How much do you want for your business?

Every Friday we just want to stop the world for a moment and give you a couple of real tips to think about that will make a real difference to your business and in your life.

Now there’s an interesting question to ponder over the weekend. If someone made you an offer to consider, for the sale of your business, what price would you find acceptable? If someone asked you to “name your price”, how many zeroes do you think you could scrawl on that napkin and not have it screwed up and thrown back in your face. Or even worse – have them shake your hand so quickly that you couldn’t help but feel that you’d undervalued your years of hard work.

Having a realistic (and accurate) grasp of the value of your business is as important as knowing how much money you are going to make or need to make over a given period. If you have hopes, dreams and aspirations for your family, your business and how you get to live your life, you simply have to know what your business is worth at any one time. And not just because an investor with millions burning a hole in their pocket may be eyeing of your commercial enterprise with growing interest. It’s important to know what you’ve got, how far you’ve come and how long until the next milestone sparks party-poppers and high fives in the meeting room/kitchen/workshop.

Let’s see what your business might be worth

There are a number of ways to value your business. There are calculators online with varying degrees of difficulty, formulae both easy and hard to interpret and professionals out there whose job it is to value and assess businesses. That’s a lot of info. Again, keep in mind that understanding what you’ve got is absolutely necessary, so it’s worth going through a little bit of brain strain.

Tip: Start with the simplest of simple formulae.

Profit x Business Sale Multiple = Business Value.

So an accounting firm that make $100,000 Profit could sell the business at a multiple of 3.5 times profit, making his business worth $350,000.

The other side of the coin is worth more – wait, what?!

Yeah, that’s right. So on the one hand, your standard reporting protocols (BAS for example) tell you what you brought in and what you paid out. However, a particularly good quarter that is not followed by a compensating drop off, may actually increase the value of your business so long as your profit figure has increased as a result. In this case, it works like a multiplier effect or even compound interest in some ways. However, if you don’t know what your business is worth, you won’t be aware of potential increases in value (for sale or otherwise).

If you’d like help understanding and potentially increasing the value of your business, we can help you. Have a great weekend.

Profits are down soooo… do I take a pay cut? The “business $100 note” can save you from yourself

Every business faces a period when revenue drops below expectations for a time. Hopefully this occurs at the beginning of your ownership journey, not the end. It’s at this time that knowing your numbers will provide comfort and reasons for optimism, or indicate that you are sailing far too close to the rocks! Either way, knowing your numbers, listening to what they are saying and taking action should see you back in calmer waters.

Sounds soooo simple but… it isn’t. “Overcorrection” means that you’ve seen the danger, you’ve reacted and taken action. Too much action. And now you’re facing danger again. If you’ve ever been skydiving and the safe landing zone is quite small, you’ll understand what we’re talking about, particularly the consequences of overcorrection.

I want to be correct without overcorrecting

Correct! And to ensure that you don’t go too far with say, budget cuts or frenzied reinvestment plans we use a humble(ish) $100 note. Your business $100 note. Let’s start with a few easy ones. Of every $100 that flows into your business, how much is assigned to:

Paying the tax man
Your pocket in the form of your pay
Profit, which is the jewel in the crown of your business

If you don’t have the numbers to hand, your business might just be costing you an arm and a leg because too often owners take a pay cut when they don’t need to and shouldn’t. Unfortunately, ignorance is not an excuse when it means that you’ll be bringing less money home to the family or spending more time away from them. Okay, lecture’s over, let’s look at a typical example.

We find that a lot of businesses split their $100 notes like this:

Profit – $0.30
Owners pay – $11.00
Tax – $15.00 (and this really does depend on your structure and the advice you receive)
Operational expenses – $73.70 which in some cases can’t be helped but surely it’s worth a closer look.

Replacing the numbers above with the numbers that are specific to your business is an important step towards reducing the correct costs. Isn’t it strange that we’re in business for ourselves, hoping to provide for our families and when push comes to shove we blindly start hacking away at costs (including profit and our own share) without seeing the full picture. That has got to stop.

Look closely once again, at your $100 note and its break up. When push comes to shove, perhaps it’s the tax component, the company car use and premium delivery services that come under the spotlight for a month or two.

Your pay, your profit and your time should remain sacred. Take note.

Stay focused on your area of focus

If you are an accountant that delivers excellent service and measures their achievements by how much tax you save people – stop reading now and carry on with what you’re doing. If not, we’d like to echo some advice that came to us from one of our own clients:

“The best part about your customer service is that your people are intuitive… This is so extremely helpful given that, quite frankly, the accounting end of my business isn’t where my focus is.” (see full commentary here)

Obviously this is great feedback and it makes us very proud of what our people are doing for our clients. At least as important, is the admission that accounting is not the focus of the people that gave the feedback. The ability to focus on your area of expertise and provide top notch products and/or service is an absolute difference-maker and deserves to be. This is because providing and adding value to enhance customers’ experience still goes largely ignored across a number of business sectors.

I’ve written previously about the fact that value focus is both important and also the key to unlocking better business results. Along with reducing unnecessary expenditure, preserving/growing profits and minimising tax, “the difference”, the spark or that elevated level of expertise brings you additional income. Wading hip-deep through accounts till the wee, small hours of the morning and staggering to work the next day, does not.

Only you can be you

You know why you started/built/established/bought into/bought your business. You probably had a passion for what it is you do, like us, maybe you started out with an ideal that stood at odds with what you were doing previously. Either way, your reasons are your own and as long as you can focus on doing that thing to the best of your ability, you’ll be happy and it will show in your approach and service.

It’s a real shame when local business people turn away from the passion that supports (or should support) their family, simply because they don’t understand tax. Or BAS or don’t realise the potential of an SMSF opportunity or business structures or some other aspect of the finances. When I hear people say, “I couldn’t make it as a florist/mechanic/tradesman/creative/personal services (insert any other small business here) when really they’re saying, I couldn’t make it as an after-hours bookkeeper/CPA – well it’s disheartening.

Have a word to us to us if this might be you. We’ll focus on your numbers and involve you where you need to be involved, while you focus on your passion.

Numbers get bored too. Time to put them to work!

Accountants often get saddled with the “boring” tag and that may be because the perception is that they deal exclusively with numbers. And not just any numbers but bland inanimate numbers that simply tell you what happened – past tense. These same numbers might also suggest passive actions to take – pay this, submit that, report on something else. Okay, the numbers in your bottom line can be pretty exciting, a financial thrill ride that keeps you interested and motivated but for the most part – eyes can glaze over and shoulders shrug when an examination of the numbers is suggested.

It’s not because people don’t understand them – it’s because people aren’t always sure what to do with them so they do nothing. Unfortunately, doing nothing is both habit-forming and contagious. I have spoken with a bunch of people over the years that are shocked by the suggestion that knowing the numbers in their business won’t help them or their families move forward. You need to do something with them, act on the information because every number tells a story and suggests a way forward.

Put your numbers to work

A quick aside related to a project that’s very dear to our hearts – the “give 1,000,000 days” campaign where we are aiming to provide a million days’ worth of life changing water for families in need. We can’t do it alone but we don’t think we’ll have to. We are banking on people looking at the number of people in the world without access to water and deciding to lend a hand through their own businesses. By the way, that number is 663,000,000.

But this is what we’re saying. It’s one thing to simply report on a number or numbers. It’s quite another to do something about them.

And how do we put our numbers to work?

So now you’re thinking, “yeah but how?” And that’s the point. As accountants that want to actively participate in young families getting more from their small businesses, we feel like we have a role to play beyond stating numbers. To you, there may be very little value in simply hearing or seeing a number if you:

a) are not sure what it means exactly
b) understand what it means but don’t know what to do about it or
c) know what to do about it but don’t know how to do it.

I’ve always felt that if we’re not putting you in a position to action the numbers we’re not doing the best job we can, so yeah, this is where your accountant can get involved.

If the perception is that accountants simply look at numbers, hit the calculator function, flip the screen around to show you and then hit print (and then invoice), yes, that’s pretty dull. And if that’s what’s going to go on all day, for 240+ working days in the year – we get it, it’s a recipe for boredom and stagnation for them and your business.

Seriously, your numbers deserve better and so do you so make sure that when next you see your accountant, you are armed with some business-building questions and expect some instructive answers. And as tax planning season is literally right around the corner it’s time to think about what you want from your business, your numbers and your team anyway.

Remember, numbers are good but putting them to work is better and make a great difference – to you and yours and also to those less fortunate.

How to make a memorable weekend

Every Friday we just want to stop the world for a moment and give you a couple of real tips to think about that will make a real difference to your business and in your life.

How many times has someone asked, “what’d you get up to on the weekend?” and you struggled to think of something interesting to say. Or maybe you answered with, “nothing much – you?”

It happens a lot because people, and especially small business owners, are getting busier and busier. And while you are paying the price, the silent victim is “the memorable weekend” – a dying breed. When I talk about the memorable weekend, I‘m not talking about an extravagant string of party boats and skydiving trips. I’m talking about a weekend where you were able to take time out to do more than simply recover and reload. The memorable weekend should be something you can have with your family and friends and feel good enough to not only have a good one, but a great one.

“Youth is wasted on the young” and “weekends are wasted on the weary.”

There’s an element of truth to these two ideas and as far as I can tell, the common denominator is intent. Or at least the two-sided coin that is intent. On the one hand you have some (not all but some) younger people that get a little complacent because “if I don’t do anything with this weekend, there’s always next weekend or the weekend after.” Nutty – because life is short. On the other hand there are those that work hard (possibly too hard) and find themselves too physically and/or mentally exhausted to celebrate whatever successes their business has enjoyed. They end up telling themselves that an annual relaxing, tropical island holiday will fix them up however that may only account for 10days out of approximately 253 workdays in any one year.

Like everything that you want to go well, there has to be an element of planning and pre-planning to have a memorable weekend. Can you really close up shop, log off and/or shut it down at the end of a huge work week and expect to slide right into a refreshing and yet exhilarating weekend with any forethought?

Plan to succeed even especially on the weekend

There are a number of tips that will help you get the memorable weekend right:

Understand your numbers to the point that you know how many hours you need to put in to achieve your monthly target. (Oh, if you haven’t already, work with someone to find out what that target is.)
Remember why you got into running your own business – so that you can have more time for you and yours.
Make family and social time over the weekend, an immovable object in your calendar but also take care to add in prep time. i.e. will you put in a couple of extra hours on Wednesday so you can take off a little earlier on Friday? How about booking out a whole Tuesday afternoon to shop for the perfect gift for your 4year old’s birthday on the weekend because deep down, you must know that a gift card just isn’t going to cut it.

And here’s one final quote to finish with just in case I haven’t convinced you to take some time for you and your family this weekend. “No one, laying on their deathbed, ever said, “I wish I had spent more time in the office.” If you’d like help, putting your business in a position to better support your lifestyle, we can help you. Give us a call and here’s to a memorable weekend.

The agony of almost making it to the end of the month. Cashflow catastrophes and how to avoid them

Few Olympic or endurance track images are as enduring as the long distance runner that, despite a body that has clearly given up, manages to will themselves over the line. Last place never looked so good. But what about those that cannot make it. They actually fall over a few agonising steps from their goal and it’s all over. All the training, blood sweat and tears – for what?

This happens in business too and just like the hapless athlete that runs out of legs, they wonder how and where it all went wrong. Well, we know and like so many other commercial events that can occur, it comes down to understanding the numbers. But which numbers?

You need to spend money to make money. True but…

Investing in your business is a brave, necessary and wise thing to do. If you understand your customers, have refined your product or service and your marketing is humming, what could possibly go wrong? Here’s the nightmare scenario: you could run out of cash because it takes too long to get your money back and you don’t know why, let alone what to do about it.

Consider for a moment how rapidly your dentist goes through the “sell, make, deliver, bill/paid” cycle. You walk into the dental surgery, get treated (maybe a filling and a clean) and you pay on the way out. Contrast that against, say a marketing company that pitches a concept for an ad campaign, weeks later production is at an end and the client is reviewing final cuts. Perhaps billing occurs 90 days after the job has been won and yet somehow, the lagging cash flow makes you feel anything but a winner.

That may be an extreme version of cash flow pain but how many of you have felt frustrated after offering generous 21 day terms, only to be told on day 22 that your invoice was mislaid. Now it seems you’ll be out of pocket for up to another week or so and before you know it, you’ve been running at a deficit for 30 days. If that keeps happening month after month, eventually you’ll find that making your office rent or supplier payments becomes a bridge too far. And down you go, a mere 3 feet from the finish line.

Okay, let’s take a breath and shake it off. If this is happening to you then no, you shouldn’t be spending big wads of cash to try and create bigger wads of cash. Not yet. Not when you’re barely surviving. First, you need to address and then fix the problem of cash flow lag due to your poor sell/make/deliver/paid cycle. But how?

Here’s how to safeguard cash flow against an elongated sales to paid cycle

The first step towards fixing a problem is understanding the problem. Jot down how long it takes you to sell a product or service, how long to produce or make it, deliver it and then get paid (use your payment terms as a guide). Can you manage that 21 day turnaround or do you need to shave some days off that in order to sleep a little easier?

Secondly, ensure that you receive all or at least part of the payment upfront. This is particularly important when you are investing significant sums over time to complete a project like website production. No one can reasonably expect you to work unpaid for months and months on end while you complete a client’s online platform. Communicate the need for a payment schedule along the lines of x% mobilisation fee to get started, an additional sum at the halfway point and the balance at “go-live”. This keeps the client committed and importantly, protects your cash flow.

This is the kind of preparation that will get you over the line. Then you can go ahead and reinvest to grow your business.

In Trusts we trust. Another way to make sure you pay enough tax and nothing more

Paying too much tax is bad. Paying your fair share is good. Black and white statements don’t come much truer than that but as we keep finding, people, honest people running good businesses to help their families, are regularly giving more than they need to. Put another way, more than they should. There are many reasons for this but just like a building inspector looking at a house that may be hiding a few issues, we here at Inspire often find that there are structural faults. Structural problems are always expensive – in buildings and especially when building a business.

We often talked about the importance of choosing the right business structure for you before setting out to change the world. If you do this you may well avoid paying a whole lot of tax that you didn’t have to pay during the all-important start-up phase. If you realise you’ve taken a wrong turn during your commercial journey, it may still be best to turn back and get on the right structural path. Sure you may have paid too much during the proceeding period but paying a price to stop the (cash flow) bleeding can still be a lifesaver.

Trusts, tried and true

Full disclosure: we like trusts because they work for our particular set of circumstances in that they:

Limit liability
Ensure we pay only what is required tax-wise
Free up more cash in concert with the right strategies

Aaah, strategy! That’s the thing. You can have the best tools ever but if you don’t know how to use them, you could end up hurting yourself… or your business.

Learn how to save thousands with Trusts

It’s important that we get this right so we go live on facebook Wednesdays to do open Q&As and talk through important business solutionsfrom 12.30pm. Don’t just think of this as some one-way, free advice. This is your chance to interactively learn and explore ways of improving one of the must-haves in business. Cash flow optimisation. A lot of businesses are giving away half, that’s right HALF of their profits in tax because they don’t know any better and no one’s shown them how to remedy that.

If that’s you or you think this may be you, feel free to join our regular Wednesday lunchtime conversations or simply check out the content we post daily.

If you’re a small business with questions around structures or other accounting related matters you would like some clarity on, just ask us – we’d love to help.

Recognise! Celebrating milestones is not only fun but functional

A lot has been made of the value of setting goals, knowing numbers, aiming high, feeling the burn (wait, what?) and a whole bunch of other aspirational catchphrases. They’re fun, they’re motivational and yes, sometime a little clichéd. But it’s amazing how effective they are at inspiring people (not just sports and business people) to take action and make things happen. Getting to know what works for you and your team by way of inspiring and extracting great, business promoting, world changing leaps forward is very important and ultimately useful.

But we’re missing the big picture if we’re not also “celebrating success”.

One of the great motivational tools that mobilises businesses to achieve something greater is the ability to stop, recognise and enjoy the passing of a milestone or a success that we’ve been building towards.

Almost 4 years down and still a lot to do

The more we do, the more there is to do. I think all small businesses will relate to this. We started off with a simple goal and a very simple approach. Help small business owners get the most out of their business so they can enjoy more of a better life with their families. Ensuring people had more time, minimised their tax and were able to help others in need, capped off the big ambition.

This week, Inspire turns four years old. Wow, four years! And while we are really pleased with what we’ve achieved and the prospect of setting sail for bigger and better things, I’d have to say that looking back (at what works and what doesn’t) helped us to keep looking forward. A target of $500,000 in saved tax for our clients turned into an achievement doubling that. Contributing funds and positive impacts to people’s lives started off as an idea but led to a new way of working and now even larger goals.

So 4 years of doing what we do is a wonderful milestone.

Milestones are great but they’re not targets

I just want to be careful here in recognising the difference between a target, an objective or a goal and a milestone. It’s great to pass a milestone but typically these are markers en-route to a particular objective – they’re not the destination. Nevertheless, it is very important to break up a long journey into a series of shorter trips. This helps maintain momentum and a regular sense of achievement.

I would discourage anyone from ignoring the smaller achievements along the path to potential greatness or at the very least, success. Instead, see them as chances to run a few checks and balances – how are we feeling, what are the numbers saying to us, what do we need to do to get past the next milestone? Refocus on achieving big goals.

As for us, our mission is to keep helping families thrive through the achievements of their small businesses and celebrate successes wherever and whenever we find them.

That’s the goal… now to celebrate the milestone.

I have a pool so now I can buy an office – smsf magic trick #31

Recently we’ve been speaking about the many and varied ways technology allows us to run a business and the different ways of working people can enjoy as a result. This led us to reviewing some really cool home office set-ups, as well as touching on the benefits of co-work spaces. Of course there’s always the tried and true hiring or leasing of office space which also works for some. Which is also to say, it doesn’t work for everyone.

Why?

Lots of reasons perhaps starting with the overreliance on an office to make a strong statement to your market like:

we’re bold and creative;
we’re huge and ready to take on the world;
we’re loaded down with liquid assets so you know we won’t bail on you;
we’re social, we want to help so feel free to drop by or make an appointment for an in depth chat about your growing business.

(We like number four but as always the focus has to be on adding value, not so much, “don’t you just love the office?”)

The leasing of an office or business space may well be an absolute necessity. For example, most gym businesses have to have somewhere to set up the weights and cardio equipment – they need space. If this is the case you can’t really run a really large, traditional, weightlifting gym from your apartment.

Help me, I’m being held against my will by my commercial lease

That’s a plea for help we hear a lot. Perhaps you do too.

Quick story. We charged into a lease agreement a while back. A substantial space that upon reflection was too big, too ambitious and we ended up regretting it to a certain extent. Eventually we were let out of the lease, marginally older and a lot wiser.

We found a great co-share arrangement after that and we’re happy… but still ambitious. And it seems our ambition may have found a home – for our business. Check out our throwback link to what we liked for a really solid solution to our commercial space question. There’s something in it for you too.

Purchase your own commercial property

We love this option because it increases the value of the business, we’re not tied to a lease per se and the right arrangement allows us to take on tenants. Tenants who, potentially, may themselves become either valuable resources to us or even clients further down the line.

Great, so how do we secure that commercial property if we don’t want to overreach financially?

A super idea

Did you know that superannuation is not just a lockbox full of your hard-earned money that will only be made available to you after you’re deep into your 60s? That’s the common perception but it doesn’t have to be the case.

Self-managed super funds (SMSF) have provision to be able to make acquisitions such as yup, a commercial property. This is wonderful because now your business can pay its rent into your super. Great for your future, great for your fund and great for your business. Okay, so maybe you don’t have enough in your own SMSF to secure a commercial property but the rules tell us that you can pool your funds together with up to 3 other entities’ SMSF. This may effectively quadruples your investment potential – all things being equal of course.

Tip: ideally, they are family members’ SMSF’s that you are pooling. Keep in mind that while you may love your mates, things can get murky quite quickly outside the family super environment.

It’s not rocket science, nonetheless it most certainly is something you should talk to your accountant about. There’s really no reason you shouldn’t at least consider purchasing property using SMSF. With the ability to pool those resources, it’s a good time to call us about dipping a toe in commercial property.

Saving tax is a year round sport. And finals time is just around the corner (the angry coach edition)

Australia is full of people who are very familiar with, if not completely nuts for, one sport or another. They might have a favourite team, a favourite player or simply play on weekends or maybe after work. This is not all people by the way but our friends at the Australian Bureaus of Statistics (ABS) tell us that 60% of Australians over 15years of age actively participate in sport.

So people that follow sport tend to learn the rules of the game, have a firm view about the best way of doing things, consult experts and take in their opinions. Some people will look up to the “stars of the game” and decide to emulate them, watching their moves carefully and attempting to replicate their success. We’ve heard it said that some fans spend as much energy preparing for the season as the professionals do. In short, they just want their team to finish the season on top and share in the euphoria of another great year.

On the other hand, when their team loses, especially if they get annihilated in the finals, there are tears (don’t argue, real fans and players sheds real tears)! These tears are followed by a decision to train the house down and do whatever it takes over the off-season to prepare for the next season. This intensity is coupled with sworn oaths (with swearing sometimes) that this will never ever happen again!

And yet… it’s just a game. Well it’s more than a game to them – obviously. But yeah, up to 40% of Aussies might say it’s just a game.

And yet, when we get hit with a large tax bill, sometimes as a result of not knowing any better or just being caught on the hop by some changes in the rules, many people just kinda shrug it off. “Oh well, let’s get on with it, see what happens next time.” Or maybe there isn’t a second thought even given to next year, let alone achieving a better result.

Not good enough!

It’s time to get ANGRY, people – fight harder for those tax savings

When we take on a client, we know that they are playing for keeps. The money that we can save them at tax time could and often does make a big difference to their families. At Inspire, as we’ve said many times before, we are on the side of the small business owner who is working hard make a better life for their family and positively impact the lives of others.

We do back ourselves to make a difference to almost any business, almost immediately but we need to work with our clients. It’s not just a case of rocking up at the tax deadline, filling out some returns and then popping the champagne corks. No. preparation is a must, thinking differently is a must, being willing to take on new habits is a must and getting and staying focused on the safeguarding and growth of your profits by minimising unnecessary expenditure is an absolute must. Oh and you’ll need a trusted coach (accountant). One that seeks out opportunities, is not backward in coming forward with straight up advice and is just as motivated as you are to make sure you make the most of your (tax season). Inspired?

Finals are just around the corner

Next month marks the official launch of tax season 2016-17. While the rest of the winter codes are still jostling for position, we recommend you start getting ready for your best season ever. Last year we managed to save our clients over $1,000,000 in tax. This year we want to prove to you and ourselves that it was no fluke.

If you’d love to throw yourself a victory street parade in July, just ask us what you need to do to prepare, today.