This week I had a chat with a business owner. He has been running a business for just over 3 years and it has grown well. He uses an accountant and is set up with Xero software to keep all his records up to date. Sounds good.
With his business growing, he has now taken on his first member of staff, in addition to the 2 Directors. He is looking at moving premises, both personally and for his business.
He works with a mentoring group specialising in his type of business (something I often recommend) to help him. Sounds good too.
So why was he speaking to me?
Well, his mentor had told him that he needed to be up to date with his accounts, to know how his business was performing, and made suggestions of reports he should obtain every month.
The reason – to help him make the right decisions. For example, he had just taken on a member of staff. Could he afford it? Was it the right time to do it? Would he benefit from it?
And moving premises is a big decision, and as with any big decision, it should be made with the best possible information available.
Although he has Xero software it is not being used to its full capacity. Indeed, his Accountant appeared reluctant to teach him how to use it (a bit of fee protection maybe?). His records are only updated fully at the year-end, and this is not completed until 8-9 months after – up to 21 months out of date. How can you make the best decisions based on that?
The solution?
- Training on Xero. Xero is a great piece of software (and so are others), but like any software it is only as good as the information put into it.
- Monthly reporting. Basic reports such as Cashflow, Profit and Loss Account and Balance Sheet are easy to extract from Xero if the information is correct and up to date.
- Monthly commentary on the results – in essence, what they mean.
- An action plan, long-term and short-term, with up-to-date figures to monitor it all.
- Ongoing support to help with any problems or advice, whenever they arise.
What about the cost I hear you cry!
Of course, there is a cost to providing this service – Ida needs her treats!
By teaching the client how to make best use of their software they will be able to do the vast majority of the work themselves and keep the cost down.
But the benefits gained will far outweigh the cost. He will now have: –
- Up to date reports showing his business performance in real time.
- Information and support to help make the big (and small) decisions at the right time for him and his business.
- Tracking of customer debts to help improve collection and cashflow as well as reducing bad debts.
- Cost monitoring, making sure money is being spent wisely and for the benefit of the business.
- Up-to-date figures are also essential for bank loans or any other finance agreements, both at application stage and ongoing throughout the term of the finance.
- Better credit terms can be agreed with suppliers, with proof of good trading.
- Identifying the most and least profitable areas of the business and taking action accordingly.
- Understanding cashflow, when to spend and when not to.
For a growing business this information is invaluable.
7 numbers every business owner should know – and learn to love!
I have a guide to the 7 numbers every business owner should know – and learn to love!
You can download it here.
