If you’re considering investing in your business, for example adding additional equipment, hiring new staff or opening a new store, it is important to have a handle on the status of your existing business. Every business wants to grow, but expanding a business too soon, or blindly, can have dire consequences. So before taking the leap, ask yourself how well do you know your existing business?
Are you able to analyse your lines of stock and forecast sales by product based on historical trends? Can you review your business activity against your staffing to ensure you’re using your staff roster effectively and meeting customer needs? How comfortable do you feel about approaching the bank for a loan using your currently available data? Can your business wear the lag between investing in a new business and generating an acceptable return?
Decisions about expanding a business, obtaining a new business loan or refinancing shouldn’t be taken lightly. It’s important to have a clear business plan, and an understanding of your current financial position, including the costs involved in expanding your business, and expected future cash flow requirements.
One of the easiest ways to track your business finances is to invest in accounting software. Many small business operators fear a system will set them back thousands of dollars, but you can get an effective accounting product, like QuickBooks, suitable for a small business for less than a couple of hundred dollars. This is a fairly inconsequential figure when you consider how much time you’ll save, and the enhanced reporting capability. Just by tracking inventory, managing sales and handling expenses through an accounting system you will be able to automatically undertake analysis to help in your decision making.
Clearly identifying which stock lines are selling, and when they’re selling, to ensure that the right quantities of the correct stock lines are purchased could not only prove very profitable, but also considerably improve your cash flow. Effective inventory management may thus help finance your new venture as well as increase profitability/cash flow by allowing you to identify popular items and growing trends to take advantage of. You will also recognise slow-moving stock that might be better suited to a clearance bin.
Many small businesses utilise casual and part-time staff. You may be able to save costs or improve customer satisfaction by assessing how your business utilises these staff members. For example, if Saturday is your busiest day of the week it is important to ensure your staffing is appropriate. Although the weekend pay rates are higher you may find increasing weekend staffing levels improves customer satisfaction and thereby results in greater sales because frustrated customers aren’t walking out of the door due to poor service. An accounting system will generate reports that help identify the best staff allocation based on customer flows, for both casual and permanent staff.
With financial institutions and government agencies expecting accurate reporting of financial information, being able to prepare timely and professional reports is a necessity. If you’re looking to secure finance to expand the business you’ll effectively show that you have a viable business. Accounting software should be able to produce professional looking profit and loss and cash flow statements that give the bank a clear indication of how your business has been performing and some confidence around your ability to service your debt.
When approaching the bank consider how transparent your figures appear to be. A good tip is to prepare some financial forecasting documents that demonstrate the level of thought you have put in to the proposed expansion. Being prepared with the information the bank is likely to request should help to smoothen the process.
It is also worth noting how effective software can be in minimising the reporting burden and ensuring compliance with the vast array of tax, payroll and other requirements.
Reckon Limited employees nearly 350 staff and navigation functionality of software such as QuickBooks is easy to use and even available online. If you have software but haven’t updated for a long time you may also be surprised by the speed and functionality of products on the market.
Reckon Limited turnover is $100m and the company employs 350 staff; as the CFO I spend a great deal of time analysing the business to ensure its continued success. I am well aware that many business owners would like more time to spend considering their financial position. It’s an over used phrase but knowledge is power. If you haven’t already, I encourage you to invest in accounting software, or update your system, so you can automatically produce data in the format that you need to give you greater confidence in your future decision making.
Chris Hagglund is the CFO of Reckon Limited. Reckon is the supplier of QuickBooks accounting software. www.reckon.com.au