A survey of over 250 business owners revealed an alarming statistic — 25 per cent of those surveyed said they turned to friends and family to ask for advice on how they could make and save money in their business.
While chewing the business fat over a BBQ with your friends may give you a few simplistic insights into your own business, it’s no substitute for the expert advice a bookkeeper can provide.
Working with thousands of business owners across the country, one thing is clear financial literacy is not as high as it should be. Many business owners commence a new business with little financial knowledge, and once their business is up and running, they often have minimal free time to catch up.
Fast forward several years and if they have been lucky or smart enough, they have a bookkeeper who has taken care of the financial side of their business while they have been spending time establishing it.
But it’s often at this point when the wheels start to come off. Small business owners can find themselves in the position of not knowing the right questions to ask their bookkeeper, but also being afraid to ask anything for fear of appearing financially illiterate.
Knowing the right questions to ask your bookkeeper is the first step in skilling yourself in financial matters that are important to your business. Here are some of the key things you should be regularly asking to manage your business finances better:
Question #1: Is my business profitable?
It sounds simple, but many business owners don’t even realise whether they are profitable, because they don’t really understand their bookkeeping records and how they can use them to forecast for coming financial years.
Business owners should be asking their bookkeeper about the financial trends of their business from year to year. Factors such as staffing costs and things that might have been out of the ordinary for a particular year, like a high-profit-generating client or project, need to be considered when making comparisons between financial years.
Results from First Class Accounts’ survey of business owners revealed that maintaining cash flow was one of the top three challenges for those surveyed. Knowing how to correctly compare your business performance from year-to-year can help you plan to have sufficient cash flow during the leaner months or years.
Question #2: How much am I spending on wages?
It’s a question that often goes unasked, but business owners should know how their wage costs are tracking.
Wages are a major component of business costs in Australia, and business owners need to know whether the wages they are paying are tracking at a reasonable percentage of their overall business income.
Benchmarks for wage costs differ depending on the type of business you operate. Within the production industry, for example, wages are a direct cost to the sales generated and the ballpark benchmark for this industry is 3 per cent of income generated.
Question #3: How can I grow my customer base?
Those business owners surveyed by First Class Accounts cited new business generation as the most challenging part of running their business. Business owners should be tapping into the insight bookkeepers have about their business, and asking them about systems and procedures that can help them streamline their business, in order to help grow their customer base.
If you are using cloud-based accounting software, you can integrate customer relationship management (CRM) and job management software packages that will give you an insight into your current customer base. For example, what and how much they buy from you, how often and why you are contacting them (are you contacting them to provide customer service or chase up unpaid invoices?). This also gives you a solid base for planning marketing initiatives to grow your business.
Question #4: How can I improve my financial literacy?
This is all about having an honest conversation with your bookkeeper. In order for them to tailor information to your individual level of financial knowledge and business needs, you must be honest about what you do and don’t know, and what you need to know.
For some business owners, knowing who their top customers are is important. For others, advice about things like reducing their overheads may be critical. Let your bookkeeper know what kind of information you need to help you understand your business more thoroughly.
The bottom line is that financial illiteracy will ultimately impact the performance of your business. You’re paying for the services of your bookkeeper, so use them to your full advantage.
Negotiate the type of service relationship you want to have with them. While a traditional per hour contract may work for some businesses, others may benefit from a monthly package which allows them to know how much it will cost upfront, gives them access to their bookkeeper throughout the month and can include a monthly session to go through the financial reports.
Victoria Wilkinson is the owner of a First Class Accounts bookkeeping franchise, based in Brisbane. She has operated her own business for over 12 years.