It should never be underestimated how important good financial reporting systems are. It has a huge impact on a whole raft of business issues. Yet somehow for many it is largely neglected. Often it’s cast aside because it’s too hard, can't be bothered doing it late at night, takes up too much time etc. The whole function for many small businesses is down played as not important enough. From my perspective seeing many businesses, both successes and failures, the best decisions are based on the best data. It's unfortunate but I have seen it more than enough times of decisions being made on poor financial data which more often than not ends in trouble. Think about the potential list of issues you have to deal with that this data relies on.
- Simple ATO compliance with Business Activity Statements, GST, PAYG Withholding, year-end income tax returns and the cost in meeting your obligations.
- Finance applications whether it be for equipment finance, refinancing loans, buying another business, home loans etc.
- Bank reporting covenants.
- Determining Trading Performance, cash flow monitoring etc
- Business valuations and sale of your business together with the associated due diligence scrutiny.
The list goes on and on. It's a fact the critical element common in most businesses that struggle financially is poor financial records. I see it time and time again. Of course that combined with gross ignorance and inept management. As I say "garbage in, garbage out." How can you make important financial decisions if you have no reliable information on which to base your decision on? Sadly it happens all too often.
But really it's not all that hard. The financial processes are relatively simple. And your accountant, who should know this stuff back to front, are only too happy to help and give you some direction. They don't want to trawl through your rubbish. It's not only extremely costly for you in terms of accounting costs, but you end up becoming unprofitable for them too. Subsequently, if you don't make the changes required your account becomes more difficult to handle and cost pressures start building. So be smart, be humble, and ask for help. Although I must point out the failings of today's technology and education systems is that most recently graduated accountants do not fully understand basic bookkeeping systems. Sad as it is, young accountants have to learn this stuff from scratch after they graduate.
So for business owners, here are some tips for how to improve your financial systems.
- Be humble and be honest with yourself. We aren't good at everything. We have different skill sets and sometimes bookkeeping isn't one of them. Don't kid yourself. Call your accountant and ask for a referral to a good bookkeeper. Note here, go for quality, don't skimp by going for someone who used to do some bookkeeping for a mate as a favour. Again it will cost you buckets. Get a proper bookkeeper who knows their stuff. Yes it will cost more, but don't think of it that way. Think about how much it will save you in accounting compliance costs. Think about the benefits of having accurate data. Think about all the other areas you could focussing on that would have greater benefit to the business. Think about what else you could be doing with your time than doing book work at 10 o'clock at night. Be smart, not ignorant.
- Use technology to your advantage. Don't be afraid of it. This is coming from an IT challenged person too. Technological development in software systems is just amazing at the moment. Especially cloud based software such as Xero and MYOB. Personally I find MYOB Accountright Plus more in line with pharmacy needs, but this is a personal thing. I'm sure others will disagree. There are many efficiency gains to be had with most recent features such as direct bank feeds, and cloud software. Simply allowing you, your accountant and/or bookkeeper to view the same data file at the same time has huge benefits. And the direct bank feeds really speeds up processing time. It's very achievable to have a $5m turnover pharmacy having its bank reconciled monthly from go to woe in less than an hour if done correctly.
- Use a checklist every month to know you have done everything. It's easy to become complacent, and we all forget things. Get help from your accountant to put together a comprehensive month end checklist.
- Get yourself a good scanner, and set up a document file structure. Again there is good technology around, use it. For our bookkeeping clients, we got ourselves a ripping $1,400 scanner, and save all their documents monthly using some file sharing facility. Dropbox works fine for us. There are other facilities around too. The important issue here is no paper, all paper documents get scanned, stored and shredded. Save your bank statements, customer debtors, Script analysis reports, GST reports, credit card statements, stock value reports, departmental sales reports.....whatever you like. No paper. And note, have the world’s best backup systems.
- Never assume. Don't just post random transactions somewhere and think "that'll do, close enough, the accountant will pick it up". Never assume we will. What's wrong with popping your queries on an email and asking? Most decent accountants won't charge for email. Why put a barrier on you communicating with us? Problems aren't created when you ask first. Problems are created when you ask questions after you have stuffed something up.
- Account for PBS debtors correctly. You must record outstanding PBS Claims at the end of each month. Also don't forget the little GST amounts on some PBS Payments.
- Insist on recording the movements in the monthly value of stock on hand. Now for something so relatively simple you'll be surprised at the complexity of this. Stock value reports per your Point of Sale system are notorious for being wrong. As a lot of distortion can come from simple things like timing issues and the accuracy of the data being entered in. The true test of stock value is a physical count. But doing this every month is costly and just not practical. Choosing to use the stock value report is the most practical, but be careful of the error margins. One option is reconciling your stock to a GP margin. But that can be fraught with danger too.
- Insist on separating dispensary from retail sales. And if you also have a post office or newsagency, separate that as well.
- Lastly, work diligently on making your Point of Sale data as accurate as possible. There is a whole wealth of information that can be extracted from, and used extensively, for information trading performance.
I could go on and on, and there is so much more I could talk about. But make the effort to get it right and you and your business will be rewarded. Good decisions come from good data. Be humble and realise we aren't good at everything, just ask my wife. But when there's something we don't know much about, go find someone who knows about it more than you. Then learn and learn well. For that is what life is all about.....learning.
Smile and have fun
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