want.

We should be living lives that are empowered by our businesses, not dictated by them . To do that requires setting goals and implementing well-reasoned plans to meet those goals. The goals you have for your life will drastically change how you approach operating your business. For example, you may want to buy a boat or take the month of June to travel across the country with your family. Maybe you’d like to expand into a new market and relocate your family there, or maybe you’re looking to semi-retire. While some of these goals require more revenue, others require more profit, lowering costs or restructuring liabilities. Some goals will even necessitate changes to your operating systems, your team or your marketing strategy.

Having clarity on your goals and what you want to achieve is essential to making decisions rooted in intention . Likewise, developing a relationship with someone to hold you accountable is just as important. If you’re anything like most business leaders, you’ve set goals and implemented projects half a dozen times in the past. So, why don’t things change? Most often, it’s because there were no metrics or tracking systems put in place to monitor progress. People began to revert back to old processes out of confusion or convenience and you ended the year relatively the same way you started: frustrated and exhausted.

Working with an accountant and business advisor, to set goals, establish metrics, provide real-time monitoring and accountability will provide powerful insight . We’ve helped many business owners, just like you, implement systems that increase revenue, profit and productivity. We can work with you to better structure your assets and liabilities, lower your tax obligations and plan for both the future of the business as well as your family.

We’d love to have a conversation about getting what you want out of your business. When you’re ready, so are we. Let’s create the business you want now and care it into the future.