Most business owners could probably tell you with intricate detail what their business does and how it earns its revenue. They also could probably tell you how many employees they employ, and which employees turn up late for work on a regular occasion.
But – could they tell you if their business’s actual results are close to what they budgeted three to six months ago? Probably not!
What about how to develop and maintain their personal budget? Probably not!
Moreover, would that same business owner know how to read and understand a Profit and Loss Statement or a Balance sheet? Probably not!
Well, although we don’t explain how to do all of these things since it would take quite a while, we do explain WHY it is absolutely necessary to be competent in these areas, as a business owner.
Budgeting… (Where are you going?)
Imagine jumping into the family car on the first day of a big road trip only to realise that just before you turn on the ignition and crank up the best mixed iTunes downloads ever made, you have no idea where you’re meant to go… let alone how to get there.
This is what the majority of small business owners do. Many have no idea where their business is going, how it got to where it is now and how to reach the next step.
Unfortunately, the next step for a lot of business owners is usually burnout, disappointment, disinterest and ultimately an unhealthy and declining business. This often leads to financial and emotional stress.
Not bothering to implement a budget is basically like driving your car blind with two flat tires, but it doesn’t have to be like this. Creating a budget is actually very easy and quite liberating. Setting small, short-term goals for your business to achieve, is one of the most powerful improvements you can make.
The budget is the very first step to changing your bad business habits and will give you greater control of your much-loved enterprise. Once you take the first step and start to see results, you will wonder why you have never bothered to do this before.
Bookkeeping and Financial Reporting… (Your map)
The second step to knowing your numbers is making sure that you have a great bookkeeper onboard. A cloud-based (Online) Accounting Software subscription like Xero will provide you with a proactive advisor who will go over your financial statements with you every month, or quarter. This will help keep you on track and achieving your short-term goals.
These statements, which may be quite boring to you, will help your advisor see what is potentially working and not working. This will then trigger either a new set of ideas or confirm previous predictions that were set out in the budget stage.
This step is very important. Not only does it keep you on track, but it helps you navigate towards your desired goals and away from ineffective business practices. In other words, it prevents bad business habits.
It is amazing what information can be ‘squeezed’ out of well prepared financial statements. There really is no point having financial statements prepared for any more than 2-3 weeks before you and your advisor sit down together to go over them. Make a note, as this is quite crucial… Do not bother to analyse your Financial Statements if they are more than 3-4 weeks old. There is no point, they are too old!
Remember, you need a map to tell you where you are going. Without one, you are sure to get lost.
Tax Planning… (Keep the taxman away)
Thanks to the rise of new technology over the last ten years, we have seen enormous changes in the way we live our lives. Technology has changed how we communicate with each other, order takeaway and do our shopping. Even ordering a coffee via your local barista’s app is now considered standard. However, even though there have been many changes affecting our daily lives, one thing still remains constant… Tax!
No matter how far we advance, I hate to say it, but the Pink Elephant is still in the room strutting around unashamedly putting its hand out demanding that we pay up.
The business owners that fail to implement a tax planning strategy with their advisor will most certainly become prey to the taxation system. This is a real shame because it does not take a great deal for a financial professional to create a good tax planning strategy. Whatever your circumstances, every small business should have a tax planning strategy.
I don’t know of any small business owners who love to pay more tax than they need to, but they do all the time.
Personal Financial Planning (It all begins and ends at home)
It all begins and ends at home. What does this mean exactly?
In essence, it means that if your personal financial situation is chaotic, undisciplined and ruled by inaccurate options and ignorance, then be prepared for a whole lot of pain. If it hasn’t come yet, it surely will.
It doesn’t matter how well your business is doing, how much money you’re making or how many material possessions you have, if you don’t have your financial situation together at home, the wheels will eventually fall off. It’s just a matter of time.
It is not uncommon to see business owners, from regular small trading businesses right through to high income earners like medical or legal practitioners see their net profits disappear due to bad spending habits.
If you have not created your family’s Personal Income & Expenses Budget, we strongly advise in you doing so!
So, there you have it! With these three strategies that include 1. completing a business budget, 2. Complete your personal/family budget and 3. Understanding your business’s Financial Reports, you will be on your way to Knowing your Numbers and therefore, being able to make more accurate business decisions.
From the Team at Conqa Business Solutions