How To Increase Your Business Value

If you could generalise businesses across the board, the valuation principles worked off, what is your adjusted profit times by your business valuation multiple? The answer is an indication of the risk in your business. So, you get a higher business multiple if you’re a lower-risk industry or business, or you’ve got systems in place, or the business owner works five hours a week. You’ll get a very low multiple there if you’re working 80-hour weeks, or you’re reliant on a very small amount of customers (and if one leaves, you’re up the wrong creek to be up) – things like that that are at high risk, will mean low multiple. The more we can work on our business multiple and increasing our adjusted profit, means that the higher our business valuation will be.

If you use Xero as your accounting software and you open the profit-and-loss statement, that’s a guide to working out what your profit is, but we really need to make sure that we’re looking at what a potential buyer might be looking at. So we’ve got to adjust for things like, what would that business purchaser need to pay you (or another person) to run that business? Usually, they add back interest if you’re funding your business and it pays interest, because the buyer would need to take that into their own considerations. Things like depreciation usually come out of that. Any benefits that to you, as a business owner, that the incoming buyer might not need to keep on, like your car or optional international travel. Even business coaching; a buyer of your business will probably not continue some of those things, so that can come out of your expenses, and so it’s a bit of a different adjusted profit.

So, there’s a bit of method in the madness to work that out, but once you know how to calculate it, do you know what your adjusted profit is? Or do you know what your business multiple might be – or at least your industry average or benchmark? The other thing to consider with that is, do you know how to increase that? So, increasing your adjusted profit or increasing your business value. If you de-risk your business (or do things to reduce the risk), then you will end up increasing your business value.

If you’ve got higher profit and less hours, this means less key-person reliance. Ideally, more happiness as a result of those two things. They will mean increasing your business value.

What The Plot Twist Of 2020 Really Taught Us

I was recently invited to jump on the @EmployeeMatters Podcast hosted by HR Guru @NatashaHawker and we spoke about the positive outcomes from COVID.

Natasha Hawker: What has been a positive outcome from COVID for you either professionally, personally, or from a society point of view?

Ben: Professionally (and maybe even in my own profession), I think it’s really shown the strength that the accounting profession has had to assist business owners – and that’s also been really, really good for business in a sense. We’ve never brought on so many clients in this year than we have probably in the last two before that. So, I guess that the market has responded to our help, which has been very, very good.

From a personal perspective, we’re having a baby. That’s been awesome, and i was saying this the other day; we thought 2020 was the year that we’re going to get everything we wanted, but it was the year that we appreciated everything that we have.

Natasha Hawker: Oh, that’s brilliant! I love that, and I think that’s a really appropriate way to think about it. I think it’s really easy to get stuck in the doom and gloom but I think that a lot of us have taken different things away from this and experiences that we would have never ordinarily had had it not been for COVID.

How To Avoid Trouble With The ATO

Natasha Hawker: What’s your view of the ATO now? You were pretty impressed with them when we spoke last time – how do you think they’ve managed this?

Ben Walker: Overall, I’m fairly impressed. I wouldn’t say 10 out of 10 – they still get things wrong. We use their system quite frequently during the week, and sometimes you can’t log on because something’s bloody broken, or there’s been hiccups here or there. As a business owner, I feel like I shouldn’t have to pay a team who can’t completely work because of that.

But at the end of the day, everyone’s been under pressure, right? And we also haven’t been perfect; throughout this whole time, it’s been intense, but they’ve done a great job considering the circumstances. I still think they are quite lucky – If you’re in quite a bit of pickle with debt or that sort of thing, they are understanding. As always with the ATO, as long as you’re communicating with them, they’re fine.

Natasha Hawker: I think that’s really important advice because I think, often, people tend to want to put their heads in the sand, and that’s the worst thing they can do. If they face up and say, “This is my position. This is where we’re at. What can we do?” they’re generally pretty approachable and they’re accommodating.

Ben Walker: Yeah, absolutely!

Listen to the full episode of this podcast with HR guru @NatashaHawker at https://podcasts.apple.com/au/podcast/ben-walker-talks-about-accounting-and-his-journey/id1507070881?i=1000510718910

A Lot Of Businesses Make This
Bookkeeping Mistake

One mistake I see a lot of businesses make, is the lack of reviews they perform on their bookkeepers’ work. Every single month I go through what our bookkeeper has prepared, and make sure it lines up with the story from the last month in my head.

The numbers tell me what’s happened from a cash flow perspective. Sometimes a subscription doesn’t get taken one month and then it pays twice in the next – and I can see that in the numbers, but if I see something out of place, I’ve got to be able to explain it.

We’ve taken clients through their P&L and it’s sort of like a light-bulb moment when they see all these irregularities, but we work out as a team, “Hey, why is this different? Why is this going up, why is it gone down? Is it an annual payment, or quarterly?” and making sure that the business owner knows what’s going on after the bookkeeper has been in there and done their thing. Even that will be so enlightening to someone who hasn’t done it yet.

You need to make sure you have a look at what your bookkeeper has done, but also use those reports to plan moving forward. The amount of clients who only look at their profit-and-loss statement when we prepare one each year. We’re preparing it for your annual financial statements, almost for the tax man; we’re not preparing it as a management report. So, you need to use these things to manage your business.

The #1 Way To Keep Track Of Your Cashflow

I don’t want this to sound harder than it is, because it’s not super simple, but it’s not super complex either. But when it comes to keeping an eye on cashflow, my best tip is to actually do a budget.

From a business perspective, if you’re using accounting software like Xero, it’s relatively straightforward to go into their budget section and work out what’s your projected income (or sales or revenue) and then what are all your expenses – and you can do it month by month. When you do that budget, It’s just really simple to see what your profit is going to look like, or what your net profit is going to be after all your expenses. Once you know that and it’s relatively reliable, that’s what you work towards. In fact, once you’ve got your budget sorted, we can work out what your weekly magic number is.

Daily, Weekly, Monthly & Quarterly Reports

Reporting allows business owners to look at what’s happened in the past, and what we need to keep in mind or adjust to go forward.

Some things to keep in mind from a calendar perspective:

Daily “magic number” reporting – but setting the target from a weekly perspective.
Monthly reporting – you want to be having a look at your management reports. That’s not having a look at your tax report or your monthly BAS IAS; that’s having a look at your profit and loss that’s been set up so you can get information from it. It’s detailed. The management report needs to tell you something. It needs to say, “hey, what do we need to do from an expense perspective”, or “can we hire another person?” That’s the sort of decisions you need to be able to make from your management reports.
Quarterly reporting – calculate quarter to quarter in your business. You might have seasons, so quarterly is a nice time to see different fluctuations. If you have fluctuations month to month, a quarterly might average those and, again, give you a bit of guidance to the growth of your business. You want to be rolling forward your budgets and your weekly numbers every quarter, as well. And, again, something that’s not bad is calculating what your business value might be every quarter.

How To Find A Good Bookkeeper

If you’ve never had a bookkeeper before, a good question is “How do I find a good one?”.

In the first instance, I would look at what delivery they offer in terms of services? Is it just coding the bank transactions and then that’s it? Or do they have different levels of services? From a values perspective, we want to make sure that you find a bookkeeper that is proactive; they use technology really well; they have really good communication skills – not just communicating over email, they never call you, and never talk to you.

You also want to find someone who has a bit of business acumen as well, because they’ll act as a ‘second pair of eyes’ – kind of like your CFO-ish. What they need to be able to do is proactively ask questions, and even understand; what is important to your business, what expenses are crucial, what are the things that should be considered highly when it comes to reviewing your financial statements, and your management accounts?

The other thing you want to look out for is whether or not they work on a time basis, or do they work on an outcome basis. When I say time or outcome, it’s kind of like taking our own philosophy here. When someone charges by the hour, sometimes it makes it a little bit difficult for you to gauge whether they did a good job or not, because they can just spend hours doing things inefficiently. Whereas if they charge on an outcome basis, they should say things like “We’re going to send you management reports every month. We’re going to make sure your bookkeeping’s done fortnightly.” So, there’s this outcome basis that they promised you; this is the stuff that you can keep them accountable to as well and there’s a value to that. You want to make sure that it’s not just an hourly basis, “I’m going to spend three hours to do this stuff.” Outcome is very, very important.

Lastly, you want to make sure that they are willing to be part of your team. Some bookkeepers have a lot of clients and they just want to do the basic coding, and that’s it – they don’t really want to spend time with you. But you want to find someone who wants to be part of your team, who’s going to be sitting down with you and having those proactive conversations.

These are some of the key things I would ask a bookkeeper while you’re shopping around. And obviously pricing is important as well, but I think that if the first part is sorted, you will see the value straight away from the outcome.

How To Calculate Your Magic Sales Number

A ‘magic number’ is our term for how much money you need to hit in sales each week, or each day. For example, let’s say you’re running a hair salon, you might want your team to work towards a daily target because you’re a high-transaction business and you really need to keep an eye on that each day; even like a pharmacy or any sort of a high-transaction, low-value dollar per transaction.

We’ve got a client who might send three invoices a month, which add up to a hundred grand – it’s a bit impractical for him to calculate this and do daily tallies on it, so it depends on your business model. At Inspire, we calculate it to aim for each week, and we report on it every day. So for the week, we’re aiming for XX amount of $, and we’re X out of Y for the week.

Your ‘magic number’ target should be made up of the following:

Business expenses – Every single thing you need to pay to run your business,
Cost of goods sold,
Wages,
Your pay – This is your reward for your personal skill and effort,
Profit target – We’re not in the business to have a job. If you’ve got profit after your pay, that’s going to count towards your business value,
Debt repayments – Don’t forget to factor this in as well!

One of the things I recommend you do: Obsess about it – really know what your magic number is. Every single person at Inspire could tell you what our weekly target is – that’s how prevalent it is in our team. And again, we report on this every day at the end of the day just to see how we’ve done.

What Is An Ungeared Unit Trust?

An Ungeared Unit Trust may or may not be perfect for your development or your property holding, but it does allow multiple owners, including super (even your own super).

It allows holding an asset; so you can buy a property, but it cannot have a mortgage. You can’t secure any debt on the property that you purchased – and that’s the whole reason why it’s called “ungeared”, which means you have to fund 100% of it. This could be through your own money outside of super, or it could, in some cases, be a superannuation that you use – but with this type of trust, you cannot run a business.

So this is the reason why we don’t really use them for property developments, because there’s a chance that we could be considered to be running a business of property development. If we do that, this structure then blows your super fund up, and we don’t want to do that.

Let’s say we have a client that has a bit of money in super, a bit of money outside of super, and they want to buy a residential or commercial property to rent out without using any bank funding. This is a structure that we might use for that, for a longer term buy and hold rental property – but it’s a bit difficult to do full on property development with it.

The Most Important Number To Know In Business

The most important number to know in business is what I actually call our “magic number”, and we do it internally at Inspire.

Our magic number is our sales target each week.That sales target is how much we need to bring in into the new proposals accepted, and to make sure that all the bills are paid, the team are paid, the lights are on, rent’s paid, and the business owner has a wage, as well. We want to make sure we account in our target for the business owner taking home a fair salary.

But then also, depending on the stage of your business, you do want to add in some profit in there as well. That magic number should incorporate the whole lot, and It does take a bit of time to work out how much it is, but once you know it, you’ve got so much clarity.

Our whole team at Inspire knows that magic number. We update it every single day so everyone’s aware. When we hit that number, everything’s fine. If we don’t, we know we need to do something about it.

So yeah, if there’s one number to know in business, it’s your magic number. If you’re just on your own, you might have a smaller magic number than if you’ve got a team behind you, but still work it out. You still need to know how much money you need to put food on the table, and all that sort of stuff.