Newsletter
Newsletter
Good accounting makes good business
Good accounting practice is central to developing a good franchise business. Without a finely tuned engine how could we expect top performance from our car? The accounting function in your business shouldn’t be about historical information regurgitated for compliance purposes, rather the controls and tools to tweak, develop and grow a successful business with real-time information, potentially streaming live to your iphone anywhere in the world.
In this new age of technology the way we process our accounts has changed dramatically with accounting systems now online, requiring only an Internet connection and making expensive hardware and the constant need for software updates redundant. Excellent systems and processes should be a ‘given’ under a good franchise model. They should provide the financial intelligence you require through timely and relevant information. Information like your daily bank balance at a glance or sales made yesterday versus last week or the same time last year to pick up any trends is valuable. It’s about knowing at any point in time who owes you money and for how long, how much you owe and to who, as well as how you are tracking versus budget and cash flow projections. Because if we are going to encounter any cash flow problems we want to know now before it’s too late and our options run out.
To enable good analysis of performance reports, results should be compiled from daily bank feeds directly to a computerised general ledger.
The ability to automate bank transactions and form daily, weekly and monthly financial statements including a financial position, showing the health and wealth of a business, is imperative to being able to review all aspects of business performance. With actual results reported as they happen, comparisons to budgets and cash flow forecasts have real relevance. Key performance indicators like the number of new customer acquisitions, the average sale per customer, frequency of their visits and improved cost efficiencies should provide performance driver targets which form part of an overall profit improvement plan and should be monitored monthly so that business goals are really achieved and not left wondering what went wrong 12 months down the track.
Cash flow is the lifeblood of any business and understanding your cash cycle needs is critical to business survival. Policies need to be set around setting floats and how cash transactions are handled. Cash is often tied up with debtors and careful review needs to be given to any credit applications so that you deal with people that will pay up and on time and reduce the risk of bad debts. Timely dispatch of invoices, prompt monthly statements as reminders and clearly stated terms of trade on all invoices will speed up your cash cycle through more people paying on time but also provide some teeth if payments are not made on time.
Keeping your costs under control is always a prudent business strategy and detailed budgets outlining monthly costs assist in the process of examining cost reduction strategies. Monitoring budgeted costs against actual results on a monthly basis will help avoid blowouts but also look at ways to improve gross profit margins, minimise waste, or pick up on any discrepancies from pilfering, or damaged stock.
There is inevitably an alternative way to do most things and this type of analysis allows us to look at the most cost effective way of doing things.
A business or action plan should be produced by all businesses and constantly reviewed to keep the business on a growth track. It provides the vision and direction for all the stakeholders in the business. It sets out how the business will be run; it should have realistic outcomes and have timelines for implementation. Detailed management reports and cash flows should support the strategic direction of the business with simple and achievable financial targets.
As business owners we all have strengths and weaknesses and understanding what we are good at and where we need help is important to leverage the best results. Well run businesses have good systems in place but also have ongoing advice from professional advisors like their accountant. Your accountant should be like a finance director who catches up with regular monthly meetings, helps with profit improvement analysis, tax planning and regular reviews of forecasts and budgets to make sure you keep on track and achieve your business goals.