What do SMEs most commonly get wrong when managing their finances? If you said taxes, you’d be wrong…
Speaking on the My Business Podcast, accountant Alexander Laureti of Sydney-based LMS Advisory says there are three key mistakes many SMEs make in relation to their finances. Yet each of these can be addressed if they are given due consideration.
1. Keep the cash flowing
“When you start off in business, you don't necessarily ... [realise] that just because you've performed a service for a customer, or you've sold them a product, doesn't necessarily mean that you're going to get paid instantly,” he says.
“Meanwhile your business has working capital needs week by week, month by month, and you're going to have people that are calling out for money from you immediately, but you might not be paid for 30 days, [or] 60 days on some occasions.
“For smaller businesses or for people who are selling a product, you still have the same capital requirements: you need to get your stock levels up, you need to basically have enough product there to meet the demand and decide if you have an advertising budget.”
For this reason, Mr Laureti says budgeting is crucial to ongoing success. And this can be done either on your own or with the guidance of your accountant.
2. Get better at keeping records
It may sound basic, but poor record-keeping can be problematic, says Mr Laureti. And the main cause of poor records is putting them aside to worry about later.
“Even just from the pure, simple fact of saying, ‘My business needs an operational bank account. I might need a business credit card. I might need to open up credit terms with certain suppliers for the people that I'm working with’. I think that not having planned that from the start, and not having put systems in place to keep control of that, I think that can be a real challenge for a business if you need to pick that up four months down the track when you're already in full swing,” he says.
“Once you start, it's only going to get busier if you're doing the right things, so you can't put aside [record-keeping] and come back to it later. It's really something that you … allocate some time to this to do it right and to do it properly, so then it doesn't catch you by surprise later.”
3. Relationships matter
While it may not sound directly finance-related, Mr Laureti says focusing on key relationships – be they customer, staff, suppliers or stakeholders – will always be of benefit to your bottom line.
“I think it requires you to grow a thicker skin and be a little bit tougher than what you might normally be used to when you're just an employee,” he says.
“[One] of the challenges that businesses will face is the first person that calls them up and says, ‘Well I can't pay you based upon the invoice terms that you've got. I need an extra amount of time to pay’. You'll have to hear that story of why they can't pay you. Them paying you on time is so important, because you need that money in your bank to pay whoever it is that you have to pay.
It is equally important to manage internal relations, he adds.
“Dealing with staff, you're coming from a different perspective, where before you sympathise with everybody who wants to take a longer lunch break, or they're not feeling well. From being a business owner, dealing with staff and having to sign leave forms and worry about if people are going to turn up and are they going to be there to be relied upon, it requires you to be a little bit tougher on people, that you've got to draw that fine line between being 'tough boss' and fair,” advises Mr Laureti.
“I think that no matter who you're dealing with, you've got to realise that that business is there to provide for you and for your families, whoever it is, and potentially the families of all your staff as well.”
For more insights into managing your business finances, check out Mr Laureti on the My Business Podcast now!