Kundun Consulting

One of the most widely held fallacies amongst business owners is that the financial reports that they prepare are for their eyes only and as such they can easily hide their own personal expenses in the P&L and have no long term issue.

Let me break that myth straight up.!

Your financial reports are the window to the financial health of your business.

Granted they are predominately there to allow you to run your business but the truth is that over the course of a year many different stakeholders review your financials - for many different purposes. Lets have a look at some of the stakeholders.

⇒ Employees

Your employees will come across your financial statements at some time - be very sure of that. I do not care how careful you are, someone will leave something lying around and it will be found.

You might send an email incorrectly, or it may be someone who is authorised to view the information, such as your bookkeeper, but be sure they will be seen.

Now whilst your employees are not looking to see how much money you are making they want to know that you are secure. In these times of virtually full employment it is very important that you get this right.

I strongly advocate with all of my clients that they share some of the higher level details with their people. Sales or revenue figures and break even positions are good starting points. You will be amazed at how your expense management becomes easier when your staff know how much it costs to run your business
⇒ Your bank or lender.

I once had a client who wanted to borrow $1m but did not want to give his financial information to the prospective lenders. thankfully logic prevailed and after sharing the information with a select few lenders the financing was arranged.

These guys are not that financially literate, but have a select number of tools at their disposal to ensure that they can assess the financial viability of your business. Do not try to hide things as they will find them.

⇒ The Tax Man
He is someone who will look through things with a fine tooth comb. Every expense item that goes through your tax return needs to be fully alligned to the expenses involved in running your business. He is a very strict person and does not take too kindly to deception.

My advice to all of my clients is always the same: If you are paying tax then this is a good thing - it means that you are making money!

Clearly however it is not in your interest to pay more than your fair share of tax. As such if you ever are going to enter into a complex transaction then you must get advice BEFOREHAND to ensure that it is structured in the best possible way.

⇒ Prospective Purchasers.
This is the group that you should most fear and most love at the same time!

If you are a business that is having success and the market knows about it then you WILL have suitors. This is the group that will most likely challenge the way that you do things and really highlight the things that you are doing badly, with the obvious goal of driving the value of their potential purchase down.

But this is where financial reporting comes to the fore.

When I introduce my financial reporting regime into a new client I instil a belief that we should be producing reports as if we could be purchased at any time. This means that even if your operate the business as your personal life, you should quarantining those transactions to allow you to easily highlight what would not be ‘normal” transactions.

My belief is that your reporting should be produced at all times with this focus in mind - but it doesn’t matter really as long as there is a focus/audience to what you are trying to understand.

Which brings me to the real point. Please do not think that you will meet these requirements unless you get assistance and the right advice. Following on from my previous discussions around bookkeepers, this really is not a job for them. They are capable of entering data but the real work that you accountant will do will be to ensure the robustness of your reporting - and the accuracy.

So don’t skimp - pay for what you need!

I have had the pleasure - and displeasure - of operating as a franchisee, as a franchisor and as an advisor to both. In my experience the value of a franchise system is warranted and often successful - basically it is a good system.

However, sometimes I come across a bad situation and it highlights why so many people are against the franchise system - full stop.

I recently received a referral from a client I really enjoy assisting. My client had a friend wanting advice on how to make their franchise work. They had recently entered into a franchise agreement and were struggling to make the business work. The promises from the franchisor and the information provided and requested was very limited.

My new client had joined a very well known real estate group and what is often normal practice in these matters signed every document that was put in front of him. Two of those forms happened to be ones that had him advise the franchisor that he had received legal and accounting advice. In fact on signing the franchise agreement there was, unusually, a clause in the agreement that stated he had in fact received this advice.

As stupid as he now felt, he had not received that advice and accordingly he was now at the point of financial ruin.

Luckily for my new client the franchisor had recently had a number of internal executive shuffles and as a result the franchisor had in fact allowed him to sign his franchise agreement only 9 days after receiving the formal disclosure document - instead of the required 14. This rendered the franchise agreement un-enforceable and my new client was able to extricate himself from the agreement with no penalty - although with considerable cost and emotional baggage under his belt..

Please, if you are going to start any business get the right advice and make sure it meets your business needs. You must prepare financial reports that seek to establish the budget requirements of your business and you must ensure that the legal requirements that you need to meet are all in place. Never rely on the information provided by a franchisor. Always do your own research and ensure that the you can comfortably understand what you need to do to make the business work.

I get particularly frustrated with people who go into business without even the knowledge of what their estimated operating costs will be. Most businesses begin under-capitalised but that does not excuse putting your head in the sand and not even knowing what your fixed costs are. It may be a boring part of business but as you will quickly find out it will become something that you need to know about very quickly.

It always amazes how many businesses rush around trying to complete a year end or month end process. They rush from here to there trying to get orders into the system and deliveries out of the warehouse - which are all non-productive tasks - just to see better figures in that month or year.

It really is important that you stop doing this. Why? Well that is relatively simple.

Your business does not run on how much you made in a particular period. Accounting periods are simply a line in the sand to allow us to value a set of transactions. They are not there to drive your business except in a few relevant ways that need to be at the forefront of your mind.

1. Get your invoices out to your clients/customers as quickly as possible - but definitely before month end. They will get paid more quickly - refer here for a detailed explanation.

2. Wait until at least the end of day one to ensure all your direct deposits have been entered into your accounting system. This allows you to catch any payments that were made but just failed to catch the bank processing time. Your statements will be more accurate and your clients will certainly benefit from the greater accuracy.

3. Close off your accounts quickly after the end of month of year so that there is no unnecessary hold up to the production of your financial reports. The process is about giving you information and the sooner that you close the quicker the reports will be available - and the quicker that you will be able to manage your business.

The end of period process is about giving you the tools to manage your business. It represents but a snapshot in time so that you are able to measure what has occurred. Please don’t use it to bolster your ego - in the end you are just cheating yourself.

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First of all I owe you all an apology. The site has certainly stalled over the last few weeks as I struggle through the critically time dependant life of an accountant/consultant.

I will guarantee that from here I am committing to a minimum of 3 posts each week.

I though that it would be opportune to run through a couple of updates about previous blogs.

• I posted a blog a few months ago regarding Brownies Place. If you take the opportunity to review the post you will see that it was primarily about the way that a very small business used its strengths to its advantage. Well Brownie did what all great entrepreneurs have done - and took the pay-day that was delivered to him by a competitor. A much larger cafe decided that it would rather have him out of the market and purchased his business. Good luck Brownie - I will miss the coffee

• If you have not considered your budget for 2009 then get onto it - time is getting away from you.

• The business planning series will start again next week.

• This is a great time to consider exactly who you should be trusting to deal with the financial administration of your business. If you need more than a bookkeeper but are struggling to justify the cost of a permanent professional CFO then why not consider an organisation that I am involved with at the moment. The Part Time Professionals network really makes accessing highly skilled finance professionals on your terms - simple. Why not browse and see what they have to offer. www.ptprofessionals.com.au

Yaaay for tax time - I love it - not!

Really, I promise this is not as hard a task as you would imagine. 

Starting your business plan firstly involves you allocating time. To get as much value as possible out of the process you need to allow the right amount of time and work in the right place so that you can think. To be really successful you should involve at least one other person, but preferably a few otters, whose job it is to challenge your thinking.

The steps are fairly simple:

1. Gather the required information.

2. Review your business.

3. Challenge what you do.

4. Challenge how you do it

5. Challenge why you do it.

6. Set some achievable goals.

7. Develop the various plans.

8. Prepare a budget.

9. Walk away, relax and come back and review and refine.

10. Use the plan as a tool to drive your business.

Stage 1

You cannot plan properly unless you have the information that allows you to assess each area of the business. 

You will need the following information to start:

• Your current financial position and performance.
• Your customer activity.
• If relevant your product performance.
• Your cash flow commitments. Your competitor’s activity.
• Your marketing strategy and performance.

This information will allow you to garnish a fair understanding of your current operations that can be used to work on the next 12 to 18 months.

A business plan needs to be focused so you need the information above that allows you to plan for the next 18 months - maximum. Any longer will diminish focus and any shorter restricts your ability to plan properly. I have found through my clients experience that 18 months is the right mix of strategy and focus. To that end you need information that will allow you to accurately predict performance over the next 18 months. Too little information about your competitors for example and you run the risk of making bad or dangerous assumptions. Not being aware of when a product will reach end of life, means that you will budget sales and purchases badly. 

Having this information handy will allow you to focus where the business needs to concentrate and will allow you to formulate well thought out plans.

Tomorrow we will look at the process in detail.