Business owners can’t afford the luxury of trust

Trust is such an important aspect of every part of our lives. We cannot reach our full potential without someone trusting in us and trusting others. However, trust is earned and proven time and again. Would you trust your baby boy to someone you didn’t really know well? Of course not! So why do we trust our business, our resources, our finances, the baby of our blood, sweat and tears, to staff, consultants and suppliers that we don’t know very well?

When you first started out, there were 3 people in your business – me, myself and I. You opened up and locked up, you made all the payments, and you didn’t have petty cash. But as your business has grown, you’ve involved more people in your dream. You’ve put processes in place to ensure the quality of the product or service being delivered, and to ensure the performance of your staff and suppliers. What processes have you put in place to protect your assets and resources?

The following are some things that you may have done, or should do:

– Insurance for computers, equipment, personal income protection and medical

– Log books for vehicle usage to prevent personal use

– Lock away and issue out keys for computer and electronic equipment, supplies, and the office

– Lock away petty cash and give the key to only one person

For all the resources (equipment, cash, access to bank accounts) there should be written authorization that the person is allowed to use the resource. Then if something happens, it is clear who had the keys last and who was responsible.

So often there is the sad story of when the trusted bookkeeper left and a new person started. The new person stole a large sum of money and covered it up in the books. Just because one person is trust-worthy doesn’t mean everyone is. The process of checks should be in place regardless of who does the job. It protects the employee (and the other staff) from undeserved suspicion or blame.

Another reason for checks and procedures is to make sure that the financial information that you are relying on to make decisions is accurate and complete. Some ideas include:

– Written authorization for all payments

– Sequential numbering of documents to easily see if anything is missing

– Supporting documentation that provides evidence of the transaction

– Reviewed bank reconciliations

If you are concerned that you may not be able to rely on your procedures, please contact us to conduct a review of what you are currently doing and provide you with recommendations and changes to help protect your future business.

By |2017-11-23T11:30:44+02:00November 27th, 2017|Financial Management|0 Comments

Should you be keeping your shopping lists?

Do you save your shopping lists? My dining room table is littered with old lists written on the back of envelopes or scraps of paper, which have been pulled out of my handbag when I’m looking for something. Occasionally, I’ll bundle them up and dump them in the recycling. They are no longer useful.

Now imagine if I kept all the lists and each week compared what I bought with the last week? Over time I’d be able to draw some insights from the information, such as how often we bought toilet paper, how much we spent on average over a month, or how much the hot chocolate quantity increased over winter. Now the lists are useful, have value and can help our family make decisions around our spending. This is Financial Reporting and it works the same for your business.

The key element necessary for reporting to be useful is there has to be a comparison of some kind:

– Compare this week to last week to establish trends;

– Compare the reality to the plan (the budget); or

– Compare the income to the expenses to see if the activity is viable.

For comparison to be valuable, the items you are comparing need to be for the same period and for the same thing. If I want to know if the price of oranges has increased since last week, I need to compare oranges with oranges and not oranges with apples. Also, it isn’t helpful to compare what I spent on ink or paper this week with the whole of last month, it is better to compare this month with last month, to gain any useful insights.

We must not forget that the whole purpose of putting together financial reports is to provide useful information to make decisions. If the type of information or the format it’s presented in, does not give insights into the reality of the business situation, it is a waste of time. Choose wisely what you report on, as too much information can also detract from the value of the reports and confuse the decision-making process.

Next week we wrap up this series by discussing how we can reduce our financial risks.

By |2017-11-20T08:48:36+02:00November 20th, 2017|Financial Management|0 Comments

What to do with all the slips in your wallet?

In our series in financial management, we are talking about Recordkeeping this week. Recordkeeping comes in many different forms; people keep diaries to record their day, people keep a record of the statistics for their favourite football team, people record the rainfall on a daily basis. Each of these records serves the same purpose – to summarise information in a way that helps us to make decisions.

The same applies to financial recordkeeping in a business. Whether it is recording cash payments in one of those old-fashioned ledger books, importing bank statements into an accounting system, or typing in the details of your slips on a spreadsheet, the purpose remains, to make sense of the noise and create order from the chaos.

A recordkeeping system in your business takes all the details (payments, invoices, slips) and summarises them in the way that is useful. Typically similar items are grouped together, say, payments in a spreadsheet. These are then categorised in some way – payments for entertainment, groceries, stationery, rental, salaries, etc. In this way, we can use this information to draw out some conclusion, such as, how much are we actually spending on entertainment, how much has the spending on office consumables increased over the last 3 months, how much does leave cost the company?

The objectives of a good financial recordkeeping system are:

– To include all transactions

– To use consistent categories to be able to compare similar transactions over time

– To produce summarised information in the same format as the plan or budget

– To be a data source that is useful and relevant

– To be up-to-date on a regular basis, so the information is useful for timely decision making

Nowadays, a lot of the legwork of a recordkeeping system is automated in an accounting package. A number of accounting packages are cloud-based and inexpensive, taking the hassle out of updating a spreadsheet at the last minute.

If you are undecided or have not yet considered a financial package for your business, then please contact us for some recommendations.

Next week, we’ll look at the output from all this recordkeeping, the financial reports, where it finally starts to actually help you run your business.

By |2017-11-13T08:43:07+02:00November 13th, 2017|Financial Management|0 Comments

Failing to plan is planning to fail

As promised last week, this week we discuss Financial Planning, which has another name that we are all more familiar with, a BUDGET. A budget can be any size, for any purpose, from the Finance Minister’s budget for the country to the budget for your daughter’s birthday party. Any business, no matter what size should have a functional budget.

A budget is a way of ensuring that a limited amount of money is used in an effective way. It helps to ensure that expenditure doesn’t get out of control. We all have nightmare stories of the business project that ran over budget and out of control. Can you imagine how bad it would have been if there was no budget and the consultant or staff didn’t have any target to stay within!

A budget also assists you in knowing how much money you need to find, earn or borrow, to achieve your goal in your business. Once you have the funds, it helps you to stay within your available resources.

Your business budget should the following:

– A specific timeframe – there is a start and end date for a budget, either an event, a year, a month, a project.

– Be forward focused – a budget never deals with the past, only the future

– Detail income as well as costs – you need to know where the money is coming from to pay for the costs, this can be as detailed as necessary.

When preparing your budget for next year here are a few things to consider:

– What activities will be involved?

– What resources will be needed to perform these activities?

– What will these resources cost?

– Who will complete the activities – staff, out-sourced personnel, volunteers?

– Where will the activities occurrent for your premises, or hire a venue, or outdoors?

– What are your existing commitments – contracts and non-negotiables?

– How do these anticipated costs compare to the actual payments in the past for the same things?

Remember that your budget will be based on assumptions as the future is uncertain. Make sure you document these assumptions in case circumstances in your business change and the budget can be updated.

Next week, we’ll look at recordkeeping, a vital process for any successful business that helps track spending against your budget.

By |2017-11-06T14:55:20+02:00November 6th, 2017|Financial Management|0 Comments

Financial Management IS For Everyone

This month’s topic is financial management. Now, don’t think to yourself, my accountant does that, and move on to the next cute video of puppies. Understanding the basics of financial management is the responsibility of the business owner as much as the finance team. Without a clear idea of what financial management involves, you are setting yourself up to be the victim of fraud, mismanagement, unnecessary tax and a whole host of SARS problems. So as they say, it is better to learn a little up front, than have to do a crash course in the midst of a crisis.

So what exactly are we talking about? Financial management involves planning, controlling and monitoring the financial resources of a company in order to achieve its objectives. Although the accountants just do it for fun, we shouldn’t only be keeping track of the cash to make it to month end, there should be some objectives in place:

– Do you want to be profitable by year 3

– Do you want to break even this month

– Do you want to save for that big capital item

– Do you want to open a new branch or launch a new product

What are you working towards as a company and what are the financial implications of that goal?

There are 4 main elements or foundation blocks to financial management:

· Planning – identifying what needs to be monitored, what amount you need and how you’re going to raise it

· Recordkeeping – keeping track of what comes in and what goes out in a logical, helpful format

· Reporting – monitoring how reality matches the plan, and deciding what needs to change

· Procedures and control – making sure nothing is missed and everything is checked

Over the next few weeks, we will discuss each one of these in detail. Don’t worry, you won’t need your accountant to interpret, we’ll use English to explain.

By |2017-10-30T16:43:24+02:00October 30th, 2017|Financial Management|1 Comment

Performance Measurement: Let’s Measure Performance!

Last week we looked at the history of performance measurement and how it has improved over the years. This week we will look at how business owners and managers can measure non-financial performance indicators (NFPI) and give practical examples.

When you call the call-centre of most companies these days, they ask you to rate the service at the end of the call. When you enter a bank, they have a machine on which you can rate the quality of the service. A good example most of us are familiar with is when you call SARS; and after you are done with the call centre agent, you are asked to rate the service from 1-5. You are requested to rate it on the friendliness of the agent, their knowledge of tax issues, their attention to detail, the time it took to be serviced and the number of times you had to call until the issue in question was resolved. This is very much a non-financial performance measurement strategy.

A restaurant can measure the % of meals delivered in say 30 minutes. Quality of meals rated by an independent reviewer, average customer rating of their experience there. This customer rating is now available on Google maps for any company or Hello Peter and other review websites; where your clients can rate you or air their complaints. It would help visiting these sights and see what the customer thinks of your business and how you can improve. Through search engines, you can now rate the number of searches your business has had and the number of website visits. You can then ask the question: through which platform have you gotten potential client enquiries? You can rate the number of complaints the business has received and what the company has done to address these. All these NFPIs can then be compared to industry averages to see how the company fairs in comparison to the competition. These can be compared year to year to measure trends and see where the business has improved and where it has faltered; and how this can be remedied.

Another important NFPI is employee satisfaction and turnover. Staff surveys on happiness on the job, one on one personal development and welfare meetings, and staff turnover and exit interviews can help create a culture of valuing people. Business owners should always remember that a happy employee will always equal a satisfied customer and return sales. Yes, the customer is king, but the staff are in the business of king-making. Companies can also have competence surveys to review training needs. You can also measure absentee rates/sick days to review how satisfied the staff is. The higher the rate, the less satisfied the employees are.

We will continue discussing practical issues regarding performance measurement next week.

By |2017-10-25T13:51:49+02:00October 4th, 2017|Financial Management|1 Comment

Finding Balance in Performance Measurement

Last week we started a series on Performance Measurement. This week we take a peek under the hood and ask about the balance required within a business regarding performance and how to measure non-financial indicators.

Since the dawn of business science, financial performance was the exclusive yardstick of business performance. The 1980s saw companies realising the pitfalls of focusing exclusively on financial performance indicators. They realised that Financial Performance Indicators were leading to an intensive emphasis on cost reduction.

These excessive cost reductions were being achieved at the expense of long-term growth; because they resulted in low staff morale, low quality and customer dissatisfaction. Managers ignored quality, delivery, customer care & after sales service. Owners discovered, during audits that accountants were practising “window dressing”; that is making the accounts look good on the last date of the period.

Some of this myopic behaviour is still being practised today, to the detriment of business growth. Failure to invest in projects with long-term profitability; as managers aim to achieve profit now than later. Failure to invest in activities that build long-term value such as employee training, advertising & marketing; research & development etc. Cutting production costs that ensure better production quality; resulting in poor quality products and reduced market share. Reducing head-count, which may result in one employee serving several customers and thus loss of morale and poor service. Salary freezes resulting in high staff turnover, and a loss of corporate knowledge and high recruitment costs.

To address this “myopia” or shot-termism; experts came up with Non-Financial performance Indicators. Non-Financial Performance Indicators are designed to balance between financial performance and other areas of the business that foster business growth and longevity. NFPIs focus on product quality, delivery, customer satisfaction and after-sales service.

Business owners can put in place performance measurement or measures of product/service quality that ensure that managers do not cut back on these factors that sustain the business. Measures can be implemented for staff satisfaction e.g. staff turnover; to reduce cutbacks in staff-related expenditure. Non-Financial Performance indicators aim to create that balanced focus on the key areas that drive a business’ long-term growth. What are some examples of NFPIs that companies can adopt?

We will explore some of this performance measurement options next week.

By |2017-09-26T17:21:41+02:00September 27th, 2017|Financial Management|1 Comment

Performance Measurement -is profit enough?

We start a new series this week with a look at some financial management issues that every business owner should be looking at on a regular cycle, well at least twice a year. Performance Management? What is it? How do we define it and even if we get the numbers, what do we do with them? Let’s start by unpacking some of the mysteries and terms related to Performance management in your business.

The bottom line…The amount of profit a business has made is a universally accepted standard for keeping score the world over. We always measure how successful a business is by the amount of profit it has made. Banks will offer more credit to more profitable entities. It does make sense because the net profit represents the true income of the business, and consequently of the owners.

The increase in sales, gross and net profit are some of the basic Financial Performance Indicators (FPIs) that any business person would keep an eye on to ensure that the business is viable. The downside, however, is that the managers or owners get caught in the rut of profit chasing at the expense of the very reason the business was set up the in the first place.

Financial Performance Indicators are vulnerable to manipulation. Managers become obsessed with reducing costs even at the expense of the organization’s long-term viability. This is because recognition, bonuses and even promotion are linked to how profitable a manager is. These cost-cutting measures may impact negatively on staff morale, quality of products or services etc. Focusing on the bottom line disregards what actually drives the profitability of the business.

Is there a solution to this myopia? Is there a way to balance the objectives of the business to ensure longevity? We explore this in the next post.


By |2017-09-20T09:04:48+02:00September 20th, 2017|Financial Management|1 Comment

Do you have a financial calendar?

A financial calendar? What is that, you say? The answer is a simple one: a financial calendar is just a year planner that details all the deadline dates for the various submissions to SARS, CIPC and other compliance agencies. Keeping track of all these alleviates the last minute stress and panic we see on a lot of business owners faces when we talk about these things and will also help eliminate those unnecessary fines you have to pay for overdue returns.

So here are a few dates to remember and add to your financial calendar for this year.

  1. Next week 28th is the deadline for the provisional tax returns and payments for both companies and provisional taxpayers
  2. This is due again at the end of August.
  3. Monthly PAYE and UIF
  4. The deadline for your annual CIPC submission is in the date month that your business was registered. Find your CK1 document and add this to your diary.
  5. If you are VAT registered you will fall in either the ODD or EVEN month’s returns. This will require you to return your 2 months submissions every second month together with payment by the end of the month.
  6. Your workman’s compensation recon is due in May

Add additional items such as your vehicle’s licence renewal, any annual organisational membership or professional bodies and any trade or industry organisation fees.

All these once planned and added to your budget will give you a sense of ease that will not lead to panic, late payments and penalties.

Of course, if you have us doing your accounting for you, we take care of all these items for you and just let you know when we need what from you and how much to pay whom. For more on our accounting service go HERE.

By |2017-02-21T17:29:39+02:00February 21st, 2017|Business Resources, Financial Management|0 Comments

Financial Statements – Statement of Financial Position

Financial statements reflect the health of a business as the life of every business is reflected in its books. It is very important that business owners familiarize themselves with the financial statements and not only leave it to the accounting team. The more you know about your financial statements the better, this enables you to be in a better position to make sound judgement in regards to the decisions you make when you know how your business is doing financially. It is very important that you do not exclude yourself as a business owner but familiarize yourself enough to at least have an idea of what is happening in your financial statements.

The statement of financial position also known as the balance sheet will reflect the business’s financial position or value at a specific point in time. It reflects the business’s assets, liabilities and equity.

The benefits of knowing what is happening in your statement of financial position includes:

It will assist you to review your business performance.
You will need to produce it when looking for  investors for your business.
It is it vital for your business plan.
Required for Annual Financial Statement.

By |2017-02-08T15:21:16+02:00February 8th, 2017|FaceBook, Financial Management, Uncategorized|0 Comments
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