Finance

How to get to grips with your business finances

It is easy to get caught up in ‘doing’ rather than ‘running’ your business.

So many business owners find themselves running simply to stand still – finding new customers, taking and fulfilling orders and addressing (hopefully not too many) customer complaints.

Sometimes its difficult to see the wood for the trees:

I’m really busy so I must be making money – right…?

Not necessarily.

Understanding your business finances

It is understandable that, at the end of a busy day working in your business, you would prefer not to review your business finances. But if you don’t understand the numbers that your business is producing then how will you know which bits are working (and profitable) and which bits of your daily work are simply a waste of time and effort?

I frequently recommend that owners of new businesses sit down (at least weekly) with a pencil and journal (yes, that technical!) and write out the week’s sales figures and costs by hand. I find that there is something more insightful about using a pencil and paper compared to an excel or similar spreadsheet – perhaps its the exercise of writing by hand that makes you think more deeply about the figures and how they connect (or not…).

At its most basic, to write out your sales income (ideally split across services or products) and associated costs, will give you a much clearer view of what is profitable work and what is unprofitable – the figures rarely lie. You would be astounded how few entrepreneurs do this simple exercise – and by the number of business owners whose jaws hit the desk when they realise why (or even that!) they are losing money you can tell they wish they’d done this far earlier!

Moving on from pencil and paper to the day-t0-day, I’m a big fan of online cloud accounting packages like Xero as they provide a live dashboard view of the health and performance of your business. Now with live feeds across the majority of UK banks, entrepreneurs can get a realtime view of the health (or otherwise!) of their business. The bank balance is clearly there to see plus debts receivable as are costs payable. Cashflow is absolutely king for all businesses so the ability to see how much cash is in the bank, how much is due in and how much is due out at any one time is crucially important if you are to be in the driving seat in running your business.

Don’t get put off by accountancy mumbo-jumbo, simply by taking the steps set out above on a daily or at least weekly basis, you will be streets ahead of many of your competitors who are ‘busy being busy’ with no clear focus or direction on what works for the future of their business. Try it. Let me know how you get on.

If you are a digital, tech or creative business and you would like some assistance in getting a better grip on your business finances then please drop me a line.

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Hate Accounting! Or Love Accounting?

The accountancy industry, like every other, is going through a rapid period of change. When I read posts like this, I feel a little despondent.

It gives me that awkward feeling that I get when people ask me what I do at dinner parties or networking events? I stumble between:

  • “I’m an accountant”
  • “I’m a tax advisor”
  • “I work in finance”
  • “I’m a tax partner”
  • “I’m a creative accountant”….mmmh , perhaps not!

It all feels a little apologetic and understates the value we can provide. I think that as an industry we’re a misunderstood bunch, yet we’ve only really got ourselves to blame.

I believe that there is a common misconception amongst business owners between accounting or bookkeeping on the one hand and business advice on the other. The former relates to data capture and entry (which is important yet mundane) and the latter is what can make entrepreneurs healthier and wealthier.

John O’Nolan makes some great suggestions on how we can embrace the ‘uninterestingness’of many aspects of accounting work and turn it to our advantage – some ideas which are already being embraced by new firms in similar ways – but I believe he misses the mark in relation to business advisory services. Dealing with the bookkeeping aspect first, I believe that we are getting closer to creating a solution with the emergence of cloud based accounting software e.g. Xero and Freeagent, which is intuitive and provides realtime data access.

Yet business advisory services covers the whole gambit of a business lifecycle from initial advice on structuring the business on startup, to raising finance, growing the business and making acquisitions and disposals. It involves treating the business and business owner(s) as one, providing all-round tax and strategic advice. Sometimes its just a shoulder to lean or being a sounding board when an entrepreneur has some tricky seas to navigate and is perhaps feeling a little isolated at the helm of the ship.

But there’s far more as an industry that we can do.

For me the real killer move for accountancy professional service firms will be the shift from a position of information or intellectual property protection to information flow management. We’ve spent decades building huge barricades around our knowledge in professional firms to ensure that we get maximum value on consultancy services yet the waste and cost to our economies of this information not getting into the right hands (in time) must be astronomical. Let’s turn it on its head and set the information free to get to the right people as and when they need it.

Tomorrow’s accountancy firm winners will be those that can get relevant information in the hands of business owners first – business advisory information that gives entrepreneurs that “Aha” moment right when they need it – perhaps John O’Nolan and those of a similar ilk would then change their perception from HA! to LA! (Love Accounting!)?

Moving from a mindset of information or idea protection to idea release will be difficult (perhaps more difficult than identifying the tools available to achieve it) but it is the critical next step in my mind if business advisors are to be able to demonstrate their expertise and relevance in an increasingly noisy market.

Back to my dinner party “what do you do?” question: how about this response?

“I help entrepreneurs turn great ideas into great businesses”

Any takers?

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