Empower Your Business

Accounting is Just the Beginning

By

How to Avoid the Biggest Mistakes in Business Mistake No. 7 – Not Having Business Goals

Business GoalsMany business owners drift like flotsam and jetsam on the tide, being reactive to circumstances and with no idea of where they want to get to – it’s like setting out on a journey without knowing your destination. They say the average small business owner spends more time planning their annual holidays than they do in the business.

Having an attainable goal in business can be more important to success than almost anything that you do. Millionaires say they look at their goals every day but billionaires write down their goals three times a day.

Writing your goals down is the best way to reach 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 goals might revolve around growing and selling your business. Or maybe retiring on a comfortable income or early so you can travel the world whilst you’re still young and fit, but it doesn’t matter what they are, it’s more important that you have goals to strive for so that you’ll be more successful.

To ensure success here are 9 questions to ask yourself when you’re setting a goal or goals:

  1. Can you achieve tangible benefits by achieving the goal?

.   2.   Would you be excited if you achieved the goal?

  1. Have you a real desire to achieve the goal?
  1. Is the goal specific and clearly defined?
  1. Is the goal attainable?
  1. Is the goal relevant?
  1. Have you written the goal down?
  1. Will you be motivated to re-write or re-read the goal every day?
  1. Have you set a realistic deadline for the goal?

A good way of ensuring you attain your goal is to work backwards and plan out the exact steps and benchmarks required to achieve your goal. Otherwise, your goal may just seem just too hard to reach. I have some great, real examples of how successful business owners have worked backwards over a 5 year period working out exactly what they need to do to move from where they are now to where they need to be to reach their goals.

Often keeping it simple is the key – remember the KISS (keep it simple, stupid!) principle? For example, just selecting one key goal that everything else fits around, such as growing your business by 25% a year. If you keep control of the other things in your business like your gross profit margin and costs then your business will grow successfully.

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

 

By

Reviewing Your Business Progress

When was the last time you checked performance against your business plan?

The business plan needs to be under continual review to make sure you are successfully implementing each planned stage. It won’t be any use to you unless you use it.

By writing a business plan you’ve taken the time to plan in detail what your business goals and objectives are – it’s a living, working document, not something to be filed away and then dusted off for review in a couple of years’ time.

This concentrated thinking, discussion and debate is the key to the formulation of a workable and achievable business plan. And as long as actual performance is monitored against it, the plan should significantly assist in the long-term survival of the business.

Ideally you should review performance on a regular monthly basis, or at the very least on a quarterly basis. Ask the fundamental questions:

  • Where are we?
  • Are we heading in the right direction?
  • Will we achieve the goals and objectives of our business plan?
  • Should we review pricing structures?
  • What has been the effect of the consumer price index increase?
  • What has been the effect of price rises in our particular business?
  • Should we raise our prices?
  • Should the gross profit percentage be higher?
  • Have we got empathy with customers?

On an annual basis you need to compare actual financial performance to the budgets and cash flow forecast. Ask:

  • How did we perform?
  • What went wrong?
  • Have we learnt from the mistakes?
  • Did we exceed budget expectations anywhere? Why?
  • Can we capitalise on these improvements?

A valuable assessment is to compare your business figures to industry statistics (ask your accountant about obtaining this information).

You’ll also want to know: What is the general business climate in your area? Is it conducive to your type of business? Should you be expanding, drawing back or diversifying? What is the status of your investment in stock?

Don’t forget that the business review should also include an appraisal of what has been happening within your team. You need to look at:

  • Recruitment
  • Training and development
  • Meetings
  • Employment agreements
  • Wage/salary reviews

Use your business plan as a day-by-day, week-by-week, month-by-month reference point to compare where your business is against what you planned it to be. If there are any deviations, immediately investigate them and try to take corrective action.

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

By

Marketing Mistakes – Expecting Success from Advertising Alone

Ads cost 

There are many businesses that rely on advertising alone to generate new leads and prospective customers. Now for some businesses this might work, but for most, especially SME’s with limited budgets, it’s like burning a big pile of $50 notes.

It’s disastrous, in particular, for new businesses who think they can build a customer base on advertising alone. I’ve met a number in recent years that have spent thousands and thousands of dollars on advertising without gaining a single lead – what a total waste of money!

These are the reasons advertising doesn’t work:

  1. The vast number of advertising messages out there from every other business or organisation vying for our attention, so many that we get confused and overloaded and therefore ignore them all.
  2. The massive increase in the available ways to advertise – on-line, Facebook, e-mail, Google, SMS, LinkedIn, and many more, not counting the traditional ways. It’s too daunting a prospect and just too expensive to cover them all.
  3. Being able to reach your ideal customer. It’s difficult to find a way to advertise that reaches your ideal prospective customers. Advertising willy-nilly is firing a shotgun to hit the moon, 99% of your effort is wasted!
  4. Not knowing whether it’s working. Yes, some of us can track the results, but for others – retailers etc they can’t anyway.
  5. The cost. Only very large firms can build a brand by advertising – the required spend is just too colossal for most of us.
  6. The difficulty of writing an advert that works. Does your name mean anything to anyone other than yourself? Do you just list your services and expect people to get excited that as a plumber, you fix leaks? Surprise surprise!
  7. Not testing and measuring the advert to maximise its effectiveness. Most people use the same old advert for years that didn’t work in the first place.

Yes advertising can work but it should only be one weapon in your marketing armoury which should encompass a wide range of background and specific-campaign marketing, which is cheaper, more effective and a lot easier. If you need help with your marketing contact Nick on 0800 ASK NICK or nick@abac.co.nz.

By

6 Tips to Improving Profitability

profitability

I’ve noticed that many business owners do nothing about their profitability. They plough on day after day or week after week trying to make ends meet. They’re either too busy — blissfully unaware they’re leaving thousands of dollars on the table — or they just throw the problem into the too-hard basket (which is probably overflowing by now!). But that’s a mistake, because with a little effort and enthusiasm, and, yes, dogged persistence, you can do something about your profitability.
See full article

By

8 Easy Ways to Get Yourself an IRD Enquiry

Illustration Credit: http://www.sxc.hu/browse.phtml?f=view&id=1035776

Over the 30 years I’ve spent in tax I’ve seen some pretty daft – and downright stupid – ways that business owners have invited the IRD to punish them for tax evasion. They just don’t think things through, taking the hugest risks by assuming the IRD are asleep or not interested. Well, having been involved in many tax investigations, let me tell you that they are no fun at all if you’re on the receiving end!

  1. Living on thin air
    As we allknow, living from day-to-day is expensive, so if your drawings are consistently low and you have no other sources of income, it’s like a red rag to a bull.
  2. Paying undeclared takings into the bank
    It matters not whether the accounts are in your name, that of your other-half, your kids or your mum, if you can’t explain where the cash came from it’s like an own goal.
  3. Involving others
    Many business owners pay employees undeclared takings or tell others they’re doing cash jobs. Guess what happens when the employees get the push or they fall out with friends or their partner? Yes, the IRD Confidential Anonymous information line rings hot, as happened with a restaurant owner client of mine in London.
  4. Using diverted cash in substitution
    In pre-Eftpos days a client of mine in the UK drew no cash from any of his bank accounts for five years and the IRD was thrilled to see that he hadn’t paid for any petrol or shopping via cheque or credit card. This was a strategy he lived to regret!
  5. Using credit cards in locations where you’re not supposed to be
    Another client of mine went skiing every year in Switzerland, paying in diverted cash. All went well until one year, he ran out of Swiss francs and popped into the duty free to buy his mum a present, and without thinking used his credit card! The IRD noted that no flights or hotel bills appeared on bank or credit cards and it turned out to be a very expensive slip!
  6. Buying assets
    A bit like the trip to Switzerland, a further client had used diverted cash to buy flash cars and a boat. Seeing as these stand out a bit, it didn’t take the IRD long to cotton on that there was low hanging fruit going begging!
  7. Paying for materials via credit where the job is for cash
    Why would you pay for materials legitimately and then use these in a cash job? All the IRD have to do is trace through a test selection of materials to sales invoices which doesn’t take them very long at all. Builders, in particulars, even those that have in business for 25 years, just don’t seem to realise how easy this is for the IRD.
  8. Low gross profit margin
    If you take out that much cash out of the till it’s going to significantly reduce your gross profit margin. What that means is that you are going to stick out like a sore thumb when the IRD run your figures through their new benchmarking system. Getting noticed at the IRD is not good for your finances or your stress level!

By

10 Ways to Increase your Profit Margin

 

Many business owners think you need to increase sales substantially to make more money. But often that’s too difficult, especially in the short term. So how to go about it quickly and easily? Here are 10 tips…
(Full Article)

By

Budgets – Old fashioned or Invaluable?

As someone who has spent many hours preparing budgets, the anonymous quote “a budget is just a method of worrying before you spend money, as well as afterward” is one I wish I had thought of! Whether you agree with this or not probably depends upon your disposable income. If there is a slim margin between your incomings and outgoings, knowing how much you have to spend for the week or month to come will make a huge difference to the amount you waste on discretionary items (i.e. the things you don’t really need)!

Here are some tips on business budgeting:

  • Start with your outgoings. These are the easiest to predict, especially your fixed costs, so just pick these up from the previous year and adjust accordingly. If the recipient has a monopoly position (e.g. the Local Council), don’t forget to build in an increase.
  • Then move onto your semi-variable costs. These are costs which vary with your activity level but are not directly related to turnover and contain both a fixed and variable element (e.g. power and telephone bills). You’ll have to estimate these by taking into account historic bills, likely price increases and likely activity levels (if you’re planning a big cold-calling campaign, from your office, your phone bill is likely to rise, same if you plan to recruit a new office staff).
  • What you do next depends upon how easy it is for you to predict your sales. If you find this easy, enter your sales next and then using your gross profit margin, work out your variable costs. If you find it too difficult to predict your sales (currently quite likely) work back up the other way by calculating the sales you need to cover your outgoings by grossing these up by your gross profit margin. At least then this gives you a target to work towards. If the sales which fall out of this calculation are just not achievable at least you know you’re going to have a problem and can do something about it (e.g. cut your costs).
  • Don’t forget your drawings and tax bills. Your outgoings should include your drawings and upcoming tax bills. Start off with a provisional figure for drawings and see whether your budgeted sales make these possible. If not, work out what you can survive on if times are tight.
  • Use the budgeting facility in your accounting software. Any good accounting software should throw in some useful budgeting tools e.g. using the prior year as a starting point and giving you the option of increasing individual figures. In addition, when complete in draft you can export it to a spreadsheet to review it.
  • One of the choices in budgeting that can cause confusion is whether to average out the overheads or just stick with the overheads as they are incurrred. The latter is simpler, but not as accurate on a month-by-month basis so it depends upon how complex your business is, but my view is that (unless your accountant can help you) you should keep things simple.
  • The other advantage of your accounting software is that you can you use it for reporting and comparing actual against budgeted. The best layout is to compare the actual v. budgeted for both the month and the year to date. If you haven’t got any accounting software – shame on you – get some, as it’s now cheaper than a weekend away for two.
  • In these rapidly changing times, whilst you don’t want to be changing your budget too often, there’s no point in sticking with budgets which have been overtaken by events so reviewing these quarterly is a good idea.

Get more budgeting hints and tips in this article:
Budgets – Why you Need One + Step by Step Procedures

Budgeting is reasonably straightforward once you get some practice, so if you need a hand to start on your budgeting contact me by email or call 0800 ASK NICK.

Dee – link here to budgeting article on the website please

By

6 Ways to Increase Your Profits Using Accounting Software

Has your accountant told you not to use MYOB or any other useful accounting software? Reflect a minute or two and ask yourself why? Do you they have their interests at heart or yours?

Modern, powerful accounting software can transform a business, systemising procedures, saving time, increasing efficiency, and assist and show business owners how to increase both profitability and business sale value. In particular, in these challenging times, the more detailed and up-to-date information you have access to, the better you will be able to manage your business and react quicker to changing circumstances.

1 – Gross Profit Margin Analysis

Just being aware of your overall gross profit margin is not enough in business. It’s true some business owners don’t even know what theirs is, but why join them in mediocrity?

To know how to increase your gross profit margin you must drill down into your gross profit figure and find out which service lines and products are making you money and those which are not. Whilst you can look at individual sales, if your sales volume is high the best way to analyse your gross margins is across different service lines, product categories, departments or suppliers. You can then focus on the service lines or products which are making you the most profit and stop selling (or increase the price or change suppliers) those returning a gross profit beneath your overall target gross profit. Even if you mark up all your products at the same margin there will normally be different gross profit margins in practice resulting from discounting or clearance sales.

Before accounting software was widely available calculating gross profit margins in this way was a difficult task, normally involving selecting a few product lines on a test basis. With the former, you can report on gross profit margins earned across different service lines or product categories, departments or suppliers in seconds.

2 – Three Ways to Grow a Business

There are only three ways to grow your business:

  1. Increase the number of customers
  2. Increase the average $ sale
  3. Increase the number of times customers return and buy again

If this is the first time you’ve heard about the three ways, think about your turnover and how this comes about. Say you have 200 customers who spend, on average, $100 every time they buy and they shop with you weekly. Your turnover would be easy to calculate by multiplying 200 x $100 x 52. If you can increase each by 10% i.e. you get 20 more customers, the average $ sale increases to $110 and your customers shop from you 57 times a year your turnover actually increases by 33%, not 10%!

As you cannot improve what cannot measure the first thing you need to be able to do to grow your business using the three ways is to find out where you are now by determining the number of customers, your average $ sale and how many times your customers buy from you in a year.

With accounting software you can find this information very easily although, depending upon your business, you may need to find out the number of your customers by using other methods (such as door counters or a loyalty club) if for example, you’re a retailer. Then, and only then, can you test and measure the success of the strategies you introduce to increase the number of customers, improve your average $ sale and get your customers to come back more often.

3 – Break-Even Point Analysis

Unfortunately very few business owners know what their break-even point is. So simple to calculate – yet absolutely vital to business success. If you know what your break-even point is you can tell on a daily, weekly or monthly basis whether you’re selling enough to cover all your outgoing and drawings. If you’re not, you at least know you have to do better or cut your cloth accordingly, whether that’s reducing your outgoings or cutting your drawings.

Even for those business owners who do monitor their break-even point, those with poor systems use current turnover only to check their break-even point, assuming their historical gross profit margin and overheads (which are probably both completely out of date) are unchanged. With accounting software incorporating inventory control, accounts payable and a full general ledger you can track not just your turnover but your up-to-date gross profit margin and overheads meaning that your break-even point analysis is 100% accurate and totally up-to-date.

4 – Inventory Control

Many businesses have huge amounts of inventory on hand, often several hundred thousand dollars worth (especially at sale value) yet only know once a year precisely what quantities of stock they hold and what it cost them. How crazy is that?

If you have accounting software with inventory control you can identify obsolete or slow moving stocks at will, reduce inventory to the optimum level freeing up cash and space, stock the right products at the right time, prevent theft and staff pilferage, and most importantly track what’s in stock, what’s on order and what you’ve committed to sell to customers.

5 – Monthly Financials

Let’s face it – the traditional year-end financials prepared up to a year after your year-end are useful to no-one but the IRD and no one but accountants understand or value them anyway. Why then live on in blissful ignorance of whether you’re making or losing money and ultimately heading for success or financial ruin?

In addition, there is a very strong correlation between the frequency of financial reporting and business survival*:

Monthly reporting 80% survival rate
Annual reporting 36% survival rate

If you can reconcile your bank, preparing monthly financials using accounting software involves a few clicks of your mouse, especially if your accountant is interested enough to help you with things like depreciation or splitting loan repayments between interest and principal.

6 – Budgeting.

So many business owners don’t bother with a budget yet tracking your income and expenditure against your budget or what you expected to sell or spend is a simple and cheap, extremely effective, business tool. If you know you’re not on track you can then at least investigate, find out why and then take corrective action. Even if your future sales are uncertain, budgeting for your costs should be easy and then you can work back up to the required level of sales by using your Gross Profit Margin and use the figure generated as your budgeted sales. If the figure is unrealistic at least you know you’ve got to do something drastic.

Budgeting with accounting software is as easy as pie, there’s no adding up or cross-casting, you’re given the option of using last year’s figures and then adjusting these for individual or group changes or alternatively, you can export last year’s budget to a spreadsheet, work on it as you please and import it back again allowing wholesale changes at will.

A lot of business owners operate completely in the dark, with no meaningful business information other than their turnover and bank balance. Running a business can be tricky enough as it is, so why make it any more difficult than it is? Accounting software with inventory control, at $499, is less than the price of a weekend away for two!

If you need help with increasing your profits using accounting software contact us on 0800 ASK NICK or by email.

(*) Source: Williams, A.J., A Longitudinal Analysis of the Characteristics and the Performance of Small Business in Australia