Week Ending October 11th – Your Businesses Budget

Posted on October 12, 2009 by nilsson

In the good years that we have had, budgets were overlooked. Money was coming in and it was always possible to pay everyone and there was always money in the bank account. Times have changed and now I keep hearing people saying we should have done this budget last year and the year before and the year before that. Questions about why are we paying so much for this and why do we have a water cooler in the corner which nobody uses except when someone wants to water the plants. We had money and a water cooler in the corner looked nice.

Now more than ever budgets are critical. No longer can you rely on sales to come in to your business, you now have to go and get business. But not only do you need to get business, you need to know how much sales you need to get just to stay in business. Now that money is tighter, you must focus on why have you been spending money on items and ask are they really necessary.

For example:
You have 10 phone lines and four people who can answer them and 10 phone lines was too many in busy times, why do you need them now? Every line costs money even when it is not in use.
The mobile phone plan you signed for when you had 10 sales reps, now you have 5, do you need that many minutes on your phone paln and do you really need to upgrade to the latest phone.

The important thing in budgeting is not to cut an expense because it is an cost, but only to remove the cost because it does not generate income for you. It may cost you money to get out of mobile phone contracts you signed up for, or moving to a cheaper phone supplier may result in you having to pay a penalty to move.

The biggest expense in a business is wages. But because there are friendships between owners and employees, the owner may find it hard to make staff redundant. But if this staff is not helping generate income and you keep paying them, you will only run the business down as much needed cash is going into non productive people. At the same time if you have invested time in staff training or these people have specialised skills, it may be very hard to re-employ these people if business picks up or costly to train up new staff.

Small business owners must bare in mind that their staff are entiled to unemployment benefit and other social welfare benfits, while you the owner may be entilted to no social welfare benefits and may also be liable for the debts of the business should the business close down.

It is never to late to budget. Don’t start with the sale figures, start with the overheads of the business such as phone electricity etc, the items you have to pay whether you sell something or not. Then move on to calculating the sales required to pay for these bills. Be honest about your sales margins. All margins are now being squeezed. You may have to drop products that are unprofitable, you may have to change sales reps commission rates, you may have to cut salaries. But list all your costs as they are currently and then look at cutting them back. Look at items on a monthly basis, don’t just take an annual figure and divide by 12 months. Be detailed. Do you need seasonal staff, will your light and heat costs vary over the year, are there quiet times in the year where you can force people to take holidays.

Get a big folder and for every overhead/cost you have place a page in your folder headed up with that overhead. You will have lots of pages, but you will end up with a detailed examination of the cost of your business which you can use for reference and  for planning future budgets. Budgets are unexciting, time consuming at the start, ask awkward questions about you and your business and you may feel that it is distracting from your core need of selling. But remember you need to know how much you need to sell and at what margin just to break even.

So you just can not avoid doing a budget if you want to stay in business and know where you are going. It is better to plan for going out of business (a budget may show that it is not feasible to stay in business), rather than one day waking up and finding out that you are now out of business.

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Week Ending October 4th – The frustations of accounting software

Posted on October 4, 2009 by nilsson

While the basics of bookkeeping are obeyed by accounting software, software companies that have many different versions of software for example, an entry level, mid level and high level version, add additional features to get more form the bookkeeping basics, for example, project costing and invoice printing. The software company usually ends up trying to force you up their different levels by withholding useful features from a lower level version. The price the lower level version is set very low to entice you into their product range, knowing that you will most probably stay with them as changing your accounts software is a major task. They also sometimes tease you with a feature that half works in the mid level version, but to get to use the full feature you need to buy the highest level version. People fell betrayed by their account software supplier. They feel that all the software company wants is to confuse you and in so do so get hold of more of your money for no extra benefits.

During the week I got hit with a few problems because software that looked like it could do the job fell down at the last hurdle, as the feature we needed was only partially available and the Sales rep who sold the software to the client had left the business suddenly. We spent a lot of time figuring out work arounds. And while we did find work arounds they are not ideal solutions and mistakes can still be made.

Here are some examples from well known software that aksks the question “What do they use to run their business, if they keep leaving or make the these features useless”
You need to remember to choose an option on a second screen before proceeding, but their is nothing to remind you to do this and you can continue without entering the information on the second page and thus have your data analysed incorrectly.

  • The software is not network ready. It will only run on one computer. If you need to have more people using the software you can’t.
  • You can analyse you sales to a project only sell services but not if you sell products
  • You cannot change the layout of an invoice or statement no matter how unprofessional it looks
  • You can compare Year to Date actuals to YTD budgets but you can’t compare monthly budgets to monthly actuals figures
  • Lodgement totals do not have to agree to the total of the individual cheques lodged
  • You can’t edit a payment entered incorrectly and you can’t reverse it out
  • If your sell and buy to the same person they must have the same account code in the debtors ledger as they do in the creditors ledger
  • Inability to print out an aged creditors report showing each individual unpaid invoice.

These seem minor issues until you try giving a managing director a report and must export it to Microsoft Excel and reformat it before you can hand him the report. This is  huge waste of time. You must remember that the sales person selling you the accounts software probably knows less than you about accounts than you and they are also not running a company and don’t understand the relevance of the options that are left out of the accounts package and how they can be crucial to your business.

Rules about buying software

  • Do NOT buy an accounts software package based on price
  • Buy accounts software based on the fact that it can work in the way your business works. If you buy and sell in foreign currencies, than you need software that can deal with foreign currencies.
  • If you want stock control, then you need software that controls stock and not just put descriptions on your invoice
  • Get adequate training and make sure the training each person receives training that is relevant to the position they hold. If you don’t manage stock, then you don’t need training in stock control
  • Training will cost at least four times the cost of the accounts software. Installation is not training and is a an additional cost
  • Accounts software trainers don’t always know anything about accounts and they know very little about you business and how it works
  • Don’t let a software seller force you to change the way your business runs because it suits his software

You need software support. You don’t always need software upgrade support.
Software support is crucial after the installation, setup and training on your software. There will always be issues. Data may get corrupted, something may need to be explained again etc. Support can be expensive and the level of support you receive can vary from someone who knows what they are talking about down to others who only know how the software works, but knows nothing about accounts and you end teaching them over the phone about bookkeeping principles. The support hours are usually 9am to 5pm, so if you open outside of these hours you may need to pay a premium for out of hours support.

You don’t always have to have the latest version of the software. If the software does the job you need it to do, then why update. But remember that eventually your version will go out of date and you will have to upgrade. This may be costly in terms of upgrade costs and retraining. Also if you are running a Windows 98 computer and buy a new computer with Windows 7 on it, the older accounts software may not be compatible with windows 7 and you may be forced to upgrade then.

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Week Ending September 27th – The cost of your accounts not being kept up to date

Posted on September 28, 2009 by nilsson

You need to have target dates for your accounts.

  • When will you have all your sales invoices printed and sent out to your customers.
  • When will you have all your purchase invoices passed and entered into your accounts system.
  • When will you have a Profit and Loss statement and Balance Sheet completed.

When one of the deadlines is missed, say, not all the bank payments are entered in the accounts system, then you are not able to prepare a Profit & Loss Statement, perform a Bank reconciliation, know if all your suppliers are paid and if they were paid the correct amount, and how do you plan your cash flow.

The other problem for me is that if I go to my client office to prepare monthly accounts but instead spend my time getting everything up to date to allow me to complete my primary task of preparing a Profit & Loss statement and Balance Sheet, then client does not get the best out of my time and I don’t get everything done that I wanted to do.

So how do you overcome this?

I have prepared a list of tasks that the client is responsible for completing and I have a list of tasks I am responsible for. I will not visit the client until they have their tasks done and when I do visit them I must complete my tasks before we move on to anything else. In this way we both benefit. We all get what we want and need to run the business and by having the financial information ready and up to date we can make decisions confidently, as we are working with the must correct and up to date financial date.  We know our profit, we know who owes us money, we know who we owe money to and the very important cash requirements for the future. And at the end of every visit all the required tasks are done and we can get on with growing the business as we have information to work with.

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