Accountants Have An Important Role In Your Business…But…

Accountants Have An Important Role In Your Business…But…

by | Dec 15, 2017 | General Finance

Accountants Have An Important Role In Your Business…But…

Your accountant has an important role to play in your business. But it’s probably not the one you think it is. Or at least it’s not quite as ‘complete’ a role as you think.

It is a common occurrence for me to find that the relationship that a business owner or entrepreneur thinks that they have with their accountant, is not actually the one that they do have in place. How can that be?

Let’s start by thinking about the things that your accountant is likely to do for you (‘common services’):

Year End Accounts

Corporate Tax calculations

Personal Tax Returns / calculations

Here’s the thing – all of the above are produced based on historical data. Indeed it is quite possible that the information is way out of date (6 months +) by the time some businesses get their year-end accounts sorted out. 6 months is a long time in business – a lot could change – turnover could have increased significantly just as much as it may have declined, you may be employing more people, outsourcing more services, or you may have had to lay people off. The point is, the relevancy of any comment (‘overview’) that your accountant may have could be entirely irrelevant by now.

And yet many business owners rely on the input of their accountant upon the presentation of their accounts in the belief that their accountant is magically in tune with the nuances of every business that they deal with. Spoiler alert – they’re not. There is a mismatch in timing and relevancy more often than not.

So let’s take a look at that from the accountant’s perspective.

The accountant is (generally) reliant upon the business owner to supply them with the information that they need to be able to produce the accounts in the first place. In many owner-managed businesses, dealing with your accountant (and day to day financial information) is often seen as a chore rather than a pleasant experience, and often gets pushed down a ‘to do’ list as there will always be something preferable to do instead…In many cases, the year-end accounting process will be the only contact that the accountant will have with the business in the course of the year. And this is the rub of it – you are probably not paying your accountant to actually care too much about your business.

Here’s the second part – your accountant understands perfectly well what they are being paid to do, and what they’re not. They know that they are being paid to help you comply with your national regulations and tax authorities, they are not being paid to help you run your business. Gasp! But they’re my accountant…they do ‘all my finance stuff’…Err, no they don’t – they make sure you comply.

And there’s a third part to it, I’m afraid. The typical accountant business model isn’t geared up to allow them to be ‘present’ in your business to the extent that they could provide you with any sensible and consistent level of financial control or ‘financial direction’.

There’s probably one other thing that you may have noticed – the original list of common tasks that we had didn’t include ‘business advisor’. There is a reason for that – they would actually have to know something about your business in order to advise you about it. What they can advise you on is:

  • Your profit or loss for the year, based on the information that you provide them
  • Your company’s tax obligation based on the result of the year-end accounts
  • Your personal tax position as a business owner

By all means, rely on your accountant for these things, but think extremely hard before assuming they are your de facto business advisor because they probably aren’t. You know far more about your own business than your accountant probably ever will or could (or cares to). It is more a question of taking the ‘leap’ into recognising that that is one of your key requirements as a business owner – knowing your key numbers.

This doesn’t mean that you have to train to be a bookkeeper or accountant by the way – it just means that there are some simple pieces of financial technique (like how to go about being intentional about the profit that you make, and moreover, how to make an efficient profit for your business) that you either just haven’t discovered yet, or that your accountant hasn’t explained to you (because they’ll worry about how that will empower you with knowledge in many cases and allow you to ask them pertinent questions…)

So, accountants do have an important role to play in your business, but probably not quite the same one that you had in mind, or at least not to the extent that you thought.

Make 2018 the year that you step into your financial responsibility. Efficient profit making is an easy skill to teach, and it will pay dividends (quite literally) for life. You can find out more by clicking on the link here and booking a call today so you don’t waste any valuable profit-transforming time in 2018

Cash For Christmas

Cash For Christmas

by | Dec 15, 2017 | Cash

Everyone loves cash. And most folks love Christmas.

Unfortunately for businesses that offer credit, cash tends to be tighter at Christmas. People tend to hide behind it – a bit like August, it tends to be a ‘different type’ of month due to the sheer number of people who take holiday in these periods. ‘Shutdowns’ are common in both months as a result. Businesses that remain open, are often working on a smaller staffing level than normal. So the problem isn’t so much about your business planning and how you control holidays, but the need to control your client’s holiday management procedures. Essentially that’s out of your hands.

So what can you do about it?

Make sure you’re well positioned first – make sure that holiday charts are updated well ahead of time (they should be updated throughout the year anyway of course) so that you know where you may be vulnerable in key positions – in the context of this post, your credit control team. You don’t want them taking holiday at a crucial point in the year where they will need to be working harder than normal to ensure that the cash keeps flowing in. Their challenges will be magnified – alongside the normal slew of reasons why ‘the cheque isn’t in the post’, they will be hit with people being on holiday – not only in your client’s finance team but also whoever needs to be authorising that invoice for payment in the first place. Add to that a tendency to reduce the number of payment runs done in December, and the opportunities to get paid reduce even further.

It is also common for companies to deploy some very specific tactics in December – from “We don’t pay anyone in December…” (as is the case with one of my client’s clients), to “…we’re not sure at the moment because we’re sorting out our Year End…” In the UK for example, it is common that many companies will have a March 31st Year End date to coincide with the tax year end – the knock-on effect of that will be a Corporation Tax payment due for many companies at the end of December…in smaller companies, it is common for this to have not been considered and planned for ahead of time – the consequence is that available funds are diverted to this, rather than paying regular suppliers.

The cash ‘problem’ in December has a sting in the tail – beware the ‘rollover’ problem in January and February caused by not being able to bill as much as you’d have wanted to in December even if you have managed to complete work or projects, due to you not being able to get work signed off by your client due to their absence – holiday, Christmas lunches etc provide ample opportunity for them to book their diaries with the ‘fun’ things, rather than the ‘work’ things – they just have a different agenda to you. Invoices not issued in December will therefore reduce your ability to collect the cash in January and February. The full impact of this will doubtless depend on the credit terms offered to your clients.

As with many things in business, communication often holds the key. Make sure that you, your managers, account execs etc stay in regular touch with your clients and find out what December looks like for them ahead of time – are they going to be on holiday, does their office shutdown etc This also applies to your credit control function – they need to apply this theory to their contacts and uncover the same sort of information – how many payment runs will be done In December, does their office shut down, what’s the last day that invoices can be logged onto their system or authorised for payment. They need to report back on this too internally – you don’t want the nasty surprise of not taking the specific action that could have been taken to ensure that you could have received a payment in December.

2 simple things you can do to improve your cash position all year round (not only at Christmas):

1 – Be consistent and persistent

One of the key shortcomings in cash collection in companies that don’t have a dedicated team to chase money is a lack of consistency in tackling credit control. It is a job that people tend to shy away from – ‘asking for money’ – it goes to the bottom of the pile until it has to be done due to an impending shortfall in cash required for eg salaries, tax payments etc. Consistency is the key – regular contact with your client makes it harder for them to avoid making payment, put simply. If you only ever do it when you need it, there will always be a surprise lurking – someone being ill or on holiday, or just missing a payment run etc. Be persistent as well – take notes, know who made the commitment to pay and on what day, know who is taking the next action in the process – take action if you need to in response eg sending copy invoices, supplying copies of the information/proof of work done etc. Keep going until you get that payment date confirmed, and then follow up on that again before the due date to make sure payment is to be made as anticipated.

2 – Invoice accurately and quickly

Sounds obvious, but amazing how many companies don’t do this. Both delay the process of getting paid. Inaccurate invoices will need to be re-issued, which adds time into the process, but the real issue is the time between sending the invoice and then finding out that it has been queried – amplified if consistent credit control isn’t undertaken. When the work is done – invoice it – especially if you aren’t beholden to payment terms based on a month end. The principle is simple – if you complete billable jobs every day, make sure they get invoiced as fast as possible – because that then means that you are due for payment every day, i.e. you don’t have to wait for the next ‘month end’ before you can start collecting payment.