Empower Your Business

Accounting is Just the Beginning


6 Things To Do Before the End of the Tax Year

The end of financial year brings a lot of extra work as well as some potential trouble if you don’t go about it the right way. To avoid that trouble, there are 6 things that you can do now to ensure a smooth end of year for you and your accountant.
Read the full article on The Pulse


Are Small Business Owners in Denial?

I met a business consultant contact the other day over a coffee. He was commenting that many business owners are in denial about just how badly they are doing in business: making small or no profits, working long hours with no systems, no marketing and generally not knowing whether they’re making or losing money – the list went on and on.

Are business captains hiding from facts?

Mentioning our conversation afterwards to an accountant friend, he didn’t feel that the business consultant was being totally fair to small business owners. “After all, he said, we’re still in the worst recession for 30 years, a lot of small business owners just have no resources left to utilise. The business scene is changing rapidly, marketing is a nightmare now with websites and social media. It’s hard to afford staff or to engage expert assistance anymore so business captains end up working 24/7 trying to do everything themselves. They’re skeptical about expensive business consultants in fear that they promise a lot but deliver little. In the end it’s all just so hard so they don’t know where to begin and therefore they don’t!

After that conversation, I thought, yes, there are two sides to every story. But who is right? What do you think? I’d love to hear your views, as I’m sure would others!

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How KPI’s Can Transform Your Business

More profits at your fingertipsI once assisted a business in the UK that couldn’t understand why they had no money in the bank and couldn’t pay their bills.

The business owner used a traditional accountant, who just prepared the annual financials some months after the year-end, and as is typically the case, the excellent accounting software purchased was used solely for the GST returns. What does that mean? Yes, you guessed it – no management information or regular reporting of any kind which means the business owner was, totally unnecessarily, operating completely in the dark with no idea of what was happening in the business

After discussing things with the business owner I said that what we needed was a two-fold approach, firstly to work out what the current trading figures were, and secondly, if things had gone wrong, why.

To start-off with, easy-peasy, interim management accounts (which was like falling off a log) comparing the trading results for the current year-to-date with the comparative period the year before. These were produced not on the accountant’s externally located accounting reporting software, but on the client’s accounting software (which was more than capable) to save both time and cost. This showed a substantial decline in sales, a reduction in the gross profit margin and overheads which had not been reduced fast enough to cope with the decline in sales and gross profit.

So far, so bad! But why had things gone so bad? Reach for your Key Performance Indicators (KPI’s) which measure the key elements in any business, those which are critical to business survival and success. These are the things that MUST go right for your business to be able to deliver your core products or services in a cost-effective manner which meet or exceed the customers’ needs, which are often called your Critical Success Factors. Having worked out what these are, you need to start measuring these since what you can measure you can manage and then work out how to improve. Often, these are few in number so it’s normally possible to restrict the reporting to 8 or 12 what are known as Key Performance Indicators.

In any trades business, the Critical Success Factors are normally very similar, so I knew what to look for and so I produced a KPI report highlighting the areas where I thought the problems were occurring, a simplified version of which is reproduced below. No budget figures of course, because at that point we hadn’t set targets, but at least these could be filled in later when we had worked out what we wanted to aim for.

Monthly KPI Report for Feb 2011

For the Month YTD

Actual Last Year Budget Actual Last Year Budget
Sales $74,554 $104,889   $887,656 $1,201,876  
Cash Collected $65,222 $93,445   $796,101 $1,180,665  
Gross Profit % 52% 53%   52% 55%  
Overheads $38,101 $46,123   $481,774 $571,331  
Net Profit $667 $9,468   $20,192 $89,700  
Labour Productivity % 81% 86%   82% 89%  
Value Added on Parts $6,512 $7,998   $84,116 $106,117  
Average Labour Hourly Charge $47 $53   $46 $52  
Number of Jobs Completed 199 233   2403 2711  
Average $ per Job $375 $450   $369 $443  
No. Of Customers *

6421 5158  
Average Sale Per Customer

$138 $233  
Job Enquiry Conversion Rate 74.00% 84.00%   81.00% 93.00%  
AR Days Outstanding 52 44   51 42  
Work in Progress Days Unbilled 43 34   41 37  
* Invoiced in the last two years

And what did the KPI report show us? That there had been a serious decline in virtually all the key areas:

  • Whilst the number of customers had increased significantly, the average sale per customer and the average $ per job had reduced substantially, meaning a lot more running around, more administration costs, and more working capital tied up in the business.

  • The job enquiry conversion rate had reduced by 12% meaning that more time was spent talking to customers with nothing in return.

  • Both labour productivity and the average labour hourly charge had reduced which indicated the business had become much less efficient.

  • More working capital was tied up in the business as both Accounts Receivable days and unbilled work in progress days had extended outwards.

  • Not surprisingly, cash collected had reduced substantially too.

The next step was to set some targets to get the business back to its former level of profitability by implementing a number of specific strategies for each problem area such as billing work in progress more frequently, collecting Accounts Receivable quicker, working to improve the job enquiry conversion rate by scripting and improved quoting techniques and moving the customer’s focus away from price to the benefits of using the business in the longer term, as well as introducing a powerful guarantee and re-inventing the USP (Unique Selling Proposition) of the business.

So, all this just from a quick, inexpensive look at Key Performance Indicators – a truly simple, but powerful, underutilized business improvement tool you can use to transform your business to success!

If you need help with your business performance contact Nick on 0800 ASK NICK or email nick@abac.co.nz.


The Key to Success in Business Planning

I really like the quote from British business guru Sir John Harvey-Jones “Planning is an unnatural process; it is much more fun to do something. The nicest thing about not planning is that failure comes as a complete surprise, rather than being preceded by a period of worry and depression”. This sums up the inherent problem with business planning, which is the difficulty and uncertainty involved in thinking about the future in business beyond a few weeks.

It’s much easier to deal with today’s issues which we can do something about and just drift along from day to day taking each day as it comes. The problem with this approach is twofold:

  • If disaster strikes we will totally unprepared whether another recession or an earthquake:

  • We will still be where we are today a year, 5 or 10 years from now.

The key to success in business planning is to set goals and objectives and this is the single most important thing to understand about the planning process. Without goals we just drift along like flotsam on the tide, carried wherever the currents or winds take us but with a goal or goals we have something to aim for, a defined objective upon which we can focus on reaching. Heard the saying that “If you aim for nothing you’ll hit it with remarkable accuracy every time”. Or the village idiot that throws a dart and then draws the target around the point of the dart after it’s landed?

Not just loose goals, that you carry around in your head, but defined, specific, measurable, attainable (but not too easy), relevant, time bound and most importantly WRITTEN goals. Writing your goals down on has been proven to be the best way to achieve your goals. At Harvard University in the US a survey discovered that in one particular class, 3% of the students had written goals. 10 years later it was found that the net wealth of the 3% was greater than that of the other 97% combined.

Your goal might to retire at a certain age, to double your turnover or profit or to sell your business for a $1m. Whatever your goal, to ensure success you need to make sure you can achieve tangible benefits by achieving the goal, you will be excited if you achieved the goal and that you have a real desire to achieve the goal otherwise it will so much harder.

Having set your goals, the next thing to do is to work out where you are now and secondly, how are you going to bridge the gap between where you are now and where you want to be. I shall cover these next time.

If you need help to set goals in your business contact Nick on 0800 ASK NICK or email nick@abac.co.nz.