- Turning Information Into Knowledge
- Turning Knowledge Into Profit
- Cash Is King
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.
– David Morley, Numereyes, TAB Member