Author Archives: Shareeza Hussein

Mitigating Income Risk

There is no denying that many retail businesses have experienced significant challenges over the past decade with the rise of low-margin, low-cost online businesses. The need to adjust costs and offer innovation in client service to meet the challenge of online competition has become an ongoing area of focus to stay profitable.

There is another area of potential vulnerability for all businesses, especially those in the corporate sales space; managing the risk of being reliant on a small number of large clients.

On a number of occasions, I have seen agents lose a large corporate client resulting in those agents losing a significant amount of income and being forced into administration and liquidation. Certainly not a good outcome. You don’t always have control over when your clients seek your service but you do control when and where you spend money.

Any business with income reliant on a limited number of clients, and clients that have the ability to move to another supplier relatively easily, must ensure that they can operate without that income. The simple solution is to keep your overheads as flexible as possible to allow your business to scale up and down as quickly as necessary.

There are usually 3 main overheads that should be monitored by most businesses; staffing costs, rent and occupancy costs and office IT systems.

Staffing costs pose their challenges with a need to balance between full- and part-time direct employees and contractors. Direct employees offer greater control for the employer but adding employees in times of growth may necessitate their redundancy when there is a significant loss of income. Staff redundancy has implications not only for the employee being made redundant but also for the remaining employees and their feeling of job security and office culture generally. Using contractors may seem like providing a convenient way to scale back staffing costs when necessary but also restrict the control over the work they do.

Rent and occupancy costs are a challenge between a long office lease offering security and a shorter lease offering greater flexibility to move to larger or smaller premises as the business grows or shrinks. Every business needs sufficient office space in terms of location and size to best serve clients while at the same time ensuring that their leasing and fit-out commitments are flexible. One often overlooked solution to keeping rent and occupancy costs low is to encourage staff and contractors to work from home and use shared office facilities that may be less costly than having permanent facilities that are often under-utilised.

Cloud based office IT systems offer huge potential for savings compared to on-premises systems that may have been state of the art less than 5 years ago. The biggest benefit to any cloud based system is the ease with which a business can scale up and down its use of the systems in response to changes in demand. Quite often it makes financial sense to scrap existing on-premises systems, even those that may still be operational, for cloud based systems with lower ongoing maintenance costs. Cloud based systems will often not have any upfront costs apart from migration of existing data and some training. Cloud based IT systems also offer greater ease for staff and contractors to work at home or form clients premises as appropriate.

There is no magic solution to avoid risk and every decision has challenges and consequences. You, as a business owner, need to consider and review your business practices to ensure that you can handle what happens in your business and that your business remains as flexible and adaptable as possible to meet the challenges it will face.

Managing your debtors

Cash flow is a key consideration for all businesses. There is one sure method to adopt to improve cash flow, and it is, actively manage debtors. Owners/managers are generally good at winning work, completing projects and invoicing. However collecting cash tends to be managed with far less focus. The simple explanation for this is, you didn’t start a business to spend your time chasing debtors. In saying this however, it is a very important aspect of “working on the business”.

To actively manage debtors a specific individual or team (subject to the size of operations) should be responsible, this involves:

• Creating procedures/policies to make collection of debtors a routine and important part of the business.
• Tracking when invoices are sent to clients.
• Following up with an initial friendly reminder when debtors are overdue.
• Follow up with more force if debtors remain overdue, generally a telephone call is best.
• Taking appropriate action to collect debts from troublesome payers.

Debtors management should be integrated into the total customer service offering to a client. Following up with clients to ensure that they have been satisfied with the outcome of a project will provide you with a good sound board on the output of the business and also provides a great opportunity to confirm when payment will be made.

It can be advantages to have an open dialogue with your clients and discuss reasons why invoices have not been paid. This discussion can lead to understanding the cash flow constraints of your clients and to the negotiation of a successful payment arrangement to suit both parties. Collecting small instalments for invoices is better than not collecting them at all.

If you are continually struggling to collect debtors, there are many companies who can take over the collection process for a fee. Yes, you do pay a fee, however you will collect your cash much sooner and alleviate the responsibly and energy required to collect cash from clients. This will give you more time to focus on the business. Note, this should not be used as a long term solution to collect debtors generally. It is however it is a powerful tool to collect fees for specific clients refusing to pay invoices.

In order to have your business running effectively a business needs cash flow to manage the expenses associated with running the business and allow owners to be rewarded for their hard work. Spending a little time setting up procedures to ensure effective collection of debtors will be rewarded in the long term.

Calling all future business leaders

When running a business, it is very important to grow and develop as the world changes around you. If you don’t grow and develop, your business will eventually become extinct.

It is equally important not to rush into any decision without careful consideration of all the options and the foreseeable consequences. A wrong decision can be very costly to your business and the last thing that any business operator wants is to cause their own business demise.

A successful business operator will be someone that has vision for the future with enough caution to not head in the wrong direction but enough conviction to keep moving forward. A successful business operator will surround themselves with people and organisations that can help to foster that growth and development and share their vision.

But visions and ideas also grow and develop and need those people and organisations to continue to grow and develop too.

Quite often, business operators will believe loyalty from these other people and organisations, often shown through long term employees and favourable trading terms, is a sign of a strong business.

But loyalty alone is often the cause of a businesses demise. If those same loyal employees and organisations are not keeping up with the changes, and even helping you to see the future and make those changes, they will hold you and your business back from continuing to succeed in the future.

Future business leaders must show their ability to grow and develop, not just out of necessity but from their deep desire to drive for success. Future leaders that think their success will come from mastering the old ways will be outpaced by their peers who look for new ways to do things better.

Good luck. See you at the finish line.

Storm Clouds Ahead

Many businesses look to minimise their accounting and bookkeeping costs as they will often see it as an expense with little benefit. Their push to save money will often end up costing them more in the medium to long term. You either do the job right or not at all.

Many start-up businesses come with the idea that they can save costs by maintaining a list of income and expenses in a spreadsheet and providing that to their bookkeeper or accountant for processing. This is certainly doable and can be cost effective initially, especially when the lists of income and expenses are relatively small.

But, as your business grows, you will get to the stage of having too much information to manage in a spreadsheet and inevitably mistakes will be made. A proper bookkeeping system is designed with checks in place to ensure that when (not if) a mistake is made, the mistake is easily identified and able to be corrected.

Hunting for errors without a proper bookkeeping system will add considerable time and cost to your costs no matter how good you think your spreadsheet is and no matter how diligent you think you are.

Xero and similar accounting systems go one step further by providing direct feeds of banking data into the accounting system, reducing the amount of manual processing and thus reducing the chance of errors.

If you are thinking short term only and not preparing for growth, the growth will be challenging.

Choosing your Accountant

I was recently asked by a prospective new client what I thought to be the most important consideration when looking for a new client. From a client’s perspective, all accountants seem very similar, offering similar services. Most even charge similar fees. But there is 1 key element before all else that will determine if your engagement with your accountant will be a success or not.

Simply, you must choose your accountant by whether you can communicate with them. This is not just a matter of your accountant speaking the same language, nor just your accountant speaking in terms simple enough for you to understand. You must choose your accountant based on you feeling comfortable to contact your accountant and asking for help.

You will need to discuss personal matters with your accountant. You will need to expose your finances to your accountant and allow them to comment and critique your financial (and sometime non-financial) behaviour. Without you as the client being able to talk to your accountant, your accountant will never be able to offer you the full support you need and deserve.

Communication works both ways. You should want your accountant to be your partner in your success, someone that will give you honest feedback and be your supporter when appropriate. You also need to make your accountant feel comfortable that they can pass on news that you may not like (I have yet to meet anyone to get excited about paying their taxes). You need to learn to trust your accountant over time, but having some initial doubts is healthy.

After finding an accountant that you feel comfortable communicating with, it is also important that they are not just competent at completing your compliance work but also work with you to solve problems and challenges you may face. It is also important that your accountant has the right experience to be able to assist you. It is important that your accountant is willing to push themselves for you too. It is important that your accountant can understand your situation and circumstances, and suggest solutions to any challenges you face.

Finding an accountant is easy. Finding a good accountant is not so easy. Finding the right accountant for you can take several false starts but the price for settling for an accountant you can’t communicate with will be detrimental to you and your business.

swot

SWOT

man makes plans and god laughs

Following my earlier post about business plans, one of the more powerful tools to better understanding yourself and your business is a SWOT analysis; Strength, Weaknesses, Opportunities and Threats.

Strengths
Understand what you do better than others and where you fit in. Strengths can be drawn from experience, character traits, educational and career achievements. Advantageous circumstance may include social connections and resource access.

Weaknesses
Acknowledge where you need help. Exhaust the options for ‘filling the gaps’ which may involve additional training, drawing on the knowledge and skills of other people, or using external resources.

Opportunities
What are your competitors missing? Identifying opportunities is the first step to realising them. Think creatively and exhaust all possibilities to provide the broadest options.

Threats
What do your competitors do better than you? Consider how achievable your goal is, the difficulties faced, the consequences of not addressing any weaknesses. Work out actions to reduce the chance of occurrence and a back-up plan if the threat becomes real.

If you know the enemy and know yourself, you need not fear the result of a hundred battles.
If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.
– Sun Tzu

Running a business is like going into battle where you have opposing forces that you will need to address, each with their own agenda, to ensure that the final outcome is a success. Performing a SWOT analysis helps you understand where your business fits in and how to maximise your situation.

It is not enough to just know yourself without consideration to your competitors or their products/services. You must understand your customers/clients to know what they need and want. Similarly, it is not enough to just know what you are good at but also need to know where you are weak and be prepared to seek and ask for help. No one is good at everything and no one should consider going into business alone.

Also like a general business plan, a SWOT analysis will need to be updated and revised as the business and market evolves. Competitors will introduce new products and services that will challenge your existing business. Customer needs and wants will change over time requiring you to adapt with them. Your strengths and weaknesses will change as you learn and grow too.

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Business Plans, part 1

Failing to plan is planning to fail

Many new clients come to me without a formal plan, not so much for the lack of any planning but because they just don’t know where to start when preparing a plan. My quick answer for them is to just start writing.

Why?

Why are you going into business? If you are already in business, why you are already in business. What drives and motivates you into business? Why this business?

Who?

Who are your going into business with? Will you have business partners or do it alone? Who will your customers or clients be? Who will be your suppliers and employees?

What?

What will your business actually do? Will it produce something? Will you provide a service? What is it that your customers or clients want from your business? Will you be able to meet their needs and expectations?

Where?

Where will your business operate? Will you have a shop front? Will you need an office? Will you operate online? Where will your customers or clients come from? From where will you source your supplies?

When?

When will you start? When do you expect to achieve certain milestones in your business? Do you have a plan of when to transition out of the start-up phase?

How?

How will you manage the business, juggling your limited time between the new business, family and friends. Will you operate the business concurrently with your existing work as your business builds up?

Now just start writing. There is no correct answers and no one will be assessing your writing. Point form is fine. Key words are better than nothing. The business plan is your tool to keep yourself accountable and to help you understand your own business. You can’t write a business plan if you don’t understand your plan for the business.

In a year or two, the written business plan will give you the opportunity to look back and assess what you got right and what you got wrong. It is an opportunity to learn that can not exist without a written business plan.

cloud_accounting

Single Ledger Cloud Accounting

I have been involved in Cloud Accounting since 2008 when I saw the benefits of a single accounting ledger in the cloud for my clients as a way to fundamentally change their business for the better, improving efficiency and reducing the time for compliance.

Historically, accountants would manually collect invoices, receipts, bank statements and other relevant documents to compile a set of accounts and allowing for the preparation of annual tax returns.

The introduction of the GST saw the introduction of more computerised accounting systems such as MYOB and other desktop based software but these systems were designed more to ease the extraction of specific reports than ease of data collection. Quite often, the benefits of a desktop based computerised system never justified the added hassle and costs of the system.

Many new and existing clients are still asking me about the benefits of cloud accounting with a single ledger, especially over their traditional desktop based accounting software.

Cloud accounting and the single ledger provide significant benefits in terms of automated data collection and entry, and the added convenience of an accounting ledger able to be simultaneously shared and accessed between business owners, bookkeepers and accountants. There is no longer the need for an accountant to send adjusting journals to the bookkeeper or business owner. There is no longer the need to struggle with swapping data files, and no waiting while someone else does their work.

While the automation helps reduce the compliance time and costs, the biggest benefit to business owners is from the live access available to accountants and the ability for real-time advice on financial matters. For too long business owners and accountants have accepted not knowing the financial status of their business for 6 to 12 months after each year. Accountants can now advise on matters as they occur and be a true partner for success.

This is co-operative accounting as it should be.

Why Xero?

I am often asked why I recommend Xero over similar competing hosted accounting systems and the simple answer is in the Xero community. From the start, Xero understood that the most important aspect of any system is in the openness of the system. Xero have created a system that encourages cooperation between other specialised cloud-based systems as noted in their extensive add-on list.

As the Xero user base has grown, I have also noticed a significant increase in the number of good bookkeepers gaining experience in Xero. These bookkeepers who already have extensive experience with desktop based accounting software are also seeing the benefits of the single ledger in the cloud.

It is this fast growing network of Xero partners that makes easy the choice of Xero as the cloud based accounting system. It is easy for a business to extract its accounting data and move to another system. It is now easy to find another bookkeeper or even a new accountant.

While Xero is not the only cloud based accounting system the DFK Richard Hill team and I work with, it is our preferred.