New financial year - time to get your house in order?

on Thursday, 28 February 2013. Posted in Accounting, Consulting, System Implementation

Follow up on the Small Business Sins series - Implementing a business system

New financial year - time to get your house in order?

We are entering a new financial year for the majority of small business owners and individuals. In follow up to my previous blog regarding the small business sins, I believe a new financial year is a great time to start fresh.

For the majority of small business owners, time and money is a scarce resource. Hence implementing a proper structure and system is not at the top of their priority list. Most only spend some resources on complying with statutory obligations for SARS and CIPC, because they have to do so by law.

There are some profound underlying changes that occur when you get your house in order, but for now let’s focus on some of the more obvious ones. The typical small business owner does not want to spend time on creating a structure for their business because they perceive this as a waste of time. The reason they believe it is a waste is that they think they should rather spend their time on making more sales or getting more clients or to just do what they have to do to survive.

Make no mistake, the majority of small business owners work very hard and it is understandable that they may make this critical error in underestimating the value of order because they focus on daily survival. However order is essential for creating spare time in the future. It may seem the other way around at first when you are implementing a new system, but be sure if it is a solid logic system, you will reap the benefit in saving time in the future.

Once you reach the stage where your system takes on maturity and start running on its own, you will be able to start breathing more and returning to your original role of business strategist rather than operational slave. Remember that time when you started your business, your thoughts were occupied with questions such as what will work? What if I change this? How will this influence that? Now you have become operationally enslaved with questions such as: What time do I have to be there? How am I going to remember to do that? When do I have to pay this? What type of part did he want? What was it Mrs Jones ordered? How can he say that is bad service?

How do you ever want to grow without order as a foundation?

Is it time to get your house in order?

The operational trap for Small businesses

on Tuesday, 19 February 2013. Posted in Accounting, System Implementation

The operational trap for Small businesses

I believe the majority of small businesses struggle because they are obsessively focussed on operations and seldom care about words such as administration, systems, structure, controls, data analysis, customer relationship management, budgeting, financial reporting, professionalism, technological advancement, strategic planning …. They just don't have time for all this. They believe this is for bigger businesses. Let's call this Small Business Sins (SBS).

I believe this is what keeping them from becoming a bigger business.

Let's look at an example regarding one of the neglected areas mentioned above, take accounting systems:

A solid business structure and system is crucial for growth and for efficient operations. Without a solid accounting system it is impossible to obtain an accurate reflection of your financial position. Without a reflection of your position you will not be able to make informed decisions. You will not even be able to separate a good month from a bad one. Small business owners tend to over rely on feel and would be quick to defend themselves in saying that I know exactly what is going on in my business. Have you processed your latest trip to Mr Roux, the 20km you travelled to do a job of R 200? Let's say you drive a petrol vehicle with a 1400cc engine which you bought in 2011 at a cost of R 140 000 in your personal name. Your actual cost per kilometre (including fixed cost, maintenance and running costs) will be close to R 4 per kilometre. Thus your cost for the trip was R80. So the profit of R200 that you thought you made suddenly dropped by 40%.

If you have processed this trip on your accounting system you would also have been able to have clear records of your trips. Since the car was bought in your personal name you would have been able to deduct the full R 80 from taxable income. Let's say your effective tax rate is 20% this would have entailed another saving of R 16 on your tax. Not allot? If you were to make two trips a day to a customer on each business day of the week you would save R 8 320 for the year.

So the R2 000 you saved by not implementing a proper accounting system was not that big saving?

We will discuss another example from the list of SBSs in a future blog. Feel free to comment.