We at the Bookkeepers Hub are committed to supporting all our members – not just our professional bookkeepers and students and allied professionals but also our valued SMEs. You the SME owner are what keeps our professional members employed and growing their expertise. We do this by bringing resources to you which we know from our vast network of bookkeepers and of concern to you the business owner or entrepreneur. Here are some of our experts’ views:
Once you have found your bookkeeper don’t simply outsource and ignore. You need to look at your management reports on a timely basis and incorporate them into your decision-making processes.
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.
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 Cashflow-manager.com.au 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.”
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.
Luckily, the first step to improved cash management isn’t exactly brain surgery:
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.
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!
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.
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?”
“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.