Too many New Zealand business people are missing the potential to grow their business by not learning to understand what their numbers are telling them.
With the proliferation of cloud-based financial software programmes available, business owners and managers can do more of their bookkeeping themselves. And while it makes life easier when it comes to GST, there’s much more to be gained from having this real-time information at their fingertips.
But you say, I don’t need to know, I leave it to my accountant to tell me at the end of the year? Or, I’m not good at math. Or, I’m too busy working in my business. Or, I just don’t understand what it all means. Or maybe it’s a combination of all these.
Working together to make sense of the numbers
You’re not alone if you have these reservations. As accountants we are constantly working with clients to help them gain a better understanding and to remove the mystery of the financial information they have available to them.
Educating business owners to understand the general principles of financial statements and what information can be revealed is part of our role. This can be achieved through one or a few educational sessions, or on an ongoing basis as part of regular reviews that builds up knowledge over time.
We recommend that business people have regular meetings (say three monthly) where we investigate the numbers to see what they are saying specifically about their business. What is being accomplished, what is on track and if things aren’t, what changes need to be made.
Budgets and business plans to shine a light
For review sessions to be effective, it is essential that there is a yardstick to measure performance against. A budget or business plan, and ideally both, are necessary. If you don’t know what you are aiming for, how can you know if your numbers are good, bad or on track?
So, it’s important that at any regular session, we can identify the variances and determine what the impacts are. For instance, if you’re doing better than expected, there will likely be tax implications. What are these and how do you prepare to have funds to pay these? If it’s worse than expected, how will this impact on your cash flow? What changes can you make now so that in two quarters’ time you’ve got sufficient cash to meet your commitments?
It’s also an opportunity to look forward by looking backwards. Compare this period’s performance against previous. For instance, what’s happening to your gross profit percentage? If there is a variance, what could be causing it? Are you not buying as well? Is there an issue with your inventory systems? Is there theft occurring? Do you need to adjust your margins to improve your profitability?
You can’t begin to answer these questions without relevant information, and the work you’re already doing on your cloud-based software means that data is likely to be sitting at your fingertips ready for exploration.
Developing business acumen
For those newer in business, your regular sessions can identify the impacts of tweaks and changes to what you’re doing. Change your charge out rates, your margins, or other factors and learn what the implications of these decisions would be. By regular close monitoring, you can change tack or implement further modifications. It’s an ideal way to grow as a business person, cementing your business management acumen.
You understand your business far better than anyone else. With the ability to appreciate the financials, and the guidance of your accountant as a business advisor, you can translate the numbers into timely actions that will help your business grow and thrive.
Getting more from your investment and time spent entering your data into accounting software is as simple as getting in touch with your business advisor and setting up regular meetings. Contact your Moore Markhams advisor here.
Prepared by Bruce Stormer, a Moore Markhams director. Bruce has a keen interest in working with business owners to help them achieve their goals, providing financial management advice and working as a business coach for many clients. He is regularly invited to present his 10 Buckets presentation that graphically demonstrates how profit is made up – you can watch the video below.