As an entrepreneur, you are a visionary. You have an idea, a product or service that you want to bring to life. Rarely will the requirement to maintain a set of accounts feature strongly in your desires or even your planning process.
As your business grows your visionary zeal can quickly be overtaken by the mundane requirements of compliance.
This ‘cost’ of compliance can manifest itself in many ways, the most common is a drag on your own time and quality of life. You can find yourself working late into the evening and weekends just to keep on top of ‘paperwork’.
To overcome this loss of your own time you may decide to hire a bookkeeper to join your team but how do you find a good one?
Come the end of the financial year you will more than likely need the help of an Accountant to draw together your Year End Accounts, filing at the Companies Office, and preparing your business Tax Return.
Worst of all, this Year End paperwork takes place weeks and months after the event, which provides you with no useful information at all!
Turning Information Into Knowledge
What if this bookkeeping and paperwork could contribute to the profit of your business? What would that look like and how would you feel about paperwork if you knew it was contributing to your success? Turning Information into Knowledge to Decide what critical pieces of information you need daily, weekly and monthly to ;
Ensure your financial systems support the provision of that information
Use charts to plot key information and see trends develop
Identify key drivers of Gross Profit and include them in regular reports
Look back at financial history to assist forecasting but spend more time looking forward identifying potential challenges ahead
Turning Knowledge Into Profit
Deciding which pieces of information are critical to you and limiting the number to no more than seven will mean you pay attention to those numbers. This helps you to focus on what is important in your business, making decisions based on fact.
Creating a reporting ‘rhythm’ helps those around you understand what is important and what they need to provide to ensure the information is accurate and provided in a timely manner.
Charts create pictures, pictures based on numbers. Pictures paint a thousand words and if those around you have understood the requirements those numbers will not lie.
Gross profit is the first line of ‘cash’ available to spend in the business, everything that comes below revenue and above Gross Profit leaves the business. Make gross profit your new ‘top’ line and understand what impacts this profitability. A 1% increase in gross profit adds far more to the ‘bottom’ line than a similar increase in revenue.
Spend a little time looking back at past performance but only to understand what worked and what didn’t. Forecast to do more of what worked! It may be fine to forecast sales a year ahead in your business but there is rarely value in forecasting cashflow more than four weeks ahead. The better you get at forecasting cashflow the easier you will sleep at night.
No forecast should be ‘set-in-stone’, make it a work-in-progress to gain the benefit of agility. Plan – do – check – review, keeping the critical information you need to a minimum will enable you to continuously improve those areas vital to your business’s success.
Cash Is King
A bank will follow the ‘flow’ of cash through your business before making a lending decision. The IRD expect your accountant to follow the ‘flow’ of cash through your business to ensure you have accounted for everything in your year-end accounts. How closely do you follow the flow of cash through your own business? Do you sleep well at nights because you are carefree about our cashflow?
Most transactions within a business are processed by the ‘accounts’ function and usually within a piece of accounting software. Those transactions are ‘information’ and that information can be turned in to ‘knowledge’. Knowledge about where your cash flows from, where it flows to, and most importantly what is left for you to re-invest.
Most business owners can make better decisions for their company when they have timely and accurate information. Leveraging that information, turning it into knowledge, converts bookkeeping costs into profit.
After the shock of what’s happened in the last month or two and as the adrenalin begins to subside and fatigue starts to catch up, what happens next?
Here’s a few initial thoughts.
First, take a moment. Imagine the bell signalling the end of the round has gone, you’re reeling from a knock-down but now, for a few moments, you’re in the safety of your corner with your coach. Introspect. How are you feeling? How’s your energy level? Do you have the resilience to keep going? Whatever you think, it’s ok! Quoting Paul Simon: the fighter still remains.
Secondly, survey your environment. What’s changed recently? What impact does that have on your life? Your family? Your business? Use the SWOT exercise to help you think this through.
Thirdly, talk to your coach in your corner. They’ve got your back. Iterate. Discuss. Challenge. Look ahead. Be open-minded. Agree some short-term actions.
Fourthly, be light on your feet: float like a butterfly!
Whatever path you select, the next few months will throw some further challenges. Be ready to adapt and adjust.
Finally, lean on your supporters to get you through (RIP Bill Withers). Now is not the time to be alone.
Stephen James – Owner, The Alternative Board New Zealand
Are you looking for business growth? But have been frustrated by the reality of making it happen?
Here’s 5 reasons why you might consider an alternative to organic business growth: growing your business by acquisition.
An attractive ROI Depending on many factors, it is likely that an appropriately sized SME acquisition target will be valued at a multiple of between two and six times its EBIT. Taking a simple inversion of those multiples suggests a crude return on your investment of 17% to 50%. In these days of extremely low-interest rates, where else can you find such a yield?
Industry Knowledge Most likely you will have had many years in your industry sector and know many of the likely acquisition prospects. You will be aware of the relative strengths and weaknesses of those prospects and probably know the position of the owner(s). Using this knowledge will go a long way to mitigating risk and maximising opportunity. And, you’ll have the benefit of a “due diligence” exercise during the acquisition process.
Synergy Benefits Synergy is commonly defined as 1 + 1 = 3. This means the whole is greater than the sum of the parts! Typical benefits that may arise from a combination of two businesses include;
eliminating duplicated facilities and processes,
optimising distribution channels and
offering new products to a wider customer group. And all these synergy benefits increase the RoI of the acquisition!
Access to Finance Organic growth requires funding. Funding for more production, wider distribution, more inventory, more receivables and so on. From a funders point of view, fronting up with finance for organic growth requires confidence in crystal ball forecasting. Will greater production and distribution capability generate more sales? Compare this to funding an acquisition. An acquisition where the target company has provided 5 years of historical financial information, has an existing and proven infrastructure and has been subject to a thorough due diligence process? A process probably involving firms of reputable accountants, lawyers or consultants. Which do you think would be preferable to a financier?
Access to Staff Today’s often-repeated lament: “I can’t find qualified, experienced staff anywhere“! But, if you acquire another business, you will get access to a pool of experienced talent. In turn, this will reduce the need for the frustrating and expensive recruitment processes required by organic growth.
If this all makes sense and you’re looking for your business to grow one question remains: are you and your business ready and prepared for growth by acquisition?
“I felt quite lost and drowning in my weekly responsibilities, that is, until I became a member of The Alternative Board,”says Barbara Rivers, Managing Director of The Makers Atelier in Christchurch. The Makers’ are a curtain and soft furnishings manufacturer with a work space of 190 square metres and 9 staff.
Barbara finds value in being involved in The Alternative Board peer group process.
“I was in two minds as to either startup fresh or purchase a business with clients, staff and production in place. The business I purchased had a good name but was in a state of being rundown and required a lot of energy, marketing and customer relations. The latter two, marketing and customer relations, were things which I knew I was good at.”“My biggest challenge was that I was pouring money in each month to keep the business going, paying staff, working with old pricing structures, and the challenges that I had were make or break for the success of the business,” she adds.
“Working with The Alternative Board has helped me realise that these are growth stages. I have been given tips to deal with these challenges, in a controlled and practical manner.”“There’s a real respect with the other Board Members of The Alternative Board. I see results quickly after each Board Meeting because I’m empowered to do so. It has been an invaluable process for me because I felt quite lost and drowning in my week-to-week duties and responsibilities. Having the backup support of The Alternative Board has helped me to achieve and grow each month.”
Barbara has learned lessons from being a Member of The Alternative Board.
“The biggest change I have seen in me has been accepting that I am the boss and not just a co-worker. I believe that the staff are happier in their working environment now. With the help of The Alternative Board, I’ve become very clear on our business message and vision.”
Barbara’s top tip to other business owners is to work in your new business for a year before you make changes.
“Understand it and its cycles and, most importantly, ask the customers what they value before you change.”
The Alternative Board peer group process of accountability allows Barbara to ensure she keeps very clear with her business message and vision.
Lee Dewerson has put in the hard graft and for many years has worked 60-hour weeks relentlessly, learning all there is to know about the Audio-Visual technology world. Lee is now a Co-Owner and Operator of Safe N Sound Limited, a high-end retailer and installer of audio-visual systems, which has branches in New Zealand and Australia.
Lee finds value in being involved in The Alternative Board peer group process.
“Despite starting out as an electrician, my true passion was always audio. So about 15 years ago, I worked in the automation side of things for various companies in Auckland. I wanted to suss out the industry and learn all there is to know about the audio field. I got to the stage where I was ready to go out on my own. This hard work has led me to where I am today, with my own business.”
Being a Member of TAB has provided Lee with lots of lessons—an important lesson includes being more deliberate and taking the necessary time to do things right.
“I’ve learned to take my time and not to rush things. Things take time. I now make sure that I know exactly what the client wants and the best way to do it. I ensure that I understand all of the products and all of the people involved. By attending Board Meetings you learn a lot about your own business. You also learn a lot about yourself, especially from different perspectives.”
Lee explains further.
“When you run your own business, you can get narrow minded and tunnel vision can easily set in, especially as there just aren’t enough of you at that one level. It is good to have everyone’s opinion. I’ve resolved several issues while sat at the Board table with the other Members.”
Lee’s other tips to business owners are to make sure that capital is available to fund growth, work as much as possible, don’t give in and, most importantly, don’t overspend. The Alternative Board peer group process provides the support and accountability that allows Lee to stay true to these tips.