Footy as an Insight into Business

October 12, 2009 By 1 Comment

The last 7 days in the AFL have seen the completion of the annual player meat market called trade week. The week sees clubs, players, player managers and the players family’s thrown into disarray as everyone tries to get the greatest “win” that they can from the week.

The overwhelming intention is for each party to get the bigger “win” and attempt to get more than they are giving up.

All except for 2 notable exceptions – Geelong and Sydney.

I have bee very impressed now for a few years how these 2 clubs make things happen. A player asks to be traded and invariably they look at the service provided and reasons they want to leave and the trade happens. Undoubtedly there are winners and losers however the overwhelming desire is to assist the player that has provided years of loyal and valuable service to get where they want.

Lets contrast that to St. Kilda, who treats a former captain of the club as a pawn in its desire to “beat” a disliked opposition club and leaves that player in limbo.

Which is the better outcome?

In my role advising my clients I often get involved in negotiations on various fronts. Currently I am in the middle of facilitating the departure of a partner from a business. That partner has not really “carried his weight” for a period and the remaining partners have every reason to want to make life difficult. That conversation has occurred – it is human nature after all – however in the end, common sense prevailed and the decision was made to simply facilitate the exit on terms that are acceptable to everyone. Consequently we now have terms agreed, albeit subject to some regulatory approval, and both parties can get on with each of the more important tasks of running a business.

Now lets contrast that to another client who is trying to negotiate the exit from a JV that has not worked. Both sides are adamant that they should “win” and the only people “winning” are the lawyers and advisors who are racking up the fees. We have now reached four months of impasse and the only conceivable result is to get a ruling on the legitimacy of the exit price. What a waste of focus, energy and funds. Instead of simply agreeing to terms four months ago and moving on with their businesses each party is now at a point where they cannot “win” unless they get the most out of any settlement. That was not the desired result out of the initial JV break-up discussions.

The point of all of this is that at times we all have to deal with difficult situations in business. Don’t let “one-up-manship” get the best of you and look at the bigger picture. Business – just like footy – is more important that “beating” your one opponent – its about winning the ultimate prize – whatever that may be.

Filed Under: Small Business

Should you borrow more money?

October 9, 2009 By Leave a Comment

At Bentley we pride ourselves on our ability to assist our clients to obtain the funding requirements that they require to grow and manage their businesses. We have extensive relationships with people capable of assisting them to get what they need.

But the one question that they often fail to ask themselves is “Do I need to actually borrow the funds.”

I am very much a person who believes that a good business should not be operating with core debt on its balance sheet. Cashflow should be managed to ensue that the needs of the business are met and under control at any point in time. However there often good reasons to borrow funds – an example would be to expand the operations to take advantage of an opportunity.

Too many times I see businesses operating with overdrafts and business loans that are unnecessary. They have not used the funds for strategic purposes but rather have utilised them for daily operational needs and this just leaves a hole that must be serviced each month.

Furthermore they have normally not borrowed enough to satisfy their issues and are forced to go back hat in hand to get even more funding and this makes lenders nervous.

At Bentley we do help clients to put funding requirements together but only after the following has been completed:
- The balance sheet has been checked and is proven to be correct – this is often a much bigger task than it appears.
- There has been a budget implemented that has been stress tested for changing conditions.
- The key drivers of the business have been reviewed and the major threats and opportunities factored into the budget.
- The cashflow requirements of the business have been planned and are in the model to ensure that they are fully considered and captured to understand exactly what the cash needs of the business are.
- The strategic direction of the business has been debated, tested, pressured, and decided and all key stakeholders are on board.
- The lender has been taken for the ride to ensure that they understand what the business is trying to achieve.

Yes we do get finance across the line for our clients but we ensure that the reasons for getting the finance are clear in everybody’s mind and that the business in fact needs it and can service it. The goal is to eliminate the finance over a (short) period and ensure that the business is in order to capitalise on the reasons for undertaking the lending in the first place.

If you have loans on your books that have not been reviewed or planned to be eliminated then you need to spend some time and get that underway. Your long term success may depend on it.

Filed Under: Accounting, Small Business Tagged With:

Planning – fun or not so fun

October 7, 2009 By Leave a Comment

Yes you have probably heard it all before and you are going to hear it again.

Businesses don’t plan to fail they fail because they don’t plan.

I could also run through the alarming statistics around business failures in Australia but that would be simply pushing the boundaries a little too far.

In a recent post I talked about understanding the reasons that you were in business. If you were honest and listed a number of selfish reasons then invariably right now you are asking -”Yeah but how do I achieve those goals?” And this would be a great question.

Each and every business is unique – but they are also the same. Put your hands up if you have the following issues:

- Cashflow is tight.
- Staff are not delivering on your expectations.
- Your margins with your major clients are too thin.
- Your can’t get enough stock.
- Your creditors are looking for payments.
- Your overheads seem to be getting bigger each month.
- You don’t have all of the information that you need to run your business properly.
- The information you get is not correct. timely or raises more questions.

Well say hello to the other 99% of business out there who experience the same problems. Yes your business is unique but you also have most of the same issues that your competitors, clients or colleagues do. Business is very much about managing your way through the maze.

So how does planning fit into the process of fixing these issues? I am glad that you asked.

In very simple terms writing something down forces you to confront the reasons for the success or failure, it forces you to evaluate, it forces you to find a solution – it is a very hard thing to avoid – when its there for everyone to see.

Much like my previous post on budgeting I am not really advocating spending a ludicrous amount of time getting something together that would wow them in an MBA course. There are many simple things that you can do to get your house into order.

- Do a budget – nothing special – estimate your income and your expenses and use this to help you make decisions.
- Write a list of things that you would like to complete in the next three months – and then rank them in order. You will be surprised how this effects your decision making.
- Get a whiteboard and list the 3 things that mean something to your business – if you are a real estate agent:
– No of calls to your database
– No. of appraisals for the month.
– No of referrals for the month.

Then track how you are doing against this list.

Write down on a large piece of paper the 3 things that your staff can do today that have a positive impact on your business. Then change it each week. Example: thank each customer who buys something, have everyone in the office take responsibility for the cleanliness of the office, create an incentive to ensure that every call is answered within 3 rings.

Ok so none of the above will transform a lemon into gold but at the very least they will get you thinking about where you should be going and what you should be focussing on. Of course there are people out there willing to help and put your ideas into perspective. Do not hesitate to engage them but also make sure that that you are doing the real work so that you drive your business.

But most of all have some fun – life’s too short otherwise.

Filed Under: Accounting, Budgeting and Forecasting, Small Business Tagged With:

Budget – the Key Business Tool

September 21, 2009 By Leave a Comment

A business that does not prepare a budget is flying blind – literally.

Your budget is the most significant business tool that you have a your disposal. It establishes the KPI’s that your business should be targeting thus ensuring that you have a point of reference to compare against. It ensures that you make decisions about where to allocate your limited resources. None of us have an unlimited pool of cash or people that allows you to take any and every opportunity onboard, and as a result we must all make decisions about what is the BEST opportunity. Your budget allows you to evaluate the financial implications of a decision and ensure that you limit the “gut-feel” decision making that often is the only mechanism in small business decision making.

However, more importantly, your budget is a financial representation of why you are in business. It shows you what you can expect from mall of the hard work, isolation and headaches and is often the reason why you will succeed – because it has forced you to PLAN your activities. Focus is a very important function of small business and a budget allows you to establish the key functions that you and your staff should be looking at targeting.

A budget does not have to be a work of art. Look at my example below:

This is not a complex budget. literally you could put it together in a couple of hours. It does however let you review what your income is, what your expenses are and what the cashflow implications of your decisions are. It has established the KPI’s for your business for the next 12 months. It is a basic business road map.

So why are budgets so important:
They establish KPI’s – at the very least they provide you something to work towards.
Banks and other financiers look at these to show how well you operate your business.
They force you to review your business and decide what you SHOULD be doing.
They highlight areas that will be an issue. As an example in the model below you will notice that the cash balance is negative in May. As my budget shows this upfront I can plan to get the cash required to support the business’ needs.
They allow you to test decisions before making them. In the example I could test what the benefit of spending an additional $3000 on a direct mail campaign might have on the sales that I make.

Whilst the example above is a start it is by no means the best example of the way that budgets should be put together. Your budget should drill down to the lower levels of your business because you should be using it to understand what your business can and can’t do well. It should be used to ensure that you spend your limited funds in the areas that will provide the most value. Your budget should be a working model that evolves as you make decisions. It should never be a static printout that is outdated as soon as something effects it. But you should not spend any more than a few days on it. Too much time will take your eye of the current day to day operations and will become a tedious process long term. Any management accounting professional will quickly be capable of putting together the key drivers of your business so go and get the advice that you need to make sure that the process is as streamlined as possible.

Finally the single most critical part of a budget is its ability to allow you to perform “what-if” decision making queries. These allow for better decisions by allowing you to run through the implications of a decision before implementing it. A simple way of putting this what if capability into the model is to manually change the income levels and see what happens. But a more automated process that can be built into any spreadsheet will allow you to quickly change the key drivers of your business to see what the effect is.

A business should be looking at how it drives its operations and setting the benchmarks that it is targeting. This is a tried and tested method of attaining success and you have the ability to do it properly. Planning is a key ingredient in success and budgeting is a key ingredient in planning. Don’t operate a business without it.

Filed Under: Accounting, Small Business Tagged With:

When Fair is Not Fair

August 18, 2009 By Leave a Comment

Today I had confirmed the incompetence of the ATO.

The Australian Taxation Office is a fully fledged ASS. That probably puts me directly onto the radar of the their inspectors however it is about time that their practices are addressed.

I have two different clients:

Client no.1 – good small business who through no real fault of their own except being exceedingly busy and having a lack of capital, has been late lodging their last two BAS. Around a week in total, but the last around 4 weeks late. Payment is made on time but the paperwork is late. Today they get a $220 fine for late lodgement of their March BAS.

Client no.2 – totally ambivalent to their tax requirements. Have the capital, but have not lodged tax returns for 5 years, BAS lodged whenever they feel like it and never paid on time. I recently lodged 14 outstanding BAS – no fine!

Can anybody out there please tell me how this is just?

ATO you need to get your priorities right. Yes late is not good but at least you get the information. Treat people who try to do the right thing properly and stop treating those who treat you contemptuously with unfounded leniency – and maybe just maybe you will get people doing what you want them too.

Filed Under: Small Business Tagged With:

Do you know where you are going?

August 11, 2009 By Leave a Comment

One of the most asked questions that I get from my clients is:

How do I………………

Invariably this is followed with a specific question about their business and wanting to understand exactly how they can achieve their goals. Obviously we are all in business because we want to achieve something and this is a question that many of us will have at some point in time.

Usually my response is simple: “So what are you trying to achieve?”

Be honest – is this something that you can truly answer?

Don’t be disappointed or embarrassed you are not alone. I very rarely come across people who can answer this without at least stuttering and fumbling through the words to describe why they work 80 hours a week, why they deal with clients that they normally wouldn’t even say hello too as they passed them in the street or why they take a wage from their own business that they would be embarrassed to accept were they were EMPLOYED by someone.

I was going to write a post about budgeting and planning. But after a meeting I had today with a new client, I felt that it was necessary to start with the basics.

So your homework for today:
Get a blank piece of paper and write down the 7 things that you want to achieve from being in business. Don’t be shy or uncomfortable about what you write – but be honest. To assist you here are my goals from my time at Bentley Partners:

- I never want to work for someone again. I do not want to be 50 something and have someone walk into my office and tell me that I have been downsized. I want to control my own destiny.

- I want to make a really good income and build an asset for my family.

- I sincerely want to help as many small business owners as possible to achieve great success.
- I want to help the people who work for me be the best that they can be.

- I want to use the skills that I have and that I enjoy using rather than the mundane monthly rigmarole that goes with being employed.

- I don’t want to be locked up in an office in a corner of a building with 800 other “tools” all plugging out work that means nothing.

- I want to have a balanced life. This will involve which involve hard work – really hard work at times – but hopefully this leads to making my family and myself wealthy.

As you can see I have just laid down the reasons as to why I want to be in business. Yes there are some reasons around the good that I believe I can provide, but many of the reasons are pretty much centred around myself and my family. If you have only “motherhood” statements in your list then you have not been honest – or you are Mother Tersesa!

Once you have established why you want to – or are – doing something then you can set the plans in motion to achieve these goals. We will explore this shortly.

Filed Under: Small Business Tagged With:

Protecting What’s Important

August 6, 2009 By 2 Comments

It occurred to me today that sometimes good people don’t always win – and too often bad people do.

We were introduced to a new client at the start of February this year. His greatest problem was that he was naive to business and trusted the wrong people. He trusted that his accountant would provide advice and guidance – but just produced tax returns.

He trusted that his trusted right hand man was doing what he said he was doing – when he was really doing his own thing.

He trusted that his bank was with him and willing to help – when they were really just taking his money.

And he didn’t trust his own abilities and instincts – and tomorrow he goes into administration and will have a debt issue hanging over his head for a long time – and will probably lose his family home.

Then I have a client who treats staff as his chattels, who treats the law with flippant disregard for right and wrong and who has been non compliant for more than 10 years in every aspect of business. We get his business compliant and correct his tax issues. Even though he has earned a lot of money in the last 10 years he escapes with an effective tax rate of 10.2% for the last 10 years.

Which comes to the point. It doesn’t matter which of these cases you empathise with more. The cold hard facts are that if you are in business then you must as early as possible understand how best to protect your family’s assets.

Client number 1 above – had no asset protection strategy in place and loses a great deal. Client number 2 also has no strategy in place but by sheer luck has been able to avoid issues and we have put the correct asset protection strategies in place.

Business is just something that we do to survive. It is not the reason that most of us exist. The people that you come home to each day are the reasons that you should be doing what you are doing. Make sure that they are always looked after.

Filed Under: Small Business Tagged With:

Year End Wrap

July 15, 2009 By Leave a Comment

Why is the year end the most difficult time for small business? It really is a question that has plagued me.

And I think I have the answer – too many small business owners are worried about their tax position rather than concentrating on the real goal – running their businesses.

I have said many times before – tax is actually a good thing – it means that you are making a profit. True you should never pay more than your fair share – but paying it is actually an inevitable outcome of being a successful business owner.

Too often I see business owners who are worried about keeping their stock-take at the lowest level or writing off bad debts before year end. They spend too much time in the last few days trying to get this “right”

Well I have some bad news for you – you are focussed on the wrong area. Instead why not try the following to see whether it is time better spent:

1. Complete a budget for next year.
2. Chase up some invoices that are outstanding from your clients.
3. Take the time to call your 5 most important clients and thank them for their support for the year.
4. Review your PL for expenses that are too high and research for some cheaper rates.
5 Pay the outstanding superannuation amounts owed for your staff and let them know that their super fund is up to date with your contributions – and actually get the tax deduction at the same time.
6. Get a list of your old stock and offer it to your client base for an end of financial year sale.
7. Review your marketing for July, August and September and ensure that you have it on track.
8. Plan your next break from the business – holidays are very important for your sanity and to keep you refreshed and focussed.
9. Contact your banker and thank him for his or her support, and ask them what they are expecting to see from you and by when.
10. Review your insurance policies and ensure that you have adequate cover.

Surely you can see that any one – or more – of those 10 things are better than worrying about tax. Let your accountant finalise the year without your interference. You should have completed your tax planning months ago anyway and right now there is little that can be done to make it significantly better than what will be.

When it is complete then by all means ensure that it is accurate – before signing anything – and then re-focus back onto the new year – it will bring your far greater value.

Filed Under: Small Business Tagged With:

The Trouble with Bookkeepers

April 26, 2009 By Leave a Comment

Today I experienced the misnomer that is bookkeeping.

I have a client who due to wanting to reduce costs has his daughter perform the bookkeeping for his business. He pays her a small wage and she performs the bookkeeping to the best of her ability. She takes around 30 hours a week to trundle through the data entry, reconciliations and the run some reports for the business. My role was to assist the owner to understand the business and work on the direction that the business needed to take.

I have been working with the client for a couple of months and we came to preparing the first BAS statement, which I had asked to review prior to lodgement. As I was reviewing the data behind the budget I noticed that GST input credits were being claimed on everything!

Primarily my concern arose when I noticed that bank interest and bank fees were being recorded with GST. When I asked the bookkeeper why, the answer was that “someone” had told her too.

So here we are with a client who has been operating for 3 years with incorrect GST claims – and most likely many more incorrect income tax deductions and the like. Now have one of my team is going through transactions from the start of the business and identifying the corrections that need to be made to allow the BAS to be amended and the income tax returns to be corrected.

The amended returns will result in extra tax payable, and the associated interest and then he will have to pay my firms fees for the work to get it all in order. We cannot go back prior to 2007 as the data has been purged from his accounting system so he will just have to hope that an audit doesn’t occur as we cannot prove our position.

And here is the crux of the problem. My client was of the opinion that because his daughter had been to a few MYOB courses this qualified her as a bookkeeper.

Bookkeeping is a task that requires skill, care and knowledge about basic accounting principals. I have said many times that it is not accounting and you need to be aware of what a bookkeeper can and should be doing. I have put together a list of tasks that a bookkeeper should and should not be doing which can be found here.

Owners of small businesses have to ask themselves these questions when trying to understand the complexity of the accounting tasks involved in a business – any business. Most large corporate businesses have specialised accounts staff performing the day to day functions. They have accountants looking at the financial management of the firm and they have their tax accountants ensuring that they meet and minimise tax properly. Why then do many small business owners think that their once a year tax accountant can do all of that himself?

If you have a bookkeeper trying to do it all then you need to review their responsibilities and get them focussed on what they are skilled at delivering. You then need to look at the roles that are involved in your accounting functions and get people who are qualified to provide that input.

My client was lucky. We caught this now before an audit and we can fix it pretty quickly – can you say the same?

Filed Under: Bookkeeping Melbourne

Owning Multiple Locations

April 20, 2009 By Leave a Comment

With an extensive background in franchising I have some very solid beliefs about owners and running before they can crawl.

All too often I see small business owners who have very good success in one location in a very short time and think to themselves: How easy is this – I am going to open another location!”

My advice if you are reading this and having similar thoughts – DON”T.

Put simply dividing your time, and more importantly focus, between multiple sites is something that very few people can do. The classic merry go round involves the owner relocating from the first site to the new one. This starts off well as they can easily replicate what they did well in the first place.

Then after a period, which will depend on the business, they start to see the original site struggling either in sales, cash or profits – or sometimes all three. So they move back there – “to get it right again” and guess what the new one starts to struggle.

Eventually what you experience is a continual cycle of running too and fro until both sites are under performing significantly and the owner is pulling her hair out.tearing-hair-out.gif

In my time I have only seen multiple locations work in the following circumstances:

1. The owner brings in an equity partner who is responsible for the new location. Skin in the game is skin in the game.

2. The owner gets 2 managers – who are above average – pays them well and provides the right incentives to drive them. This then involves the owner managing his time equally between locations – with equally being the optimal word.

In all other cases this expansion is just a nightmare and I would recommend that most people stay happy with what they have and make sure that this business is the best that they can possibly get it to be.

Let me know your thoughts.

Filed Under: Ideas and Thoughts, Strategic

The New Bentley Partners

April 19, 2009 By Leave a Comment

Well here we are – April 19 and a new business is firmly established.

You can look here for what we do so I won’t rehash the already obviously stated. I will however simply state the this blog is for you. It is really a blog about what we encounter in our everyday lives trying to help small business. If you have followed my previous blog at www.kundunconsulting.com.au then you will be aware of what it is about.

Generally I will be offering some practical tips on how to deal with practical small business issues – but I am happy to be led by you. Just use the comments and suggestion box to ask me to address something that may be useful. If you have the query then chances are someone else has the same query.

We will post three updates per week so please subscribe to the RSS feed – or via email and stay connected.

Filed Under: Ideas and Thoughts
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