Breaking even is the new Breaking Bad. It seems okay… until…

If you survived year one of your business ownership and you’ve broken even – well done and congratulations. You’ve made some massive personal, financial and emotional investments and on paper, you’re no worse off than you were when you started. In fact, if you think about it, you’re better off because that ten, twenty or forty thousand you outlaid has also come back to you so again – well done!

Let’s fast forward to the end of year two. Still breaking even after putting in the hours, embracing the blood, sweat and fears. And you’ve broken even again. You’re in a better position than many and a far better position than some. But let’s face it, after say, three years of breaking even, maybe breaking even doesn’t seem as magical as it did at the end of year one. In addition, you’ve now had three years of just squeaking by, not a lot of growth but a whole lot of practice at accepting that you’re “not quite getting ahead of the game”. In simple terms, this is bad. And it gets worse because it can bring a subtle shift that gets you to set your sights just a little bit lower. Also bad.

Things are broken and it’s all bad

We humans are masters of adaption. Ask any anthropologist or physiology expert. Humans adapt and change to protect themselves from harm and that absolutely includes psychological distress. Coming to grips with breaking even and worse still, accepting it as not only normal, but embracing it as a year on year goal means that something is definitely broken and that’s worse than bad.

How long can you tread water?

That’s something you hear kids ask each other a lot down at the local pools during a hot summer. It’s probably fun competing against your friends and family in your own pool or at the aquatic centre. There are lots of laughs to be had when you feel your arms and legs getting tired (I’m not the strongest swimmer in the world) and you start to struggle as you start heading towards the shallow end for safety. However treading water in the open and often choppy seas of small business is no laughing matter. You can only tread water for so long before things become very grim.

Chances are that if you have dipped a toe in the uncertain waters of small business, you’ve also decided that you are someone special, that can create something brilliant, so your family can have something wonderful. That’s huge, exciting and inspirational, but it doesn’t sound much like treading water or even breaking even.

Don’t get me wrong, there will be times when breaking even will be a good result: early stage expansion, trying a new product extension or service and so on. But breaking even should never be the endgame. Not for you and certainly not for your family.

6 Reasons to book your holiday right now!

You’ve heard the saying, “make hay while the sun shines”, right? It means that you should work as hard as you can, for as long as you can while the money is still on offer. It makes some sense but workaholics and people who feel they have to keep pedalling hard to keep their business afloat, comfort themselves with this saying when, for the longest time, they’ve not been able to:

Spend any kind of time at home with the family
Invest some serious recuperation time in themselves
Take a holiday

Let’s look at that last one. The holiday. When we know there’s a holiday on the horizon, perhaps it’s just a month or two away, we tend to initiate a bit of a countdown clock in our heads. Sometimes we simply respond with a knowing nod when someone says, “how long to go now?” Perhaps you shrug and mumble, “Aw, soon, I guess.” But you know and it’s good to know exactly how many days until your well-deserved break. It’s important to you, your business and for your family. Why?

Because you deserve a break

“Hard work is its own reward.” Have you heard that one? Again, there are elements of truth but even the hardest of hard-core, hard-driving business owners recognises that there has to be more to work than more work. Recognising that you and your business have done well is just step one. Rewarding yourself with a getaway is the big one. Take the leap!

It’s a deadline – get your ducks in a row

Deadlines work. When a motivated person is given a mission and a deadline, you’ll find they’ll work harder than ever to accomplish it in full and on time. Your departure date is your deadline. If you’re anything like us, you’ll have some goals in mind that need to be achieved before you take-off/ sail away/ start trekking. Take advantage and use that pre-departure, nervous energy to get everything sorted.

Because you need a break

Work life: it’s a long season made up of many games. Sportspeople rest after every game, don’t they? Why are you trying to play a whole season of games, one after the other with no break? Keep your body healthy, your mind sharp and your motivation high by taking regular breaks and of course, the all-important, all-enjoyable getaway.

It’s good to put distance between you and your business

You’re too close, you need a fresh set of eyes to properly assess your numbers and formulate and understand your next steps. No one said those eyes can’t be your own. They can be, just not yet. You just need to walk away for a time and then come back for a second look after a first look at Mt Fuji or Uluru or the Caribbean, for example. Come back with some perspective and a clear head – you’ll see aspects of your business much more clearly than when you last looked.

A good gap analysis works best without you

When you leave for a short break to sip umbrella drinks, does the business disappear into a huge “you-shaped” hole? If you mean everything to your business because you are doing everything in your business, you may be in trouble or at the very least, handcuffed to your job. Time away will show you where the gaps are, where you need help and what needs to happen to redress the situation.

Cancellation policy

The chief reason you need to act now and book those flights is so that you’re locked in and committed to leaving it all behind for a short time. Most airlines have some fairly unattractive fees and charges for changing a flight or cancelling altogether when departure is quite close. Lock yourself in. Commit to spending some awesome time away with friends and/or family… but do it now.

Arrivederci!

Share your brain or feel the pain. How to avoid insulting business valuations and low-ball offers

It’s a disheartening fact that many people have a fabulous business, with a healthy turnover but routinely get slapped in the face with low valuations. It can be very disappointing and from time to time it can be insulting. How does this happen? What’s going wrong in a business that appears to be going so right – and has done for many years?

Would it be rubbing salt into the wound if I said it was all your own fault? No?

It’s all your own fault! (I mean that with love)

It may not be by the way but I’m about to outline an all-too-common trap. Okay what are some of the obvious things an investor, a potential business partner or even a co-owner would look at before handing you a duffel bag full of cash for a slice or all of your business? Profit? Definitely a top 5. Operating costs? Sure, that’s important. What about the magic number – how much has to be earned to ensure that some debt is paid down, expenses are covered and ownership gets their fair share? A must.

And of course sustainability – how long will the business continue to produce the necessaries? Is the future bright or bleak? What needs to be done to ensure that your business meets expectations well into the future? If the answers to those questions depend largely on you, there’s a problem and it needs to be addressed.

The most attractive businesses to buy or buy into and therefore attract the highest multiple, are those that will keep ticking along, producing the numbers that matter, regardless of your presence and direct input. Think about a donut shop (delicious) and how it might work. Machines automate the process, staff run the shop and man the front of house, you work on the brand building side and drive the culture. Great, so what happens when you take a two week trip away with the family. No significant change to process, protocols, profits? No? Great. An interested investor may well consider an offer that looks at your annual profit and multiplies (hence multiple) it by say 3 to arrive at a figure. That’s not a bad start.

But this one is. Same donut shop. However, you yourself mix the dough to a secret recipe handed to your grandmother by a visiting gipsy. It’s done by hand and only after you yourself have received the secret ingredients under cover of darkness from an unnamed courier, mixed the dough and cooked the treats, can your staff go ahead and sell the sugary delights. This is a huge red flag because without you, the business will absolutely fail.

This is an extreme example but there are numerous versions of this scenario in evidence today. Unfortunately for them, some owners don’t want to or can’t bring themselves to share the knowledge they’ve locked up in their brain.

Three ticks to maximise the value of your business

Keep in mind that nobody wants to buy into a problem. You can almost see a potential buyer or investor pushing back from the table when things start looking complicated or there’s an obvious over-reliance on what’s locked away inside you. Here’s what to do:

Document your processes and procedures be the product, manufacturing or back-office related. It may take a while but a complete and simple “how to” guide for your business is literally, worth its weight in gold.
Empty all your knowledge, proprietary information and commercially sensitive difference makers into a storage device with the promise of sharing it with your trusted team. Ensure security of course, don’t be reckless but understand that with trust comes value.
Invest time into training up a 2IC, someone who can run things pretty much as you would in your absence. Remember, as unique and irreplaceable as you undoubtedly are, what’s the use of owning a business that only works if the person that’s away on holiday is at the helm?

Regardless of whether you intend to sell or whether or not you’re looking for investors, this represents sound business practice and it’ll stop people from hurting your feelings as well.

To remain calm in the face of negotiations and be pleasantly surprised by valuations that reflect the true worth of your hard work, do contact us to chat or test drive an accountant that can help you.

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.