How to save yourself a lot of totally preventable, silly business trouble

Susan
By Susan March 15, 2015 21:11

How to save yourself a lot of totally preventable, silly business trouble

 

Running the numbers, or failing to do so, can make

or break your business

 

Every time I say that I love accounts I get this gasp of disbelief from people in the audience. Even though it’s – mostly – silent, it’s as if I can hear the whole room erupt into one huge inward groan. “But accounts are so boring! Mind-numbing!”

But when you own a business, hating accounts is almost like coming across the Holy Grail and dismissing it as “just a boring drinking cup”. If “running the numbers” has become such a buzzword in business, it’s for an excellent reason.

So believe me when I tell you that accounts are not just fun, they’re a lifeline and an essential strategic planning tool in your business. If you like to daydream about the future of your business, you’ll love accounts. So here are three reasons (out of many!) to love financial management.

 

1. Your accounts spreadsheet is like a hotshot

consultant that doesn’t require payment and never

lies.

 

This is the most important: the data contained in your accounts are strategic insights waiting to be unpacked. Your accounts are like an X-Ray picture of your business.

Accounts are the best decision-making tool there is. Completely non emotional, completely honest as long as they’re accurate and up to date, they’re a very rich source of information and they’re essential when planning your strategy.

I have three different spreadsheets – that’s all! I don’t have reams and reams of information to wade through to identify issues or opportunities; that would totally defeat the purpose. When you pare down the information you need to keep track of, you can focus on the essentials. The more accessible the information is, the more useful it is to you.

The three documents I have are “Cashflow Analysis”, “Company KPIs” and “Current Opportunities”. I use Trello to make sure I’m both productive and timely when working on these documents.

What they call “running the numbers” means asking your spreadsheet questions like: What should I focus on? Grow new sales? Grow repeat sales? How much is this existing source of revenue worth to my business? Can I or should I drop it? Can I or should I keep it?

A source of revenue can be a dear project that unfortunately you’ll have to abandon because it’s simply not working – but you don’t want to consider that because “at least it’s money coming in”. However, when you work out the profit in this revenue, the answer becomes clear: it will have to go, or you will need to make a drastic change in the way you service it.

A source of revenue can also be rife with annoyance and unpleasantness – until you realise, looking at your cashflow analysis, that your business doesn’t need it. How much is that insight worth to you?

I often talk to small business owners who are clouded in worry that they are not making enough money… and that there will never be enough. I ask them two questions: “How much does it cost to run this business for a month?” This is their breakeven point. The vast majority of them can’t tell me.

After they find the answer to this question, I ask them if they have brought in enough sales to cover this?

The answer to these two questions is often all that people need. Then they can stop worrying if they have cleared the breakeven and focus with enthusiasm on the next tranche of sales that brings growth and more profit.

If they haven’t cleared breakeven, they are making a loss: now they know by how much, and they can focus on erasing the deficit.

This allows them to make sure they are actually focusing on what’s really important. Once they have established priorities, it gives them clarity and they know what to do.

They can also identify what causes cashflow issues well in advance, and defer any non-time sensitive expenses to a better time.

 

2. Not keeping a close eye on accounts will expose

you to totally preventable business tragedies

 

I shared the story in The Savvy Woman’s Guide to Financial Freedom of how crushed I felt one day – even though I was generating lots of sales. I decided to work out the profit I was really making, only to find that actually the harder I worked, the worse I was making the situation because I was actually making a loss.

At that time, I faced a crossroads – do something to change this fast or stop doing it completely. I chose the former, but what a waste of time and good energy that it took so long for the realisation to sink in!

I cannot count the number of times I’ve heard people tell me their accountant or somebody proficient in finance fiddled them out of money, or they made a big capital investment without running the numbers first.

I often hear people in business tell me how discouraging it is – they’re doing great, money is coming in, they’re finding clients, and suddenly BAM, they’ve got a P30 or a VAT return and a lot of their hard-earned money is taken away.

I know how that feels; as you put your head in your hands, you wonder “Will I ever get ahead? I thought I was doing great…” You then berate yourself. “These deadlines are the same every year – why do I let myself get caught out every single time?”

Let me assure you that you’re not alone at all in this. Many, many people find themselves in your situation. You can totally turn this around and remove the anxiety around these deadlines. I would encourage you to think differently: this is totally predictable and hence, totally doable. What steps can you take to plan proactively for this? Take some time to examine your cashflow and build a strategy around that.

You may also find yourself in an unplanned conversation with a potential investor or client, and they ask for a “ballpark figure”. The problem is, psychologically a “ballpark figure” tends to be used as a benchmark. If you quote them $5,000 and you later realise, after having run the numbers, that you actually meant $8,000… you’re actually going over their expectation by 60% – and that’s the expectation that you set for them. Keeping an eye on your accounts directly benefits your business because it prevents these awkward conversations and allows you to give an “accurate approximate” quote quickly.

It’s the same for business investments: can you afford them? Can you afford not to? If you know how much work and/or money an investment can save you, or give you, how does that compare with its price? “Rubbing shoulders” with your accounts is really important in that case. You will know much better, and realise much earlier, if the investment you’re considering is only a “nice to have”, or if it will allow you to turbocharge your company.

This means you can spend on the right things, as early as you can: splurging on a piece of software that you don’t really need can throw off your cashflow and eat into your profit, whereas waiting too long for an essential investment can seriously hamper your business efforts.

Taking a serious interest in your accounts means you won’t be trying to drive with the handbrake on.

 

3. Hating it will only make things more difficult for

yourself

 

Let me be very straight about one business fact. If you intend to stay in business and to make your company prosper, there will never come a day when you won’t have to deal with accounts in one form or other. You might outsource some or most of it to suppliers, colleagues, partners, employees and technology, but unless you sell your business, you will have to keep an eye on them in some capacity.

If you continuously tell yourself that you don’t want to do them, it’s going to make life very difficult. The earlier you embrace accounts, the less you’ll suffer.

This is how I do it: I enjoy doing the accounts because I have lots of nice associations with them.

I love the fact that I can go to my home office, have the radio on, bring in a coffee, make the room all nice and settle in. I don’t have to fight any battles, I don’t have to go out and try to convince people to buy from me, but just to embark on a financial treasure hunt of putting all of the bits’n’pieces together!

 

So what now?

 

I hope you see how exciting accounts can be: that’s where the prosperous future of your business is hiding.

Here are a few action steps to get you started right away.

You might…

  • Think of what obstacles have held you back so far: receipts all over the place? Keeping track of invoices outstanding too much of a hassle? No system to organise and gather information? Let’s deal with this right now. How about scheduling a morning every week for a month to take care of them: remember, make goals timely, plan time in your calendar for what you want to achieve.
  • Ask around you: what systems do people use that have made their life easier when it comes to accounts? Do they use specific software? Do they have tips to share?
  • Make a list of specific action steps to tackle during that block of time: “Retrieve receipts for October”, “Design a folder system that would be enjoyable and easy to use”, “Think of workflow for doing accounts and establish a checklist”, “Write down three questions to ask my accountant”.
  • Hire somebody to do the work that doesn’t require you.
  • Educate yourself by calling Revenue, or browsing videos on Youtube to create an automated spreadsheet.
  • Schedule a meeting or at least a call with your accountant. Remember, it’s absolutely essential to keep communication channels open with your accountant and bank manager: they’re the stakeholders of your finances (more on this in my book)

It breaks my heart when business owners tell me that “they felt so silly” when this or that happened because they didn’t take a look at their accounts. Starting right now, do something about it, draw the lessons from past mistakes, and reap their benefits.

 

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Susan
By Susan March 15, 2015 21:11