Gee, I seem to prefer it when the company makes money

It's all about the money. No really, hobbies are for fun and fulfillment and businesses make you and your communities richer. So watch out for the money traps:

Poor capital structure: Don't take on too much debt. Learn to pay strict attention to your finances and keep careful records of all money coming in and going out. Today might be good but keep an eye on tomorrow.

Overspending: Many startups spend their seed money before cash has begun to flow in at a positive rate. Sometimes this is because the owners are unsure how business actually operates. Ask and find support before you commit. Maybe it's better to lease and not buy....

No reserve funds: Failing to prepare for volatile markets and uncontrollable costs like energy-rate increases, materials, staff, natural disasters, etc is another top reason many businesses fail. Protect your investment and keep enough reserve cash to carry you through market downtrends and any seasonal slowness.

Small minded Small business

It's amazed me how many businesses have closed down over the Christmas period. Particularly hospitality businesses. In Paraparaumu yesterday 50% of the cafes were closed. In Petone there are at least four that don't open until late January.

This is the time that cruise ships are in Wellington and Auckland (average spend $943 per passenger) and when tourists are everywhere and normal routines go out the window. The time when families get together, friends meet up in their old local haunts...and they spend on lattes, ice creams, beer, wine dinners out, brunches etc etc.

If you're in hospitality why don't you take your holiday in August, somewhere hot, and make your money while the sun shines. The punters are still here, your market is still requiring your services so please serve them and grow your business. Sometimes the work/life balance needs tipping a little more towards the work part.

Steps to successful financial management

• Invest in a sound core – an accurate ledger, records and processes
• Plan your business from an operational viewpoint – remember your financial plan reflects your business operation – set integrated KPIs
• Make sure you can provide operational capability to meet your targets – HOW will you grow 20% this year, WHO will do it, WHAT will they be selling…
• Review your KPIs each month
• Review and realign your goals by reforecast – the market or business factors will likely change at least every three months

These are big business principles that apply equally to small and medium businesses. There's a reason they're big businesses, right?

Call to action (part two)

If you’re reading this from a large business, you’ll know what a pivotal role the finance unit has in the direction and control of business. Why do large businesses have dedicated experts in this area? – Because they know continual success on a large scale does not come about by accident. It comes about through the management team understanding completely what needs to be done to become successful, what has been achieved and why and what needs to change to meet targets. Financial management is the process and toolkit that provides that knowledge. Each month there’s a dedicated focus (and from our experience in large businesses, an immutable deadline from the top) on understanding results and reprogramming operations for the next period.

So the call to action is to small and medium companies. The same processes and disciplines that large corporations use for managing finance apply to you too. Checking in once a year with your accountant is not enough. You may think you don’t need a fulltime finance manager, or that the cost wouldn’t be justified. Think again. Financial management is not expensive, and many accounting firms are realising that business owners benefit far more from the in-house commercial model that large businesses use, and are creating value-add packages accordingly. Make your accountant your finance manager.

Online and moving on

For the third time in not so many days, we met a client who was ready to move on from their current accountant. Basically this was because, as an entrepreneur in today's environment, they want fast moving, forward looking advice, given in the context of their business. They're a savvy, tech company well able to plan and manage their day to day finance activities and monthly compliance issues, they use online software to track their ins and outs and know pretty much each day what their position is. Remote, one-size-fits all annual support is not cutting it.

We hear this more and more and congratulations to those accounting firms who are stepping up with strategic, integrated support which is gets businesses to their goals. There are more of us out there now, so you don't have to get what you always got.

It's "bull by the horns time". I've written an article for media copy that promotes a change in the way medium and small business should use their Accountants. Here's an extract, i'll post the rest at some stage soon.

"There’s pressure on kiwi businesses to grow – to export, to assist in raising our OECD ranking, to build a sustainable commercial platform that will support our ageing population...it goes on. If you’re like 71% of business owners, you turn to your accountant for growth advice. But the once a year trip, driven from statutory requirements is just not enough. You’re missing a crucially important piece of your management process that will see you achieve real, managed growth.

That piece is financial management – not once a year accounts or making sure you pay your GST or Provisional Tax on time, or a quick printout of sales for the month or a budget that just says ‘we’ll grow by 20% next year.’ Correctly executed financial management delivers regular (at least monthly! not annually…) updates on the direction, health and likely outcome of your business operations. You don’t drive a car without regularly checking the dials, so why run your business without regularly checking your business dashboard? ‘I have no dashboard’ or ‘I’m a bad driver’ are not the right answers."

More to follow.....

Dave

Vault is born

First posts are never easy. Watch this space for opinions from the Vault team.