Kundun Consulting

As a consultant accountant I spend a lot of time looking at many ways of enhancing the business performance of my clients operations. One of those tasks includes reviewing the work of staff within the functional financial areas of a business.

I made a critical mistake a few days ago that I see others make all too often and it is inexcusable.

In my time I have seen a few very good bookkeepers, many competent bookkeepers and too many not so good bookkeepers. When I find a good bookkeeper I tell them and my client very quickly so that everyone becomes easy with what I am there to do and I can get on with adding true value. Of course even very good bookkeepers need some assistance to deal with a few things that happen in a business and I usually iron those out very quickly and we move on.

Usually in a new engagement my client will ask me the direct question: “Is my bookkeeper/accountant/General Manager doing a good job.” They will usually preface the question with background about some of the issues that they have encountered and I will try to be fairly impartial about the feedback that I give.

A few weeks ago I took on a new client and this exact scenario arose. Last week after a preliminary reviewing the workload involved I gave my feedback that undoubtedly given the volume of transactions the work performed by the bookkeeper was slow. It was good quality and there was a very high level of attention to detail but that the bookkeeper was working probably a day a week too long.

Now here is where the problems started.

The discussion went on for a little while around how we could fix the time issue by implementing some systems and deadlines that would force the bookkeeper to either sink or swim. I was confident that she would swim, but my client had seized on the fact that I had said that the bookkeeper works 1 day a week too much.

I arranged a meeting with the bookkeeper for the following week to look at some of the system changes needed and during that week, my client met with the bookkeeper and stated what I had said.

Bang - the bookkeeper quite rightly was none too pleased - and told me so at our meeting.

What we had all failed to take heed of was the human aspect to any decision. The bookkeeper was genuinely upset that she had not been consulted in the discussion. She asked how I could make the assessment without sitting down to see what she actually did. I could see the pain that she felt because she genuinely felt that she “put in”. She felt that she gave very good value for the payment that she received - and ultimately she needed to pay the bills and potentially this would mean leaving my client if she had to go out and find another position. This person felt betrayed and that her work was undervalued - and quite rightly so, because this is how it had been conveyed to her.

I am a very hard critic of big business doing exactly what we did here. We made snap calls based on formulae, numbers and outcomes without looking at the impact of a decision on the people that are affected by that decision. We communicated with each other and with her in a manner that smacks of complete disregard for how someone would feel. I have attended numerous training programs and learnt all about what happened here and yet I ignored the training and did what I should not have done.

Thankfully in this case a happy ending is well on the way to fruition. My subsequent review has uncovered the actual amount of work that the bookkeeper is doing - which is outside her area of responsibility. It has shown that other staff members are not performing and require further training to meet the requirements of their roles.

Coincidently I myself have additional work which Lindy will be very good at and there is an opportunity that we can salvage keeping her in the business and also expanding her influence to other clients who need the qualities that she can bring.

Oh and did I mention that Lindy is 100% deaf!

She really does do a remarkable job and should be congratulated for making something work as well as it did for so long.

The moral of the story is that everyone - even consultants - have things to learn from what we do. We do not have all the answers at times and we need to ensure that we practice what we preach. Business is not just about numbers, systems and what if’s. It involves people, passion and commitment and we must ensure that we take all these into account when dealing with issues, decisions and business performance. Otherwise as small business owners we are no better than the faceless board rooms of corporate Australia working to make sure that they get their bonus inspired 32.4% return on investment.

I am lucky enough to see many different businesses in operation and with differing levels of expertise. One of the most significant issues that I see is what I call Key Employee Over-Reliance.

This is the typical scenario.

Small business owner finally decides it’s time for help. She goes to the market and finds the perfect employee. They are enthusiastic, willing to do everything, happy, smart and they get results. They are a top performer and someone who should be nurtured and in fact revered for the level of pressure that they take off the small business owner.

Whatever gets thrown at them is never too much trouble. They complete more and more. and the small business owner just loves being able to work “on” their business rather than in it.

But some warning signs begin to appear. Super employee, who in 18 months has never had a day off, starts to take sick leave. Where they used to start at 8 it is now 8.30 and where they used to stay to 5.30. It is now 5. Their work is becoming a little shabby and a couple of customers have complained.

One day you come in and they sit down and tell you they are leaving -they have had enough and are moving on, and in a week you see them for the last time.

What happened here is very common. The small business owner has relied too heavily on someone else and they just kept overloading them until they effectively “broke”: them. All the signs were missed and as a result someone who made a real difference is now gone.

Usually what is worse is that the small business owner no longer knows some key aspects of the business. Super employee has changed the way things are done and there is no procedure followed or documented and in most cases key customers will be lost.

There is no real solution here except to ensure that as a business owner you keep control of all aspects of your business. It means that you need to ensure that your people are looked after and provided with support and that you have more than one person in control of all key aspect of your business. You need to document processes and procedures and you need to ensure that everyone in your business is appreciated and rewarded accordingly - including yourself.

But most of all if you have someone like this in your business, talk to them, listen to them and watch for the warning signs. Your business may depend on it.

Are you wasting your time?

I just watched a very good show on SBS which I do encourage you small business owners out there to have a look at - Risking It All - Wednesday’s at 7.30pm.

This episode chronicled a start up food business located in a shopping centre. What I saw was the classic mistake that I see so many small businesses make. This couple were so passionate about what they wanted to achieve that they thought that they could do it all. They had no life and were working so hard that they couldn’t see “sh*t from clay”.

As a small business owner you have enough to worry about in your core competencies. It is enough making the scones, cooking the toast, brewing the coffee - let alone managing people, doing the books, training new staff, developing the marketing plan etc. etc. etc.

It is really important that you concentrate on what you are good and leave the rest to those who are good at whatever they are good. It is really important that you get some help where it can best be served. Yes there is a real cost in doing that but it really is something that will benefit you long term. Having a bookkeeper come in and do your book work, or a graphic designer create your logo, or a part time barista take some shifts, will allow you to spend some time on the area of the business that you are good at. It will allow you time to work ON YOUR BUSINESS - not in it - and you will achieve those tasks that you have been trying to get completed for the last week, month, year.

Never believe that the business will capitulate without you being there - if that is the case then it is not a business and you need to take the right steps to get this corrected - quick smart.

As an accountant I am often annoyed at the way many accountants present their financial statements to clients. I am not talking about the annual financial statements that you may get from your accountant but rather the financial reports that you get to manage your business.

If your accountant simply prints out the financial reports form MYOB or Quickbooks and gives them to you then they are wasting your time. Your financial reports should contain more than simply the P/L and the BS. There must be a cashflow statement and there must be some analysis of the key non financial data that impacts your business. 

Your financial reports should contain an analysis of the actual results against a budget/forecast and the figures attained last year, there should be commentary highlighting the good an bad results for the month or quarter and there must be work on “glamming” up the reports so that they are easy to read and digest.

I use colour extensively in my financial reporting that I undertake for clients and it is appreciated. The colours can be used as a key to delivering information quickly . i.e. green is good, red is bad, blue is actual orange is budget etc.

There should be graphs and charts so that in a snapshot you can grab the impact of the information provided, but most of all they should be accurate and be reviewed for compliance issues and to allow further questioning to be undertaken.

Your financial reports should be capable of being summarised into a 1 page snapshot of your business that provides the highlights of what you need to know. The supporting documents will then beof allowing you to delve further down into the nitty-gritty and answering the questions that the capable  first page throws up.

Accountants who simply produce financial reports from your accounting system are doing so to the detriment of you, themselves and the business in general. Providing information as opposed to data is the key point that must be delivered. 

Is your accountant doing this?

So I hear you all screaming the obvious - how does Gordon Ramsey’s restaurant show possibly relate to accounting, small business or consulting.

I am glad you asked.

I will state up front that I love Gordon Ramsay’s show. It is in your face confronting television that whilst potentially contrived is great entertainment. I however am looking at it from more than just the entertainment factor.

This show really is a great small business management guide. Gordon takes the position that many restaurant owners take too much time to deliver too little. He believes that they make too many things too complicated. And he tells them straight that they are often not doing their jobs. He looks at streamlining processes, at strategies for ensuring that they are providing what the punter wants and at making sure that the products produced are the best of an easy to deliver bunch.

Now this probably will not be that convincing to many of you little Seth Godin’ites out there, but the fact of the matter is that  the formula that he is employing works and works well if you stay focussed and deliver what he defines as the strategy.

What he is doing very much aligns to the cycle of a small business. 

1. He reviews operations.
2. He identifies black-spots, bottlenecks, failures and areas of improvements.
3. He forces team work and creates demarcation lines with the people in the place.
4. He culls unproductive and unprofitable processes, procedures and products.
5. He reworks the offering - often after engaging with the market,
6. He delegates authority and challenges the leader to work and deliver results,
7. And then he gives the customer what he wants.

It is a great formula and one that delivers results. I do suggest that if you haven’t seen the show take an hour and watch it - but please try to avoid the people management techniques he employs - that could use some refinement!

I want to start with a quote that has really hit home and which I personally need to start practising and which I know many of you need to as well:

“Choose your customers. Fire the ones that hurt your ability to deliver the right story to the others.”

Thanks to Seth Godin for this

http://sethgodin.typepad.com/seths_blog/2008/05/what-do-you-kno.html

When I read this it provided perfect clarity to what I am trying to do. I have a client, well 2 actually, who for many different reasons are not the type of clients that I would like to provide my services too. The problem is that I was referred to them by a very close associate and I feel obliged to help them out of some troubles that they have encountered along their path to establishing their business. 

I have spent too much time fixing problems instead of delivering results to either this client or to my existing clients. Because they have ignored so many obligations, in order to correct their issues I have spent an inordinate amount of time looking after their affair as opposed to working with the clients that I love to work with.

So effective from one month from today this client will cease to be my client unless they agree to change their ways - which is very unlikely.
As a small business owner we often have to deal with clients that we do not want to deal with. We rationalise this as they need to service a demand fro our services/products that we have worked hard to get. If the client pays then they must be the right clients - right!

Well I have to agree with Seth, and in fact I have preached this on many different  occasions to other clients that all customers are not good. We have to get better at being discerning with our time and ensuring that we deliver excellent results to the clients who appreciate our service, who follow through with the requirements of the task that we set them and who implement our strategies. These clients value our services and products and we should ensure that we value their faith. 

The old Pareto principal is still very much a force in the every demanding world of doing business - and we do need to understand and follow it to ensure that we maximise the value in everything that we do as small business owners.

As a small business owner how do manage the massive number of expectations, obligations, responsibilities and balance that all with your life. This is a question that has plagued people far greater in capabilities than me so I will not try to offer any real answers. What I want to address however is the method of meeting your obligations and responsibilities from a tax and business perspective.

Managing cash flow is one of the most time consuming and tedious tasks that you can have in a business. However it doesn’t matter how you do it - you just need to do it. I have come across a number of businesses that are profitable ventures, have a great offering and loyal employees and custoemrs yet fail because they have simply not managed their cash flow.

Set up a simple spreadsheet that allows you to record the amount of cash coming into your business daily or weekly and then allows you to slot in your major expense items. This will very quickly show you where you commitments are and what you need to do to manage these. At a minimum you should be arranging your affairs a quarter in advance. That way you will always have a handle on what needs to be done.

For your tax obligations, get a calendar - there are plenty of templates on the net or email me and I will send you a template. Then simply slot in the dates that you need to meet. If you are lucky enough to use a Macintosh PC then you will have a great tool for this - but outlook will work just as well. 

This means more than just the GST it also means the income tax, payroll tax and FBT. I strongly advocate the use f a taxation offset account where you deposit funds weekly or monthly to cover your estimated obligations. there are plenty of high interest bearing online savings accounts that will serve this purpose well

It also means that you should be allocating funds for the payment of superannuation each MONTH - not quarterly. Please if there is one thing that you do in your business in the next month - pay the super monthly. It just rolls into your normal payroll cycle and you will never miss it - just like laybuy!. It will also minimise any potential penalties should you miss a quarterly payment. 

In your calendar set a monthly meeting with your accountant to go through your financial affairs. It will instil disciplines into your business that will pay off 10 fold when your accountant has a true operational sense of your business. Whilst on that try and incorporate your meeting with them into a meeting involving an advisory board. It will allow you to address specific strategic issues as they fall due.

Establish regular strategic times where you spend a few hours looking at the challenges facing your business and trying to plan for these so that they don’t pop up and hurt you.

In summary it is very important that you plan to meet your obligations and ensure that you do so. Create a system that will allow you to focus on what you need to do and how you should be doing it. And reward yourself with something earned when you do everything that should be done well.

With the budget being handed down last week I thought that it would be great to discuss some of the issues as I saw them.

Firstly, let me say that I am personally pretty happy with the budget. It was tough on the areas that it needed to be and about right in the other areas. 

From a small business perspective there were some changes that probably needed further explanation:

1. Tightening of FBT legislation.The areas that changed here will have a slight impact on some of the policies that a small business may have in place. The most obvious one will be in the area of salary packaging. Salary sacrifice on items such as laptops and PDA’s is still allowed - and in fact warranted in many circumstances. What the government has done is to tighten up an animally where the following was allowed under a court ruling: Basically am employee was allowed to salary sacrifice a laptop which incurred no range benefits tax (FBT). Additionally as the employer was allowed to claim the GST back in their next BAS statement, there was an added benefit where the employ only repaid the net cost of the laptop - I.e. the amount ex GST. This allowed the laptop to be purchased free of tax as the deduction to be paid back to the employer as made for pre tax dollars which reduced the amount of tax paid by the employee.  

The employee however was then deemed to have acquired the laptop at the full price and if they could provide the link between the laptop and their employment they were able to claim a tax deduction for the laptop, which effectively meant that they received a double tax benefit. This was a ploy used by many IT employees who would do this every year (you are allowed one FBT free laptop a year), sell the laptop on eBay and claim the deduction but not disclose the money they recovered when the laptop was sold.  

The government has quite rightly removed this freebie and whilst you are still able to salary sacrifice the laptop you are no longer able to claim the tax deduction. 

From a small business salary packaging perspective this is a real benefit to anyone who needs a laptop or PDA. If you offer only one salary packaging benefit then this should be it - particularly as you can have other savings in the form of payroll tax and work cover expenses.

2. The economic outlook is looking a little tougher according to the new regime. Unemployment up and growth to slow be a real impact on many businesses. If you have not yet started to put a budget together then I suggest getting your advisor to help put one together as there is a very real risk that this will eventuate and you need to be prepared.

3. There are superannuation changes that will affect small businesses. Your advisor will be able to show you the difference and ensure that you are complying. The major changes related to those businesses that pay commission but do not include these as part of the earnings base for which super is calculated. From July 1 you need to include all earnings that have occurred during normal working hours and calculate super accordingly. 

4. The education revolution could potentially provide a great opportunity for many businesses that operate in the education market. The additional funding has to be spent and looking at ways that businesses can benefit may well be a great opportunity.Personally I disagree with the Medicare surcharge changes. Undoubtedly driven by the union movement who members now routinely earn over the $50k/100k threshold with overtime and allowances far more valuable and even base wage increases for skilled trades personnel, it will simply force the cost of health insurance up as the people remaining in it will have top cover the mass exodus that will occur early in the new financial year. This does nothing to assist the pressure on Medicare and should not have been made so quickly. The changes should have been phased in.
The budget was not as bad as I personally envisaged to those in the higher income brackets.

The changes seem to hit the mark and fix some of the anomalies that are in the present framework. Small business has been left relatively unscathed and should be confident about the year ahead.

I came across an interesting issue the other day. 

Sitting with a client he asked whether he could quickly take a call. Of course this was ok.

Over the curse of the next 10 minutes I witnessed some of the most appalling collections practices that anyone could possibly imagine.

My client had purchased a service to produce a bulk copy of some DVD’s which he used for marketing purposes. The supplier had required that the job be paid for prior to the work beginning so my client paid on the spot and the disks were duly delivered 24 hours later.

Great service I hear you say. Yes to this point. 

Let’s review:

• Supplier gets client through a referral - good viral marketing.
• Supplier gets order and receives payment - no risk so good work.
• Supplier produces and delivers as promised - what more could you want!

Now this is where the problems start. 

A few weeks later my client gets a payment reminder email asking for payment. He replies to that email stating that payment was made on the spot and so they seem to have an internal issue. This does not stop the emails as they start appearing on a daily basis. So my client rings the supplier, speaks to the accounts person, explains the problem and she apologizes and says that she will take care of it.

Great Problem sorted right - wrong.

My client receives a letter demanding payment a few weeks later. 

Getting frustrated now my client sends a letter back with the details of the payment and the terms of their service clearly stated. This has no effect at all as the emails and calls continue to arrive with monotonous regularity.

At this point I witness the penultimate call, which doesn’t go very well at all. The final call is received the next day from the managing director of the supplier who amongst many disappointing statements finally closes with a threat to sue. Amongst the demands by the supplier were these gems:

• Can’t you just get your bank to find the transaction and send us the details - no my bank will charge me.
• Can’t you go online and get the information - no sorry my bank allows you to go back only for a few statements. 
• Well why don’t you get a better bank. I will just get my debt collectors onto you.
• You are being unreasonable.
• You have to pay us - we are owed.

What has happened here is just inexcusable and the actual cost to everyone is much greater than the value of the sale. 

From a business perspective this supplier has

• A lack of systems to be able to track their payment process.
• No point of sale system is in place recording the stock or job movements and so the suppler cannot track without human intervention what is occurring in their business.
• Accounts staff have no customer service skills and have failed to see what the customer is trying to say. 
• They have relentlessly pursued something that is dead and should have been corrected after the first client communication.
• The MD getting involved is ludicrous - full stop.
• Then demanding and insulting the client is - well I am lost for words.

Doing business with someone involves more than just the face to face interaction it requires significant system alignment across the organization. Losing a client at this point was just plain dumb. 

My client will undoubtedly tell others of his experience. Remember this was a referral from a previous client and the supplier has abused that trust. It is deplorable that someone feels compelled to provide a personal experience opportunity to another and have that dealt with so badly. Here was a situation where the supplier had someone championing their cause and they more than likely will stop that once my client provides them with the feedback of their experience. That is bad business.

A final word and it goes back to the beginning of the process to help put it all into context. The supplier would not even have begun the job without payment. If that is the system then how possibly can the payment still be outstanding? Everything that followed was directly out of a Monty Python sketch - mmmmm seems a little bit excessive.

Some significant work needs to be done to correct these issues or this business will never have to worry about another client ever again.

As a person in mainstream society and as a business we are all aware of our obligations. They say that tax is the second to only death as certain.

So can anyone explain to me why they fail to meet their tax obligations in business so often?

If you are not undertaking tax planning as a key aspect of your cash flow management and financial reporting regime then you are failing in your duties as a Director, Trustee or sole proprietor.

This is a critical aspect of being in business and encompasses GST, income tax, payroll tax and FBT - at a minimum.

In simple terms tax management is not that hard:

1. Estimate your tax liabilities for the year as part of your budget process.
2. Open a separate bank account and deposit 1/52^nd into the account every week.
3. Don’t spend the money!

Listen in real terms tax is good - it means that you have made money. By all mean minimize your exposure but make sure you attend to a very significant issue with diligence, awareness and common sense and paying will just become a formality.