The Language of Business re Finances

You can't manage what you don't measure. Numbers can be magical or plain boring, it is all in the perspective. Changing perspectives can happen when a true insight to the exponetial value of knowing your numbers happens. Just talking about such things as revenue, expenses, cash flow, profit, return on investment, and other measures, can be a little overwhelming if you are not familiar with the benefits provided of simply investing a section of your time to prepare and interpret these better. Technically, these numbers reveal strengths and weaknesses, performance trends, break-even points, and other intelligence for decision-making and problem-solving. All of that sounds dandy, but what knowing your numbers really means, in the big picture, is whether you get to stay in business or not, and for how long. More poignantly, whether staying in business is to your advantage financially, emotionally and physically. When a great majority earn less than $50,000 Australian dollars take home income annually, while working sometimes one hundred hours on average a week, there is a time to stop and evaluate how to make all your efforts worth your while and not continue in a hobby existence only.

The true purpose of starting a business might be to follow a passion, to be your own boss, to have greater flexibility to spend more quality time with those you most care about, ultimately to improve your lifestyle. Perhaps, you decided it was time to be self employed, or simply because you happened to come across a niche in the market or a deal that seemed too good to go past, and you decided to step out of your comfort zone and go for it. Well done, it takes brave souls to take a leap of faith, being the soul of what makes our world tick. What is often missed in the process, of the dizzying race of a start up, is the need to keep the business afloat and not go backwards in your financial affairs, which in turn does not help achieve the goals you originally began to aim for. It can't be all about the money either though, or burnout will be a concern very early. Navigating the pitfalls of being an entrepreneur is the challenging part, but it doesn't have to be about walking a tightrope type adreneline to reach your targets.

It is common for business owners to avoid learning about the most fundamental aspect of their business - the numbers. When you build a wall, it is only as solid as the foundation. The numbers of your business are the main indicator of how well your business is progressing. It is easy to only focus on what sales are being made and avoid the nitty gritty, only to be caught in a constant state of flux every time the bills start rolling in and battling to find the funds to meet them on time, ideally without penalty. A good majority of business owners do not have financial literacy as a background, and it can seem like even more steep learning curves to be challenged by. When there is already so much to take on and prepare, the list seems endless. We get it, truly, as who really enjoys sitting and crunching numbers, right, except a select few?

It is a bit like knowing the dishes have to be done in the daily grind to keep up with the house chores, a necessary part of achieving a means to an end to have a tidy home, and to be able to keep functioning well. And who likes doing dishes? Maybe some, undoubtedly. Upon completion there is always that small sigh of relief though. Cooking can be fun, but dishes not so much. All the more reason why routine matters, where you don't even think about doing dishes, they just get done, because it is a necessity in every home. Attending to the accounts for your business requires a similar approach. It is no good just putting it off until you 'feel like it'. This will just cause the work to fester and risk missing key dates to pay. Planning your accounts day by day, week by week, month by month and knowing your annual expectations vs your capabilities, at any one point, can allow you to prepare to meet set down wants and desires for your business to achieve. Rather than just dream about it and find you are never reaching the benchmark, causing you to lose momentum and motivation, you can instead feel confident to actually hit, and possibly exceed even your wildest dreams, simply through knowing what has to be done to reach the preferred mark. You do not need to limit your dreams, merely plan them more efficiently, beginning with your accounts being in order.

Once the books are up to date regularly, you can focus not only on compliance accounts (mere record keeping, to be in alignment with taxation responsibilities and to understand when your bills are due and for what amounts), but to be able to forward plan. Actually know how many sales are required at a set pricing level to make the mark to initially break even and recoup on your investment, and to ideally make a sustainable profit - one where the business is not the only winner, but it's owner is also. As mentioned previously to a small degree, it is re-emphasised here that from some 2.2 million small to medium businesses in Australia as at 2018 , over 60% take home less than a $50,000 gross wage to support themselves, their families and to try and keep going to operate a business. Reflected in ATO records showing that small businesses often have net income well below the average Australian wage according to (https://www.asbfeo.gov.au/sites/default/files/documents/ASBFEO-small-business-counts2019.pdf). Decide which side of the statistics you want to be on. It is difficult to maintain a business if you are not creating enough income for yourself to not just survive, but flourish by. Keep the focus of why you commenced in business in the first place, to be sustainable has to be at the core, not just the presumed flexibility and ego of being an entrepreneur, which is all too often the case, as people can so easily let their finances, health and relationships falter in the battle to make everything gel to merely keep the image going of being in business. You matter, your health matters, your relationships matter and your dreams matter, so finances have to matter every day, not just when the bills roll in and not just to keep up with taxation demands. You began in business to be successful and happy. What that means is up to you, but it all begins with knowing the fundamentals of how finances interlink with the rest of your business and personal goals. The time to enjoy life is now, not in 30 years after working your life away for yourself or someone else. True freedom comes from feeling and knowing you are secure. That takes effort, but it gets easier over time.

Knowing what the right pricing strategy and sales plan is can make a significant difference in your sale, profit and owner income outcomes. Under pricing is equally as dangerous as overpricing. You need to know your market, your competition and what goal you have is you choose to price low, as more sales are needed and a marketing and system to cater for such, in order to know how many sales will be needed to break even and what targets need to be reached to make a sustainable profit for the period you are in. If you are pricing too high, you could price yourself out of the market, unless you can clearly express in communicating with your target market the value you offer compared to other market choices. Either way, you need to be sure your margins are correct to create an income and the purpose of each service/product in contributing to the end strategy of making a profit. Too many times business owners do not keep track of what amount they are making, compared to what they need to be making and how to go about doing that effectively. Setting up a sales plan requires calculating the benchmarks just discussed and evaluating what is realistic for the time frames you have, the service capability and the marketing budget reach you can achieve.

As you would have learnt by now, profit and owner income are quite separate, although in some ways related. Confusing the two can create difficulties. Individual tax returns for sole traders often reveal a nett profit, which you are required to deem as income of perhaps $85,000 from a $250,000 annual turnover, with no employees. However, if you were going to employ an apprentice or a staff member to focus on administration tasks, freeing you to focus on creating more sales or a sales person to assist you to have more availability to tend to doing the core work of the business, you would need to be sure you are going to have the availability to train and keep check the standard and quantity of work is reasonable from a quality assurance point of view. While, also cross referencing the needs of the employee are being met fairly, ensuring there is enough increase in sales to make the employment viable for the business. This may initially mean the overall profit decreases, affecting the owners take home income, before you see a turn around in the increased sales.

Growth can be complex and working on your own has very different dynamics in operation to aiming for economies of scale providing you with the take home benefits in the early stages of efforts to grow. It is an investment and requires carefully strategised moves to make sure you can hold the line while adding an increased workload to your day, physically and financially. After you have personal tax deducted from an $85,000 income, it can equate to approximately $1,000 income weekly net, dependent on your tax rate. You need to remember you are not receiving overtime rates and you have to calculate what super you should be accounting for from this amount, as a sole operator is not an employee of the business. If you are registered as a company and choose to take a wage, you may have responsibilities to pay superannuation at a determined rate set down by the relevant authorities, so it would be wise to check with your business lawyer, accountant and/or authorities.

The time to become accustomed with your account keeping capacity, whether you have a book keeper attend to same or not, is now. You need an executive view of your accounts if you are to plan. This requires you to know where your accounts are at during any part of a day, week, month etc. If you have an option to make a decision to pay an account early to receive a discount or buy an asset for the company that goes on sale unexpectantly, or you learn of a new innovative deal you could utilise to boost your outcomes then you want to be able to capitalise on the moment with a clear head that you do not need to take away from other plans and finances, leaving yourself short or that you need to consider financing a deal irrationally, taking on higher interest rates and the like, either or affecting your cashflow. By having access at your fingertips in an app you can sign into easily on your mobile, rather than having to be at or signing into your desktop/laptop, regarding an accounting program like Xero, Quickbooks, MYOB and a range of others, you should be able to view what your Balance Sheet looks like, being your Assets and Liabilities - what you own in cash and assets, tangible and intangible, versus what you owe short term accounts payable and long term loans.

With flicking over to your cashflow forecast statement you can learn how to make an assessment on the spot whether you expect to have enough cashflow to cover the necessary expenses, variable and fixed, as well as the current investment you want to make, without leaving yourself short. Your Income Statement or Profit and Loss Statement is affected by these decisions as well, so having a clear interpretation of how is paramount to effect a decision that is clear and going to be the best option under the circumstances. This is just accounting 101. There are a lot of added pieces to the calculating puzzle to keep your finger on the pulse of your business to flow, but becoming more engaged with this area does not require you to complete degree level studies, but going to your systems support videos can be most useful, and Youtube can be provide added insights.

If you would like to know more, feel free to contact our office to plan a scheduled time to provide a free 30 minute no obligation consult, via phone, to help answer your queries and empower you with a clearer direction to how to grow your business sustainably.

Saisir 0457 563 699