I had breakfast the other morning with Scott Kilmartin of Haul. I like talking to Scott about the retail market because he has both heaps of experience, and quality insight. Scott felt that the small independent retailer was absolutely on the wane at the moment and on June 30th a lot of accountants would be advising their clients to shut up shop. This isn’t because unique offerings aren’t palatable to a jaded market place, its because most small independent retailers haven’t moved with the times and willingly embraced social, technological and commercial landscape changes. For instance, any shop that thinks that just having a Facebook page is a social media strategy is almost certain to die.
Anyway this got us sidetracked onto accounts, finance meetings and what Accountants were useful for. Scott, as the proprietor of a retail business, is fairly typical in what he does. He doesn’t look at his accounts that often if he has money in the bank, he meets his Accountant once a year to discuss tax returns and the idea of having a finance meeting by himself just seems a bit silly.
So I tried to give Scott some practical advice.
- If your accounts aren’t useful for decision making, change them so they are. The list of accounts on your Balance Sheet and Profit & Loss is called the “Chart of Accounts” and you can change them to whatever you want for your own reports. Eg I like to split out landline , mobile and internet phone calls, rather than have and expense called telephone.
- Try meeting with your Accountant 4 times a year and ask him to offer proactive advice, not just reactive advice on your tax. You may be surprised what he come up with, and if he comes up with nothing, fire him and get a new one.
- Have regular finance meetings. If you have staff, get a senior staff member at the table. You may also like to have an advisor, bookkeeper or your accountant there.
I like finance meetings in small businesses, they really highlight what’s going on in the business and the places you need to focus to become more profitable. Some of the topics you can cover are:
- Building a budget – so you don’t end up spending more money than you earn. Especially tricky are the costs that only crystallise once or twice year, but are being generated silently all the time, such as leave loadings or car servicing. Depreciation is a good example of this.
- Comparison your actuals to your budget and determine an action plan to address the variances.
- Build some simple financial policies such as “what should your working capital be?” My position is that for most small businesses – 3 months expenses is a nice starting point for discussions. Another policy could be “how much profit should you distribute and how much should you reinvest?” of “If you have excess cash at bank, how should you invest it?”.
- And finally, a personal favourite, work through a couple of expense line items each meeting, to determine whether they are still valid. You would be surprised how often expenses either get reduced or vanish when you put them under the microscope.
So if you don’t intend to put some finance meeting in the diary for this financial year, I reckon it may be worthwhile asking yourself “do I intend to be around next financial year”.