I spend most of my time working with and talking with small business owners … after all, it is my passion. One thing that never ceases to amaze me is the lack of time and money small business owners invest in their support areas.
What do I mean by “support areas” – things like financial management, IT management, planning and forecasting and human resource management. These are all critical parts of every business however are mostly ignored until crisis requires engagement.
As a small business owner, how many of the following can you say yes to:
- I tend to ignore unsatisfactory performance of staff until it is at a point where it can’t be ignored anymore.
- I generally recruit staff when I really really really need them for a particular job and not before.
- I generally make staffing choices in rushed and stressed situations.
- I generally engage IT, Accounting and other support services providers based on price.
- I rarely take time to plan and undertake forward thinking in relation to my business and its support services.
- I don’t have a business plan.
- I don’t have a cashflow or budget.
- I don’t have an IT plan.
- I really only know the bare minimum in relation to laws around staff.
- I avoid having to use an accountant or solicitor unless I absolutely have to.
- I have experienced significant interruption to my business due to something going wrong in relation to one of my support areas (eg, issues with Tax & BAS, major cashflow issues, major staff issue, major IT issue, major legal issue).
I am hoping as a business owner you don’t have any ticks above. However, in reality I know most will.
So, at the recent meeting of the Albany Creek Business Contacts (ACBC), which is a networking group of local small businesses who get together to support and help each other through referrals, I asked the question – “why do small business owners neglect their support services”. The answers fell into five responses:
- Poor time Management – too much time working on the tools that there isn’t time to work on the business.
- Focus is on Money making activities – the inference here was that the support services do not “make money” from a billable perspective and therefore were not the focus.
- Lack of knowledge – many small business owners are very good in relation to the product or service of the business however do not invest in learning how to run a business and the value add the support services provide.
- Previous bad experiences – it was suggested here that some small business owners have had previous bad experiences with providers of support services so once burned then never to return.
- Ain’t broke don’t do anything with it – the suggestion that if it isn’t broken or creating problems then nothing needs to be done.
The problem with this situation is that when issues do arise in the business it winds up costing many many times more in time, dollars and productivity to deal with the issue and/or fix it than if some investment had been made along the way.
- rule of thumb it costs businesses 2 ½ times the salary of a position to replace the staff member;
- industry research suggests a business should be investing 2-3% of its net profit on its IT; and
- costs associated with needing to engage an accountant or solicitor to address specialist issues can be ten times plus the cost than had advice and assistance been obtained from the beginning and along the way.
If you want to discuss how to get started in building support for your business without breaking the bank, call me today (3264 4783) – I can help!
Welcome to Part Three of four Blogs in which we will look at 8 money habits business owners should make sure are NOT occurring in their business.
Not seeing how the little things add up
“While I’m here I’ll just grab some of this and some of that – I’m sure we need it or it will be useful somehow in the business.” or “I know there is a fee if I withdraw from this ATM, however, my Bank’s ATM is outside and round the corner, and the time it would take me ….”
Sound familiar? It’s the little purchases and expenditures that start to add up and can significantly affect cashflow and health of the finances. Make sure you monitor what office supplies and purchases are needed and when .. and only spend to the plan! If you need to withdraw money, either keep a petty cash float or go the extra mile to your bank- those charges can really add up.
Generally think … do I need to spend that money … am I maximising the money I am spending … so there are no nasty surprises at month end.
Not planning for retirement.
Of course we’re planning for retirement … the retirement funding plan is established and superannuation is set up – usual questions such as, is there enough contribution and is the fund performing well, are being asked and monitored.
But what about the business at retirement time?
Plans need to be developed to migrate the business when it is time to enjoy the fruits of your labour. Is it intended to sell the business? If so, what lead time would need to be considered? Will the business be wound down? If so, how will this occur?
As with start up, at business end we need to plan, plan, plan.
Call me today if you need help managing your business’s wealth – (07) 3264 4783
Before discussing why internal controls are important, particularly to small businesses, it’s best to establish what we are talking about? Control points are methods or procedures which a business adopts to safeguard assets, ensure financial information is both accurate and reliable, ensure that the relevant financial and operational obligations are being met and to ensure that at the end of the day the business’s objectives are being met.
Internal controls make the organization and its people accountable for the success or failure of the business. If the business has a poor culture towards internal controls then there is every likelihood that controls are either poor or non existent. HIH and One Tel are examples of the impact that poor culture towards internal controls can have … and they paid the ultimate price.
Internal controls are the procedures that explain the how, why, what, where and when of any set of actions and they should be documented.
The controls not only assist in meeting the business’s objectives but also provide an invaluable training source for new staff and ensure that when experience staff retire or leave their knowledge does not go with them. What appears obvious to someone who has done the same things a thousand times for many years may be very unclear to someone who has never done it before, or has no one to guide them.
How are your business’s internal controls? What quality checks are in place? Do you have documented procedures and forms which underpin the systems of your business?
Busy business owners are a major target for invoice fraud.
Invoice fraud can take a number of forms and scammers are relying on heavy workloads and insufficient procedures and controls within businesses to succeed.
Examples of invoice fraud include fake invoices for advertising in bogus directories and magazines, as well as for subscriptions which were never taken up.
To avoid being scammed, it is suggested that business owners:
· be suspicious of unsolicited emails, letters and phone calls;
· keep good accounting records;
· always approve purchases in writing;
· do not pay any invoices unless you have the paper work;
· ensure accounting staff operate under controlled procedures; and
· check for scam alerts through relevant government agencies
If you use a bookkeeper, ensure proper controls over data processing and the bank account. It is suggested that the roles should be separated with different people doing each task. Also ensure, as much as possible that your bookkeeper is qualified and experienced in looking after your accounts. Don’t be shy to ask for references and contact those referees!
Q: My Receivables are blowing out with more customers taking longer to pay and the timeframe for payment extending. I am experiencing quite a hit on my cashflow so what can I do to improve the situation?
A: The first thing you need to do is make sure you have terms of trade established with all your customers. What do I mean by terms of trade? Terms of Trade should set out on what basis you are selling your goods/services (eg cash on sale, payable within seven days of invoice date, 30 days after end of month) and whether there are discounts for early payment or penalties for late payment. They should also set out whether the customer will be liable for any costs incurred in attempting to recover amounts owing.
Once you have a policy in place make sure you enforce the terms of trade policy. Remember it is your money and unless you are a financial institution which lends money it is not your business to fund customers’ Cashflow. What you educate customers to do is the way they will respond. That is, if your terms are seven days and you allow clients twenty-one days before you chase them for payment what are you saying to them about your terms of trade? Is it seven or fourteen or twenty-one days? If your customers are educated by your actions (rather than your Terms of Trade) you will have trouble re-educating them as to what you real terms of trade are (but, if you are in this situation, you are going to need to try and change things).
So the day after monies are due (and not paid) send a reminder statement or make a friendly phone call reminding the customer the account is overdue and that you require payment. If reminding by phone, get a commitment from them and record the commitment in your system. If this fails follow up with a letter reminding them of their commitment and what the consequences of non-payment is, as per your Terms of Trade. Unless your client can show some extreme reason why you shouldn’t follow through with the stated consequences – then follow through. You may end up losing a couple of customers but are they reallythe customers you want in the first place?
Also encourage customers to speak to you in advance if they are having problems with cashflow and payment of accounts. Remember we all have problems from time to time and most times we can work through them if there is early communication between the parties involved. Offer a payment plan if this suits your buisness (any money coming in is better than none being chased).
If you need any further help with Debt Management and Cashflow, call me 07 3264 4783 (ask for David Balwin) or drop me an email ( firstname.lastname@example.org ) – I’d love to help!