Know Your Numbers
Whenever we meet with a new or potential client, the first thing we need to ascertain is the level of knowledge the person has over the numbers of their business. I consider this the most important skill of a business owner. Not “are they a good plumber”, or “do they sell the best coffee”, but do they actually know what their business is doing in a financial sense.
To be honest, it is not a skill that seems to be overly common, which in a cynical view should be good for my profession, but in actuality tends to hamstring us from moving to next level advice. Whilst the introduction of GST did help focus some business owners on interim figures, as they needed to pay GST, it is still an area lacking focus for many.
How often do you meet with your accountant?
The appears to be a direct relationship with the financial skill set of a business owner and the number of times they meet with their accountant. Meeting with your accountant at least quarterly to review reports and get a big picture view has a raft of benefits, including identifying trends before they have a negative impact.
But won't that cost more?
Yes, meeting with your accountant more regularly may cost more. But consider this, if your accountant puts you on a fixed retainer of monthly payments, it will most likely include cover for calls and emails as well. So instead of dreading the 6-minute incremental bills, you can chat freely about current decisions in your business. That alone could actually save you more than the increase in cost.
You will find interested stakeholders such as banks would like to be able to review interim figures on your business, no longer accepting 10-month old year end accounts and tax returns. In this case, we have actually saved clients thousands of dollars by providing the lastest trading figures and then renogiating terms. That quickly paid for itself.
If you are franchisee, you should be providing your franchisor with accurate and up to date figures as per your Franchise Agreement. Get behind, and there can be some serious pressure put on you to step it up.
But I have a bookkeeper!
Now I know you might have a trusted bookkeeper who looks after all that stuff for you, so you can focus on the business, right? No need for you to worry about little things like BAS payments or payroll. Surely it is all under control isn’t it? The bookkeeper for one major former Australian brand undoubtedly provided similar assurances, and she had allegedly embezzled around $20 million. Now I’m not shooting the bookkeeping industry, but simply highlighting that every business needs to have owners and managers who are financially aware.
What could happen?
A case we came across recently was as simple as being aware of pricing shifts. A business in the leisure industry had not changed the pricing on a bag of pool salt for years. The argument was that the opposition were charging a similar price, so he had to match or lose the business. And selling pool salt was a high level income producer for this business. The problem was that the cost price had risen over the years, and the business owner hadn’t noticed. The person doing the recording thought nothing of it either. It came to light that he was retailing a bag of salt for $5.99 that had a cost base of $5.8 - tough way to pay the overheads on that profit margin.
Another case we had was a plumber who had his guys working on union and non-union sites, and was paying labour rates per an EBA. No problems there, exept that the guy doing the quotes was being rewarded for winning jobs, but to win the jobs he had to quote a labour rate of $65/hr. The true cost of labour, after we did some costing analysis, was close to $95/hr. So the busier the business was, the better the guy doing the quotes looked, but the faster the business was running out of money.
So what do you do?
While these may seem like obvious issues that you would have picked up, they are genuine cases that we have seen in the last few months. There are plenty more, unfortunately.
So do yourself a couple of favours.
- Contact your accountant, and ask for a quote to meet at least quarterly to discuss the business.
- Learn to use your own business’ accounting software.
- Take a course through your local council if you need to learnt the basics.
Please don’t join the uneducated business owners that go broke in the first few years.
About the Author:
Jason is Director of Franchise and Business Services at BNR Partners, and loves meeting business owners, sharing a coffee and talking about how to improve their businesses and their life. You can reach him at firstname.lastname@example.org