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Keys to Small Business Growth
Some businesses are harder to manage from a financial point of view than others. Manufacturing and agricultural production have real challenges.

Consider a vineyard for example where expenditures required across the vineyard, production process and storage. Product is typically matured for over two years, creating a lag in the revenue cycle. And then like any agriticultural business, winemaking is also prone to seasonal risks.

Here financial solutions require valuations of the business inventory and the wider asset pool to be carried out by experts such as accountants or trained CFOs. Many manufacturing businesses require a sophisticated in house or external professional to assist the business through their manufacturing and production cycles. Accounting software may be needed but what is critical is a financial solution that takes into account their special needs.

Software Solutions
Yet, thanks to decades of development by brands such as MYOB, Intuit and Reach, adoption of accounting software is cheap with online applications meaning every business can now afford an online system that organises their financial information. Wayne Burgan, founder and CEO of believes that in today’s highly competitive climate, start-ups and small business operators can be blind-sided by financial statements and reports. He says his software package; Cash flow Manager is “the simplest small business accounting software on the planet that anyone can use, even if you know nothing about accounting.

“Their accounting system should make it easy to keep accurate records to help them manage their cash flow, understand their costs and sales, and keep accurate records.”

The value of predictability
In a nutshell the use of accounting software, bookkeepers and accountants is about profitability.

For sure bookkeeping and accounting costs can add up when you’re paying $70 or more an hour to a bookkeeper and two or three times that for an accountant to do the compliance returns for the business. But in a fast moving landscape a business owner needs to predict the business cycle and cash flow needs.

If you’ve been running your business a while, chances are you have a good intuitive idea of your business critical numbers. They’re the ones that keep you up at night when they aren’t behaving the way they should. The problem is many business owners have failed to invest in accounting systems.

Benchmarking, for example can be an effective predictive tool. Having seen where there are weaknesses in your business, the next step is to make changes to strengthen those areas. For example, a transport business may discover its vehicle breakdown and replacement rates are significantly higher than comparable companies. Its action plan might be to examine its maintenance policies and change the quality-control processes in its servicing department. Who does this? A bookkeeper can do this if the collection of data has been efficient. An accountant will do it but will come at a higher cost,

You can be making good profits on the reliable sales that will come in, but if that revenue hasn’t arrived in the business’s bank account, the business may not be able to pay the electricity bill. So long as more money seems to be coming into the business than going out, many business owners don’t give cash management a second thought. And that leaves them vulnerable to all kinds of cash-flow dangers.

Your steps
Luckily, the first step to improved cash management isn’t exactly brain surgery:

  1. Just start maximising cash flow simply by making certain that the billing, collections and accounts payable systems are operating as efficiently as possible. Invoice promptly, aggressively follow up on overdue bills and, if possible, require up-front deposits when making sales. Then hold on to your cash as long as possible by managing your payables. That means, quite simply, take as long as you’re allowed – without incurring late fees or interest charges – to pay your business’s bills. This is where effective is of accounting software comes to the fore and requires little or no bookkeeper or accounting fees; simple timely entry and production of management reports.
  2. You need your staff or external bookkeeper to ensure creditors are managed property and not threatening to cut you off and that tax payments do not become overdue, especially GST!
  3. Your bookkeeper can also be effective in managing cash crunches. By managing these areas you can minimise business risk and help improve your chances of succeeding..

*Telephone your creditors to suggest meeting with them. Schedule meetings before payments are due. Don’t schedule meeting after you have run out of cash – move decisively to meet creditors well before any critical date.

*Develop a credible plan. Aim for a realistic assessment, and then focus on how you’ll fix problems. Above all, never promise anything you already know you can’t achieve. Your plan could be, for example, a staged repayment of all outstanding amounts while keeping credit alive for new orders.

Ultimately the balanced use of accounting software, a bookkeeper and an accountant will ensure the managing of cash flow and ensuring that you take the necessary steps to grow your business safely.

A bookkeepers perspective
Are you good at playing defence? At any moment, everything can change.

Yet in business, you really can’t play the game unless you have a core understanding of your financials and cash flow. Unfortunately, many small-business owners are so focused on their trade that they don’t give sufficient time or attention to their books.

And then the unexpected happens. Suddenly, you need those financial statements. Each week I get phone calls from business owners who are dealing with something new and want to look to a loan for help and need financial statements to support their loan applications.

The state of their financial statements will often dictate what options are available and what rate they will have to pay. It’s easy to pin the blame for the lack of access to credit on unreasonable bankers. And while I believe the banks have made it tougher for businesses to borrow, some of that responsibility falls on the shoulders of entrepreneurs as well. Would you lend your own money to a business that had no real sense of where it stood financially? I certainly would not.

The issue of outdated bookkeeping is particularly important at this time of year, when we see many clients who are in the process of compiling their receipts and bank statements for the previous year so their accountants can prepare their tax returns. I recently met with an accountant, whose practice is small-business focused and who demands accountability from his clients.

‘We require all clients to either have a good internal set of books or allow us to spend the time to get them clean,’ he said. ‘We would not be willing to continue a relationship where the books aren’t progressing toward being clean. The only way to know for sure how the business is doing, and properly advise the client, is to have clean records with accurate information.’

How do you manage your books? How do you ensure that they are reasonably up to date and in order? Have you paid a price when they were not?”

The Price of Bad Bookkeeping
If you believe bookkeepering costs can be costly, consider the cost of bad bookkeeping!

One bookkeeper reported, “I recently worked for a client who was using credit cards to pay their business bills – that’s around 20% interest rate for cash-advance loan. The sad thing about his situation is that he might well have been eligible for a six-percent bank loan. What stood in his way was that he was six months behind in his bookkeeping, and it would take weeks for him to get his books in order.”

Unfortunately, he needed the money right away. And there isn’t a reasonably priced lender out there who will lend to anyone with such outdated financials. It’s easy to look at this situation and think that this owner got what he deserved. But the reality is that it’s easy to slip on keeping up the books.

There are so many pressure points in a business. Perhaps most striking is how quickly you have to flip between playing offence and Getting Publicity

Discounting is risky
Discounting can be dangerous to the financial health of a business. Discounting is not generally a wise long-term strategy.

If your strategy is to win new business by being the cheapest, you only have the advantage until a competitor reduces their price to be less than yours. It is not sustainable unless you have a cost advantage over your competitors and your product or service is very sensitive to price changes.

Many people do not realise the extent of the volume increases they need to compensate for discounts in price. It doesn’t take a complicated financial analysis to see how much your volume needs to increase by to achieve the same amount of profit when you discount. Typically, if your gross margin is 30% and you discount price by 10%, your volume needs to increase by 50% just to retain your starting profit. For sure discounting is a valid strategy to clear old inventory or to stimulate slow sales periods but not as a general strategy.

Buying on value
People do not buy on price. They buy on perception of value.

Marketing guru Dan Kennedy in his ‘Magnetic Marketing’ package says that one of the most important skills a small business owner can learn is to create ‘widgets’. He is referring to the things you can do to add value to a product or service to change the way it is perceived in the marketplace.

A good place to start is to ask the question: “What is it that everyone dislikes about doing business with any business in my industry?”

Consider plumbers for example. Everyone hates being bumped by plumbers who didn’t show. So promote with a rock-solid guarantee of service at the agreed time. If your serviceman is running late, send a txt message: it will be appreciated.

Cutting costs hurt too
When things are tight people look at how to reduce costs but they should always be careful about cuttings costs that could be detrimental to the business e.g. marketing, presentation etc. Consider a café as an illustration. A poorly managed café will cut their costs by cutting back on the quality and range of food that is displayed in a glass cabinet, or the top of counter, making it less appetising for the customers. Rather than growing revenues, they are losing potential revenue.

On the question of growing revenues, it all boils down to a 4-prong approach:

  • More customers
  • Sell more to each customer
  • Increase frequency of visits
  • Bigger profit margins

So the focus for growth should be; how to improve these numbers.

A customised accounting system should make it easy to keep accurate records to help them manage their cash flow, understand their costs and sales, and keep accurate records.

This is where many business operators could reduce costs – by using a simple system that makes it easy to keep good records even if they have never been trained in accounting.

It’s the role of the business owner to develop financial skills as intuitive systems like slashing costs or applying discounts without a thorough analysis of the consequences will lead to grief. This is not to say that cost cutting or discounting has no place in business. They certainly do. If, for example you were able to secure a discount from your supplier by prompt payment or by a larger order then you have capacity in your gross margin to apply a discount without suffering the consequences outlined earlier.

  1. The message is understand your numbers such as:
    • Overall profit margin
    • Cost of every product: to make sure they are making a profit on each product individually or when bundled in a special offer.
    • Volume of each product.
  2. In terms of good management and especially in terms of managing for growth, it is an imperative to know how much an individual product may be contributing to the business bottom line. This should raise crucial questions for growing revenues.
  3. By knowing overhead costs and the profit margin you want to achieve, you can determine the level of sales required. For best control, you should break that down so you know the sales you need to achieve each day.