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Struggling with your work-life balance?

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One of the most common problems for self-employed people is achieving or maintaining a good work/life balance.

I recently had a client who was finding that he was overwhelmed by the amount of work that had to be done and was seriously considering pulling back from the business because of work life balance issues.  So,  I thought it would be useful to write an article on how owners/managers should manage their work/life balance.

There are four steps in getting control of the situation:

Step 1 – Log your time

The first step is to figure out what exactly is happening with your time.  You have got to start to keep a log and record your time.

You should categorise how you are spending time so that you can see how time is being spent of the various work/life areas – your business, relationship time, your relaxing time, your family time, personal development time, exercise time, maybe spiritual time or personal admin time.

It would be useful for you to split out what is happening with the business so you have better information.   You can break business time down into a number of different categories. Are you problem solving? Are you in business development mode? Are you stepping in for other people who should be doing their job? What exactly is happening within your business?

Start to keep your log and use it to track your.  You need data for a reasonable period of time  – ideally for something like a month, but it might be worth looking into tracking for shorter period if you think it will be representative.

Step 2 – Decide how you want to be spending your time

Once you get that log and start getting an idea of where your time is going, next thing you want to do is sit down and decide what do you want your week to look like.

You need to make realistic decisions about how you are applying your time.  Take the key time categories that you used when logging and decide how much time you feel is optimal to spend on each of those.

Again, when analysing your business, it would be useful to break that down into different areas such as business development, production/operations, staff development.   Your business categories will depend on what stage your business is at and can be different for different people.

We know that there are 168 hours in a week – 7 x 24. During these 168 hours in the week you will be engaging in different activities – sleeping, eating, exercising, family time – all sorts of different things.  You need to decide how you want to spend that 168 hours? What is the best mix for you.

So develop a list of activities for the week and allocate the amount of time you think is best for each.

Step 3 – Identify the gaps

When you have a log of where time is going and a decision on how you would prefer to be applying your time, you go back and compare the two, identifying where the biggest problems are.

Let’s say you are spending 12 hours per day, 6 day per week at work, which is 72 hours, and your plan is to spend 10 hours per day Monday to Friday and 5 hours on a Saturday, which is 55 hours. I am trying to be realistic here, you might think it is still too high but let’s try and make incremental changes rather than dramatic changes.

Identify where the biggest gaps are. If you are spending, say, 20 hours a week problem solving, you might think you should only be spending 5 hours a week problem solving. If you are spending 10 hours a week for administration, you might think you should only be spending 5. Work down through the actual v desired time and identify the problem areas.

For each gap, consider how are you going to improve the situation. You have a few options.  You could stop doing it or you can reduce the time you spend on it or you could delegate it to somebody else.  Implementing these decisions may require other actions  You may have to hire someone or train someone already on your staff.

Step 4 – Make a plan to close the gaps

For each one of the area you want to improve,  you need to create a specific plan.

To do that there are a few tools that you could use. There are two that I find most useful.

1.     Time Management Matrix

The first one is what’s known as the Steven Covey time management matrix.

If you can imagine a grid and on the horizontal you have urgent – non urgent, and on the vertical you have important – not important.Covey Matrix

That grid then divides into four quadrants – see above.

Once you cateogorise tasks in that way you will see that the items in the not urgent and not important category may not even be worth doing.

Urgent but not important items might be stuff that you may delegate to somebody else.

For the urgent and important items, you probably don’t have much choice about, it just has to be done.

The key area to spend your time on those items that are not urgent at the moment, but that are important.  If you don’t deal with those and they are important, what is going to happen is that they will soon become urgent and important.

The trick is to classify all the things that you are doing into those four boxes and then you decide how you deal with them.

2. Must/Should/Could

Another slightly simpler tool that I have come across that many people find very helpful is just to categorize everything into ‘MUST’, ‘SHOULD’ and ‘COULD’.

The things that you MUST do are ones where you have no choice, you just have to do them.

The things that you SHOULD do sound like they are important and have to be done but you may not have to do them.  You could do some and delegate others

And the things that you COULD do are optional.   You may do some of them or better delegate them but you are more likely to try to stop doing them.

By actually analysing the various items you are doing you will get visibility and you will better insight into where your time is going and you will start to prioritise things, and then you will start to spend time better.

Play around with the tools and decide which you prefer.  Then each of the elements, put plans into place. When you are putting plans in place it is important to be realistic. There is no point in sitting down and putting plan into place if you don’t intend to do or if it is not possible to do it.

2.     Be accountable

The third tool that I find very helpful is try and find a way to be accountable. It might be your life partner; it could be another colleague or business partner; it could be your coach.  Pick someone and tell them what you are going to do and then set up maybe a weekly call or an email to review how you have been spending your time and to review this.

Put it out there and make yourself accountable for it. Phase the implementation, don’t try to do everything at once, but have a phased plan on how you are going to implement things and set a time to review it. Give yourself 4 weeks, 8 weeks something and go back and see whether this is working and whether you are making progress.

Conclusion

If you are in a situation where your work/life balance is a problem, step back from what you are doing, look at where your time is going and for each and single one of those elements put a plan together.

Seek help from outside, a family member, business colleague, mentor or a coach to help you with your planning.  You will find that things will improve and it will make a difference.

If you have any questions, or items needing clarification, feel free to drop me an email.  Remember, we’re available if you want to bring an external perspective to your situation.

Do you know much it costs you to open your doors? Predicting Business Costs.

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A friend of mine, a retired banker with lots of experience dealing with owner managers, has a phrase he uses about those business owners that he feels are in control of their business.  What he says is that ‘they know exactly how much it costs them to open their doors in the morning.’  Are you one of those businesses?  Many people think that this is a very difficult thing to be able to do, but in fact it’s not.

Overview

To know what it costs to open your doors, your first need to know what you will be doing when you open the doors.  So you need to have a good sense of what the activities will be like the day or week.  In the short term – ie next few weeks.

In most cases that will not be too difficult.   You may have an order book that will tell you what will ship the next few weeks.  If its retail, you should have data over the last few years that will give good guidance on what happens at this time of year.

Once you know what’s going to be happening, then you should be able to put costs on that.

The importance of a budget

A good business will prepare a budget of some sort at the start of the year.  When preparing that budget, the business will develop assumptions or rules about the various costs.  You will use those rules throughout the year to help you anticipate what will happen and to convert the expected activity into reasonable cost estimates.

Direct Costs

If it’s a factory making products, the cost of the product will be made up of direct costs and indirect costs.

Direct costs are those costs that are easily linked to the product.  If I am making a chair for example I can see the timber that went into that chair, I know how much timber was needed and I know what it cost. The cost of timber in the chair can be directly linked to purchases of timber.

Similarly, if it’s a convenience store, I can say that for every item that I sell, eg a litre of milk, then I must buy in a litre of milk in order to have it to sell.  So the cost of the litre of milk is a direct cost.  If I sell 10 litres I have to buy 10 litres.  If I sell 200 litres then I have to buy 200 litres.

Labour can also be a direct cost.  Even though, we can’t point to a chair and see the labour that went into making it, we might know that a workman might make 10 chairs a days.  So if we have to make 100 chairs then we can calculate that we will need 10 workmen to do that.  As we know what a workman costs, we can predict our labour cost.

Indirect costs or Overhead Costs

These are costs where it is harder to make the link between the individual item sold and the costs that the business incurs. For example, if I have a convenience store and I pay €1,000 rent per month.  I cannot link the rent to any particular sale – there is not a direct relationship.  I may sell € 5,000 worth of goods on a Monday and € 15,000 worth of goods on a Saturday but the rent cost for each day is the same.

These costs that are hard to link to a product are often called overhead costs. I think of them as costs that are hanging over the business and that vary little for different levels of activity.

Indirect or overhead costs will include marketing costs, premises costs, office consumables, staff travel, professional fee and financing costs.

In some businesses, eg a convenience store, labour costs are more of an overhead.  I will have to staff my shop to a certain level even though sales for can fluctuate.  For example, a restaurant will have wait staff on in anticipation of trade but the level of trade may vary significantly.  For these businesses, we have to plan on having staffing levels that will not vary much will activity.

When you are doing your budgets or projections at the start of the year, you list down all the different types of overheads that you have and you put in your best estimate of what is going to happen. In that way, you pull together some sort of projection of your P&L as to what your costs are going to be.

Applying this understanding of costs

As you progress through the year, you know from your order book, or from your activity plans, what’s likely to be happening in the weeks ahead. With this awareness, you are likely to start asking yourself- “if my sales go up – what is going to happen to my materials?”

You can then predict that if your sales are going to go up by 20%, your materials might go up by 20%. If your sales go up by 20%, but the mix of sales differs, your materials mightn’t go up in exactly the same way, but if you understand your costs and you understand your sales, you will have a very good idea of what is going to happen to your materials.

Similarly, if your sales are going to go up and your activities are going to go up, you are going to have a very good idea of what is going to happen to your labour.   Think back to the example about the chair making factory.

So as a good business owner/manager, you will have a sort of sense of what is coming at you and you will be quickly able to turn that sense into rough and ready figures – but reasonably accurate rough and ready figures.

Finally, you will be able to run through your overheads – certain overheads will not vary at all – rent for example. Other overheads, such as electricity, may vary.  If you are running machines for longer, then you are likely to use more electricity.  While some overheads are reasonably constant, there are other overheads that you will need to tweak.

You know what is happening in your business and you should be able to estimate what is likely to be happening to your overhead from that. You can do that very quickly, you can do rough numbers or you can do it a bit more precisely. For most people, it is enough to be able to do this roughly.

Building your knowledge of the business

But how do you develop this knowledge? – That is the question I am most often asked. There is definitely an element that comes from experience, but even with the experience, it all goes down to understanding the accounts and the information that you already have about the business.

If you prepare accounts every month and you spend some time understanding those accounts, and even better, if you have what I call a feedback loop, or a feedback control, you will quickly improve you understanding of what is happening in the business.

The feedback loop

The feedback loop can be summarised as Plan – Act – Review – Adjust.

We’d say that at the start of the year you make a PLAN for the business, and then you go ahead and take ACTION to deliver on that plan.

Out of that action you’re going to get results, so you look at the results, you REVIEW these results. When reviewing, you ask yourself – ‘Did what I expected to happen, happen?’, ‘Was it different?’, ‘Why was it different?’.  As you review these results you’re going to get learnings. You absorb and apply those learnings and then you ADJUST your  plans for the next period.

Applying Feedback Loop to Management

Putting all this together, you start off with a budget or a projection (PLAN)  , you run your business (ACTION), you prepare your accounts and then you go back and see how do my accounts compare to my original budget. What was different? Aah, I misunderstood that or something changed. (REVIEW).  Through this review process you develop your experience.  Then you take that learning and revise your projections (ADJUST).

And that is how you develop your learning.

And that learning helps you develop a good understanding of the costs of your business, and how they relate to the activities of your business.   Then you will be one of those business owners who knows how much it will cost them to open the doors of their business.

If you have any questions, or items needing clarification, feel free to drop me an email.  Remember, we’re available if you want to improve your financial control expertise.

Why a good budget is vital for every business owner

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In one of my recent blog posts, I mentioned the need for a business to create an annual budget.

One of my readers contacted me, saying “I don’t really know why I’d need a budget if I’m already doing the basic bookkeeping”. So, in this post, I’m going to set out why I think budgets are so important for every business owner, whatever the size of your venture.

Feedback for improved decision making

However complex or simple your business model may be, you still need to be constantly monitoring progress and adapting your processes as you go. I come from an engineering background, and in that world we often talk about an ‘engineering feedback loop’, where outputs of a system are monitored and used to help the system operators decide how to respond and adapt to what is going on in the system.

 

It’s not just engineers who exploit feedback. Pyschologists use an approach called Test-Operate-Test-Exit (TOTE), which is a process to apply the same approach to people. With the first Test of the TOTE, we consider what’s happening and make a plan. Then we move on to execute the plan – Operate. After operating, we Test again to get some data or information on what happened. Was the outcome what we expected, or did something different happen? In the final step, Exit, we use the data to decide whether to continue what we’re doing or whether to make changes, possibly even terminate the exercise.

Your annual budget should be understood as part of a feedback loop for your business plan. We start off by creating a plan, which we express in financial terms as a budget. Then we operate the business, getting feedback from our management accounts. We use that feedback to make decisions – whether to continue as is, or to make some changes. So we are going about improving our understanding of performance and feeding that into our management – in short, we’re tracking how well you’re performing against that all-important budget, and then acting if change is needed.

Prompting a review of the business

In the normal running of a business, it’s very easy to get caught up on the treadmill and not take time out for important reviews. But there’s real value in making the time to focus on your budget and to make proactive use of it.

To prepare a budget, you must start with some key assumptions. These include:

  • What will we be trying to achieve in the budget period?
  • What will be happening with our key inputs – raw materials, labour, overhead, distribution etc?

Your budget provides, indeed prompts, a forum for these key discussions about the direction of the business. And the budget process forces you and your management team to formalise those discussions, reducing them to a set of guidelines that will be used in developing the budget to make it work comprehensively for your company.

Helping to anticipate what might happen.

In the western films that I watched when I was younger, the wagon trail or cattle drive would send someone ahead to scout out the land coming up, identify obstacles and find the best path to be followed, while the main train or drive remained behind – in other words, they never put the whole wagon train at risk, only the poor scout who’d pulled put the short straw!

We can’t really do that in a business – running a business comes with inherent risks that impact on the whole ‘wagon train’. But what we can do is to build a model of what we think is going to happen and use that to identify obstacles and make plans for how to deal with those obstacles.

For example, when we prepare a budget, comprising profit and loss, balance sheet and cash-flows for a business with peak sales at Christmas, we might see that it’s necessary to build up a substantial stock in the run-up to Christmas. This means we’ll need to buy raw materials from our suppliers to build this stock up, but we won’t have sold the product yet and won’t have received the sales proceeds. So we’ll be spending, without recouping any revenue and that’s going to put pressure on our cash flow.

By planning a sensible budget we can quantify the scale of the problem and plan how to address it. We might ask the suppliers for extra credit or we might ask our bank for an extra short-term credit facility – anything that eases the pressure of that increased outlay.

But unless we run some numbers, we wouldn’t be able to quantify the issue – we’d be basing any decisions on estimates and guesses, and that’s never good practise.

Developing our understanding of the business

To prepare a budget, we start by making some assumptions about what will happen in the business and how the different elements of a business relate to each other.

Depending on our experience and our knowledge of the business, the quality  of assumptions can range from very poor to excellent. The only way we know how good these assumptions are is by comparing what actually happened with the budgets and studying the outcomes so that we improve our understanding.

By doing this on an ongoing basis:

  • We gradually increase our understanding of what is happening.
  • We improve our ability to predict.
  • We also learn to identify key predictors of performance.
  • We use these key predictors to make early interventions if things are not progressing as we expected – and keep the ‘wagon train’ on a safe passage through the pass.

Using our budget, we can also determine some key metrics for the business. For example, we should always know the break-even point for the business – the point at which our gross profit will match our overhead costs.

If the business is still in its early stage, the budgets can help determine just how viable that business is.

Budgets vs forecasting

Budgets and forecasts are very similar. They’re both financial projections of what’s expected to happen in the business in the future, with the aim of helping you move forward as effectively and profitably as possible.

Budgets are usually annual while forecasts can be run as often as needed. Well-run businesses will prepare an annual budget and then prepare less detailed forecasts during the year. These forecasts will usually incorporate changes that are occurring in the business and help management decide how best to respond to these changes.

Additionally, budgets are often used to set spending limits. In larger companies, the budgets are broken down by departments or cost/profit centres and individual managers are allocated responsibility for their portion of the budget. Usually, they won’t be allowed to spend in excess of a budget without first getting additional approvals from more senior managers – in other words, they place a restriction on the costs that department can incurr.

In smaller companies, the control process won’t be as formal. Usually, an owner manager will hold the purse strings tightly. However, the budget can be used to help them decide on how much they can spend on different types of expenses and, also, if there are better times than others for spending. Once the busines owner know what their limits are, they’ll soon realise if spending is exceeding the pre-defined plan.

Getting product costing right

An area that many businesses struggle with is product costing – working out the amount it costs your business to produce each product or service in your range.

Some businesses use product costs to set selling prices. Even when prices are set by the marketplace, using product costs to understand profitability will help you determine if it makes sense to be trying to sell in the market place.

Most product costs have two fairly distinct components:

  • Direct costs – these are usually the easiest to determine and will include things like labour and raw materials etc.
  • Overhead costs – these can be more difficult, and can include things like building rent, repairs to equipment or utility bills etc.

To determine overhead costs, the first thing we must do is determine the total amount of overhead costs we expect to have – that will be provided by the budget. Then we should figure out the best way of allocating the overhead costs to the products – effectively spreading the overhead costs across our products so that each product gets a fair share of the overall costs.

While all elements of the costing process are important, we must start with a reliable estimate of what the overhead will be and that’s provided by the budget.

The foundation on which your business plan is built

So, there you have it – a number of strong reasons why every business, both small and large, should take the time every year to build a budget and to spend some time comparing actuals with budgets.

Your budget is the financial foundation on which the whole of your annual business plan is built, so the more detailed, the more accurate and the more realistic you make it, the more solid your financial progress and agility will be over the course of the year.

If you’ve got any questions about building a solid 2017 budget for your business, please do get in touch to see how we can help.

Turning your financial transactions into insightful information: an engineering perspective

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Understanding the nuts and bolts of your accounting really does give you an advantage as a business owner. As we outlined in our last blog post, breaking down your transactions into inputs and outputs (and thinking like a process-driven engineer) is the first step in getting in proper control of your accounts and finances.

The next step is to start thinking about the process that takes the inputs and outputs – the transactions – and organises them in a way that provides information and insights.

Getting genuine insights from your numbers

To get useful business information, we need to group the transactions in a way that makes sense. At its simplest, we can think of sales, expenses, assets and liabilities. However, accounting packages allow us to get even more, and better, analysis.

For example, we can analyse our sales in multiple ways:

  • We can group the sales by product type or by customer type or by customer region.
  • We can group it by salesperson or by selling unit.
  • We can group sales by best-selling product or poorest-performing product.

By thinking this through when we set up our accounts, we can design the system to provide invaluable information about how the business is performing – information that keeps you in control of the future financial path of your enterprise.

For example, one of my clients is a business consultant. When he first came to me, he just had one figure for sales, with no further analysis. As we were speaking, it became clear that he had three very specific, and different, types of sales:

  • One-off projects – where he helped implement improvements for clients.
  • Recurring income – where he was retained by clients on a part-time basis.
  • Training income – where he provided custom in-house training courses for clients.

However, it also became clear from our discussion that he was most focused on increasing the share of sales that was coming from the recurring income. He’d set a goal of increasing that recurring income to be 66% of his business, but at present he had no way of measuring that – and no way of telling if he was meeting that percentage target.

I recommended that he use an accounting package and group his sales into four categories: Projects, Recurring, Training and Other – a final category, to catch anything that was not in the first three.

As he raised his invoices, he could then select the relevant category for the type of sale.  After that, at any time, he can run a report which summarises the sales by category. And, by doing so, he can easily see if he’s on target or not.

By adding these specific categories into your ‘Chart of Accounts’ (the list of different codes in your accounting system), we make it incredibly easy to track and measure every element of your business and its finances.

Insights into your spending and expenses

We can apply exactly the same categorisation and coding process when looking at expenditure – the cost element of your transactions, where you’re buying from suppliers, whether for resale or for use within the business.

I tend to think of expenses as having a number of main categories:

  • Sales & Marketing costs – creating awareness such as building a website, or producing flyers
  • Building or premises costs – such as rent or maintenance costs
  • Staff costs – such as payroll and bonuses
  • Office-running costs – such as utility bills or software subscriptions
  • Professional costs – such as engaging an accountant, or solicitor
  • Financial costs – such as bank repayments etc.

Within those categories, we can create subcategories to provide additional analysis as we choose. You should choose the categories. The accounts should be working for you – not just for the bank manager, and not just for the Revenue.

Some companies have one ‘big’ expense type in their accounts, while others will chose to break a category down if they think it will help understand what’s happening in the business.   For example, some companies have one category for telephone while others split the telephone cost into mobile and landline. It all depends on what’s most useful for the business. And, crucially, if you have an accounting package then it’s no additional work to simply create a new code in your Chart of Accounts and add a new expense category.

Additionally, many software packages provide a facility to group costs by job or project. While it’s easy to see how this might be useful for a construction company or a project based company, it can also be applied cleverly for other companies.

For example, I have one haulage company who use “projects” to gather the expenses for each truck. In this way, they can easily track fuel, repairs and running costs etc, by truck and can then decide which trucks need to be replaced. It might also indicate if some drivers are more fuel efficient than others.

So think about the type of business that you have and what type of information would be helpful to you in running the business. It’s probably a whole lot easier than you think to code, capture and collate this information.

Putting it all into practice

We’ve outlined how to understand your inputs and outputs, and how to turn this data into insightful reports regarding the performance of the business.

The final step is to combine your basic accounting and financial reporting with a proactive focus on your performance – a topic we’ll cover in the last blog post of this series – “putting your accounting knowledge into practice“.

If you’re looking for assistance with your reporting and business information needs, please do get in contact with us and we’ll show you the ropes.

Get in touch to arrange a meeting with the AccountsPLUS team 

Understanding the nuts and bolts of accounting: an engineering perspective

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Understanding the nuts and bolts of accounting: an engineering perspective

I was a latecomer to accounting. I first completed a degree in engineering and only moved to accounting after that.  Almost everyone who heard what I was doing told me how difficult I would find it and that I would struggle to get to grips with it, never having done it before.

However, I actually found it find quite straightforward and not nearly as daunting as I was led to believe. While there’s a lot of jargon that can be off-putting to someone new to accounting, it becomes a bit easier if you try to think of it in terms of processes with inputs and outputs, as an engineering training would encourage.

Let’s start with the inputs.

Understanding your inputs

It’s useful to start by thinking of your accounts as a database of all the various transactions that happen within your business. So the first thing to do is ask what sort of transactions go on in your business – and, funnily enough, the types of transactions are relatively common across most businesses, regardless of industry and sector.

  • Sales – every business sells something to customers. This means that we need to record our sales and we need to have customer records to track what we’re doing for each customer.
  • Purchases – The business will also buy things from suppliers. This means we need to record purchases and we need to have supplier records to track our activity with each supplier.
  • Payment and receipts – Finally, we need to receive and spend money, so we need a way to record these as money in and money out to/from the business.

That gives us three main types of transactions – sales transactions, purchase transactions, and payment/receipt transactions.

Next, we need to think about how to capture and record those transactions – creating the financial records that, ultimately, will become your accounts.

There are a number of ways of setting up and maintaining those records. You can have paper records (traditional but on the decline in the digital age), you can use Excel spreadsheets or you can buy accounting software. Unless your business is very small, it’s better to use accounting software. Most accounting packages will do what we need fairly easily. However, if the software is well designed, it can also give you a lot of other useful information that would be impossible to collate with paper files or Excel files.

Understanding your outputs

Next, we should move to focus on the outputs for the business. What sort of information do we need our accounting records to provide?

  • Business health – we need a measure of how well the business is doing and whether were actually getting a return on our investment (both time and money).
  • Financial reporting – we need reports that will prompt us when actions are necessary; i.e. when to pay a supplier, or when to chase a slow-paying customer.
  • Business performance – finally, we need information that will help us to understand what’s going on in the business and why we’re getting the results we’re seeing.

To understand how well a business is doing we need to know the ‘net worth’ of the business. The net worth is the difference between what a business has and what that business owes.  Accountants call “what a business has” the assets of the business and they call “what the business owes” the liabilities of the business. So the key report in accounting language is the ‘balance sheet’ as this lists the assets and the liabilities of the business.

The other thing you will want to understand is where the business is getting money from and where it is spending money. You probably already know that this report is the ‘profit and loss account’ (we’ll talk about this more in a future blog post). It’s the report that shows how money moves into, and out of, the business – a vital way of measuring performance.

The need for insightful information

So, we’ve explained the basic nuts and bolts of accounting for you. You now understand the importance of breaking your transactions down into the ‘inputs’ and ‘outputs’ that explain the flow of money through your business.

The next step is to start turning these financial transactions into insightful, useful business information – a topic we’ll cover in the next in this series of blogs.

If you’d like some help to understand your accounting basics, please do get in touch with us and we’ll be happy to help.

Get in touch to arrange a meeting with the AccountsPLUS team 

You’re a start-up: what are the key things you need to know about accounting?

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I’ve had several new business owners come to me over the years saying, “We’re a small start-up, but nobody tells us what we really need to know about accounts”.

If this is the situation in which you find yourself, you’ve probably gone into business because you had a great idea or a valuable skill to exploit – not to spend hours looking at numbers and spreadsheets.

And because you’re not trained in accounting, at times you haven’t ticked the right tax and compliance boxes along the way: but no one shared this with you until it was too late.

Many times it’s because you didn’t know you had to do it, or because there was simply too much information to process and understand.  Maybe you just got too focussed on developing the product or service.

However, none of those is an excuse that will carry much weight in terms of compliance – you’ll still be obliged to pay penalties, and other problems may occur down the line.

So, it’s best to get up to speed with your financial responsibilities from the beginning. Here are a few ways you can do this.

Your accounting and tax requirements

The easiest way to do this is to work with a business adviser who can explain and demystify the financial processes for you.

We’ve broken down the accounting fundamentals into three key levels, each of which will help you to not only grow and prosper your business, but stay compliant and, best of all, worry-free.

No Offences – for the brand new start-up

At the starting point, you need the absolute basics done well and the comfort of knowing you’re ticking that accounting and tax compliance boxes.

We can, of course, help you with any of these, but whether you do it alone or not,  you should have the basic information you need so that you know what has to be done, at whatever level your business operates.

Here’s what your business needs to take care of, at a minimum:

  • Register your business with the Revenue and Companies Registration Office.
  • Set up a business bank account (or multiple accounts – talk to us if you’re unsure).
  • Basic bookkeeping and invoicing.
  • Produce and file your statutory accounts.
  • File your annual tax return.
  • Review your accounts regularly, and get a report at least every quarter so you can identify potential profit improvements and cost savings

No Surprises – for when you need more control over your finances

As your start-up begins to gain customers and turn a profit (we hope!) you’ll get to a point where you need a better overview of your key numbers.

Your finances will become more complex, and you’ll want to improve the predictability of cash flow, profits and longer-term financial planning.

This is when you need to address the following:

  • Create an annual budget for the business
  • Update your annual budget on a regular basis (a full 12 months is a long time)
  • Set up metrics to measure profit, loss, and performance against those budgets
  • Get a clear overview of your cash-flow situation
  • Create forecasts of future cash flow
  • Ensure you are receiving proactive tax planning
  • Address costs and profitability at a deeper level
  • At a minimum, carry out quarterly reviews of your business and financial performance

No Regrets – for when strategic advice and long-term planning is needed

When your business becomes a more stable and established enterprise, your needs will change. Our experience is that, at this level, you’ll need the best possible advice on profit improvement, strategic planning and creating a business model that’s scalable and expandable in the future.

This is for the truly aspirational business owner. You know your business has even more potential and you don’t want to look back in the future and think ‘If only we’d done this…’ to secure that future success. So you’re willing to give it a lash and invest that little bit more to make sure you realise the full potential of your business.

At this level, you’ll need:

  • Regular monthly management accounts to keep you and your management team informed so you can make good decisions
  • A long-term strategic plan for the business, with clear goals, milestones, and budgets for each area of the company
  • A real focus on making the business efficient, systemised, scalable and ready for sustained, fast growth
  • Proactive support and advice from your business adviser to help you spot the pitfalls and grab the right opportunities.

Talk to us about improving your accounting basics

Wherever you are on your start-up journey, AccountsPLUS can help you address the accounting and tax fundamentals, and improve your control over your finances.

If you’d like to get your head around all those confusing numbers, do get in touch with us. We’d love to help your start-up become tomorrow’s success story.

Get in touch to arrange a meeting with the AccountsPLUS team 

If you  want to know what returns or filings you have to make for your business, read our post on Reporting/Return obligations.

Six elements that make an excellent finance function

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Overview from PeakAs a business advisor, I get to see a lot of different businesses and their finance functions. At one end of the spectrum, the finance function just does the basics i.e processing invoices, managing cash and preparing the core reports. At the other end of the spectrum, the finance function is a key strategic partner to the senior management – whether that be an owner-manager or a full management team. And between those two extremes, there can be a range of options.

In this article, I will set out what I consider to be the key elements that make up an excellent finance function. No matter how the finance function is structured, it is essential that the management team have access to resources to help them understand, interpret and communicate the relevant data needed to support them in keeping the business on track.

In my experience, there are 6 key elements that come together to create an excellent finance function.

The elements

  1. A foundation made up of the core finance systems
  2. Insightful data that can be analysed as needed
  3. An excellent understanding of the business
  4. Outstanding Influencing Skills
  5. A supportive attitude
  6. Responding Resourcefully

1. The Foundation – Core Systems

Firstly, the basics must be in place and must work unnoticed. There will be appropriate systems that process the transactions – sales invoices, purchase invoices, receipts and payments – smoothly and efficiently. Key controls must operate to secure the assets of the business. The basic reports must be readily available within short timeframes. Essentially, we are looking at a lean operation – delivering what the customers of the function need with minimal intervention.

The one thing that can be guaranteed to cause the users of financial information to lose confidence is if the basic information is not reliable.

Pillar 1 – Insightful data designed to deliver required information

Next, consideration should be given to the type of information and analysis that will be useful. The systems should be designed to collect relevant data and be able to report easily on the data. Management should have considered what type of analysis will be required and the finance systems should be designed to capture that key information when the core transactions are being created so that the reports are available with minimal extra manipulation.

For example, if a distribution company has a goal of maintaining its sales to multiples while significantly growing its sales to independents, I would expect to be able to be able to quickly pull reports that show how sales are split between multiples and independents. To do that, each customer will be categorised and then finance can easily run a report showing sales by customer category.

Pillar 2 – Understanding the business

An excellent CFO will have a very good understanding of the business and will be always aware of what is happening. To be able to evaluate how events will impact on the profitability and on cash flow, the CFO will intuitively understand the relationships within the business.

For example, if sales in the business are switching from high labour products to low labour products, the CFO will have a sense of the impact of this and this would likely trigger an analysis of the specific impact on headcount enabling the business to respond proactively.

To develop this awareness, the CFO will spend time walking around the business understanding what happens within the business and talking to key people whether that be operators or management. This CFO will have good relationships with the other managers and will keep himself or herself informed of what is going on in the business. I would expect the CFO to run projections a several times a year and then to compare the projections with the outcomes. In this way the CFO will be testing and developing his/her understanding of the business.

Pillar 3 – Outstanding Influence Skills

The third pillar for an excellent finance function is to be able to influence key people. These key people can be management colleagues, direct reports, funders, customers or suppliers. To be a key influencer you must know what is important to the audience and you must be able to communicate simply and clearly.

Pillar 4 – A Supportive Attitude

A great CFO will understand that Finance is a support function and that its role is to help operations and the other departments to deliver the product or service. Because everyone will not have financial acumen, the CFO will be alert for opportunities to help the other functions and to use finance constructively for the benefit of the business.

It is also important to be able to nurture that attitude throughout the finance staff. The CFO can’t do everything and needs to have a like-minded team around him or her so that the CFO can delegate well while focusing on what’s important. This is done by hiring well, by managing well and by being an excellent role model for how an excellent finance professional operates.

The Roof – Responding Resourcefully

When a finance function has the basics right, curates key information, understands the business, operates supportively and is a key influencer, the function can then respond resourcefully for the business by evaluating the events that are happening so that opportunities can be grasped and problems can be anticipated.

It’s probably true to say that for a really great CFO, technical ability is less important than the CFO’s ability to influence strategic discussions with useful analysis of timely, relevant and accurate data. This ability comes from understanding how the business works, understanding what’s important to the business and to the management colleagues and then being able to use that understanding to make a difference to how the business addresses the key issues that it faces.

Conclusion

Having read this article, what are the elements you need to focus on in order to improve your finance function? Why not rate each element as it is in your organisation. Then prioritise the elements you need to work on, preparing a one-page plan with attachments around specific action plans if required.

If you need help developing your one page action plan, feel free to contact me.

Getting on top of your to-do’s

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I was talking recently with a friend who commented that he doesn’t feel that he is achieving enough. He sat down at the start of the year and made a list of all the things he wanted to get done. This list included ideas for 2 new products and improving his skills. He is half way through the year and he realises he has made about 20% progress.

We talked through the list and his approach to completing the tasks. As we spoke, I made a number of suggestions to him about how he could improve. I think these suggestions will apply to many people so today’s blog post is focussing on tips for improving success at getting on top of your
to-dos.

1. Review how you are spending your time.

The key questions here include

  1. are you working on the important stuff. Stephen Coveys Urgent/Important Matrix is helpful here?
  2. are you doing stuff that would be better done by someone else eg admin tasks?
  3. are you working effectively – do you stop/start items; do you do match your work to the time of the day?

2. Prioritise

I often quote Jim Collins’ phrase “if you have more than 3 priorities, you have none.” The key thing is to identify for top three priorities for now. You should set these for a reasonable horizon – 8 to 12 weeks is a good timeframe. However, it depends on the size of your priorities. Maybe you need to break them down into bite size chunks. So if you have a large project, break it down into elements and decide what elements you want to achieve in the next 8-12 weeks.

3. Work a system

There are a lot of suggestions for systems out there – many of them quite complicated. But they all have a few key components.

  1. Declutter your head – dump all to-dos out of your head and onto paper or some system. Update the dumped list weekly. It can be useful to use a notebook or an app to record new ideas as they occur and save them for processing later. Your list will contain everything and will be big – essentials, nice to dos, sometime items etc. You can sort and process those later. For now, just record them.
  2. Identify your overall priorities for your selected time period keeping in mind that you will have no more than 3 priorities. You will still have day to day things to get done but they tend to look after themselves.
  3. On a weekly basis, schedule your week to allow time to work on your priorities while spending time on your other routine but necessary activities. You may want to work on your priorities for a little time every day or it may make more sense to block out a large amount of time on a single day to work on them. Decide on that at the start of your week. Decide what you really need or want to go done and schedule that. If you haven’t enough time for them all, decide on the priorities and consider if you can outsource etc.
  4. On a daily basis, schedule your day so that you make time for your priorities. Your day will be made up of meetings and calls and work on specific projects. Schedule your day so that you get to work on those tasks at the most appropriate/productive time for you.
  5. Mark off as complete the things you get done. This makes your progress visible and gives a great sense of satisfaction. Review your day and learn from it. Did you achieve all you wanted to achieve? If not, what should you have done differently?

This system can be made to work for you. You won’t stick to it all the time at the start. There will be time when something pops up that sucks you in but as you review the progress you are making with the system and you realise that working the system gets more done, you will find it easier and more natural to adhere to it.

Have you any comments on the above. It would be interesting to hear your comments and to develop a pool of best practice ideas/suggestions.

If you have any questions on this feel free to email me at jim(at)accountsplus(dot)ie.

10 Tips to get the most from Social Media in your business

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This blog post comes from Mindshop colleague, Fergal Coleman. Now based in Australia, Fergal has strong Galway connections. His family came from Galway, he worked for CK Electronics for a couple of years and he played for Galway United for a period. Fergal has a IT and Strategy consultancy in Melbourne Symphony3 www.symphony3.com. Over to Fergal –

“What is Social Media?

In simple terms, social media describes the tools people are using to share text, video, images and information online and the networks they are using to connect with each other. It’s the evolution of the internet from a broadcast medium to a massive online conversation where free, easy to use tools, available 24/7, give users the ability to share and spread information (both good and bad) quicker than any other communication channel.

The feeling in the business world about social media tends to be polarised between those who think it’s an enormous waste of time and those who are embracing it in full. Organisations who choose to ignore social media risk being left behind completely, alienating internet savvy customers and future employees in the process. Organisations that jump without strategic thought will waste a lot of time because they have no overall plan and are caught up with the different forms of social media available. Those organisations that have a clear, strategic social media plan will gain enormous competitive advantage by using the right tools to suit their business and target market. While the Social Media tools are simple, aligning them with the organisation can be complex.

Here are 10 tips to consider when developing the social media strategy for your organisation:

1. Use Social Media internally first – Start using social media tools internally to improve communication between team members and your best customers. Collaboration tools include: Wikis, Basecamp HQ, Central Desktop, and Sharepoint. Meeting tools include: Gotomeeting, Webex and Skype. Instant Messaging tools include: MSN, Gmail chat. Cloud computing tools include: Google Apps. Internal social network tools include: Yammer and Salesforce Chatter.

2. Set the ground-rules – Write a social media policy for yourself, your employees and where appropriate for customers and partners. Even if your organisation is not officially using social media, chances are your employees are using social media at work so you need a policy. The policy can be short, but should clearly outline how employees should behave online, what they should and shouldn’t say. You may also need a response guide outlining how you will respond to good and bad comments about your organisation online.

3. Start Listening – Social Media is best described as a series of online conversations. Just like in normal life good conversationalists are great listeners. Listen to what the leading organisations in your field are doing, listen to what your customers are saying online, keep up-to-date with industry blogs. Luckily there are a myriad of tools available to listen including Google Alerts, Socialmention.com, LinkedIn groups, Twitter search and OpenFacebook Search.

4. Identify your target market – As with any communication plan you need to know exactly who you are targeting? Where are they online? How do they communicate? What are they doing online? Why will they listen to and eventually buy from you? You will already know a lot of this about your existing customers. Often sending out a well-structured survey on surveymonkey.com will provide you with more clues as to where and what you should be communicating. Combine this with point 3 and you are on your way.

5. Start responding – When you have listened and understand what people are saying and where they are saying it, start responding on specific industry blogs, joining Twitter discussions, commenting on Youtube, and slideshare.net or starting discussions on LinkedIn. This will give you an understanding of the tone and topics that interest and engage people, and you will start to get noticed by the online influencers in your industry.

6. Create your own initiatives and get others involved – You’ve done the research, now dive in! Choose your tools and set up your initiatives. You will by now have a feel for which tools, initiatives and type of content best suit your customers. It could be blogs, discussion forums, linkedin, facebook, slideshare etc etc. Focus on spreading the content that adds the most value to your target market. Ask customers, partners and others that can add further value to contribute a guest post or video. This fosters community and adds value to the people who visit your online community.

7. Measure – Everything online is measureable. Regularly check your analytics to see what is working and not working. Are you achieving your KPIs? Keep doing more of what’s working. If something’s not working change it or stop doing it. See next point.

8. Fail fast – Social media tools are free and quick to set up. The most wasted resource will be the time of you and your team. Once you have a plan for a tool set it up and test it. Find out how much value it can add as quickly as you can. Measure carefully and try different tactics.If it’s not working move on.

9. Syndicate – Connect up the various social media tools so that you only have to create a message once and promote it via all your social media tools and networks. Tools like Hootsuite, Ping.fm, Bit.ly, Tweetdeck and Postling enable you to do this automatically. This ensures you get your message your target audience in multiple places, with little additional effort.

10. Train and educate – Train your team to use the Social Media tools you decide best suit your target market. Train your partners and customers on these tools so they understand how to get the best from the information and value you provide. Oh and finally, train and educate them again, and again and again.

For more info or to contribute your thoughts and case studies on social media visit http://symphony3.centraldesktop.com/framework/”

If you have any comments or questions on this post, feel free to contact me by email jim(at)accountsplus.ie or phone, 086 2323525.

PDCA or PDSA – What’s the difference?

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I have been thinking recently about PDCA and PDSA.

When I first encountered Business Improvement Theory I learned about the Deming or Shewhart Cycle – usually referred to as PDCA. This is short for Plan-Do-Check-Act. As I understand it, Shewhart first came up with the concept but Deming popularised it.

The theory behind it says that when working on an improvement initiative, we should follow these steps.

Firstly, Plan the action or improvement.

Then, we should implement the plan (D), preferably on a small scale first

Next, we Check how the results compared with expections

Finally, we should Act ie decide whether to adopt the plan, abandon the plan or redo the plan with some change.

In the early days, we talked about PDCA a lot. As time passed, the name of the cycle gradually changed to PDSA where S stands for Study. So the phrase became Plan-Do-Study-Act. I didn’t really know why this happened but PDCA changed to PDSA.

More recently again, I notice that the literature I am working with is referring to PDCA rather than PDSA.

This got me thinking about the differences between the two.

My gut instinct is that I prefer PDSA. The best organisations will extract as much learning as possible from everything they do. PDCA doesn’t capture that philosophy as well as PDSA. For me, Check implies a Yes-No response but Study implies a much richer review or analysis of what happened with a view to learning as much as possible from the exercise. Study also implies that you could glean a lot from something that has not worked as expected, whereas PDCA doesn’t suggest that as much. I think the third step should be about more than just a check to see if you got what you expected.

For those reasons, I am happier thinking about it as PDSA rather than PDCA. Have you any thoughts? If you have send post a comment or send me an email to jim(at)accountsplus(dot)com.