In boom times it’s very easy for business owners to ignore the quality of their financial reporting system and turn a blind eye to financial management issues. Unfortunately when these bad habits spill over in to difficult economic times it can have catastrophic consequences.
The most basic requirement for a successful small business is good accounting records. Up to date, accurate financial records help owners make informed business decisions. They provide vital management information needed to grow a business and monitor key performance indicators.
Despite the introduction of GST in 2000, the majority of small business owners are still using accounting software beyond their business needs and level of accounting skill. The net result is they generally produce ‘computerised shoebox’ records that should not be relied upon when making financial or strategic business decisions.
If they don’t understand double entry accounting principles including debits and credits, it is time to review their accounting software. As a rule of thumb, you should have financials available within 14 days of the end of each month. This is supported by an Australian survey that suggests that a business’ very survival depends largely on timely and accurate records.
Business owners need good accounting records to demonstrate their financial position to banks, other lenders and prospective buyers at some time in the future. These parties will want to track the historical performance of the business, and will demand current data. The Tax Office also requires businesses to keep and maintain business records including source documents for at least 5 years. In general your clients need to keep records of all transactions including accounts receivable, accounts payable payroll, petty cash and inventory.
Well managed businesses produce a ‘weekly snapshot report’ of:
- Debtors & Creditors
- Cash at Bank and On Hand
- Sales Pipeline
- Work In Progress
- Other KPI’s
The reality is….most business owners understand their craft well (which is generally why they went in to business in the first place), but have little interest in the necessary evil of record keeping. Even TV celebrities have had difficulties in ‘number crunching’….so don’t take it personally….
An interesting clip……phew….glad it’s not you huh!!
So why aren’t your clients using software which is:
– Extremely cheap
– Does NOT require them to enter transactions AT ALL
– BAS information is automatically available at the click of a button
– They can run simplified Profit Reports anytime they like!!
– Bank transactions should be input via direct data feeds therefore reducing data entry.
– Some applications are cloud based, with phone applications to track Debtors, Creditors and other basic trends.
– Some applications allow them to quote, confirm and receive payment which automatically link in to their software. No more quoting at night….just do it while on the job.
Better start telling your clients not to let financial record keeping compromise their business. The solution exists, so start making some noise and awareness right away…no time to waste!!