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Every person who has turned their dream of running their own business into a reality is an entrepreneur. Most started small, trusted their business acumen, hired competent staff and most likely took advantage of the best financial management tools available at the time. Sound financial management is essential to business success and now, in our time of constantly evolving technology, there are all types of tools available to assist entrepreneurs and their staff.

Computerisation has revolutionised every aspect of our economic activity. Tasks that were once labour intensive, repetitive and slow to produce results are now completed in an instant, and the results of business and operational decisions are available for analysis almost immediately. The magic ingredient that allows this to happen is computer software and there is a program for every aspect of business activity.

Choosing which software is the best for financial management will depend on several factors including the size of the business and the types of products or services they provide, but as a general guide, there are three that many successful businesses use to process information and provide operational guidance to assist decision-making.

The first is Harmony PSA. This is suitable for companies with complex billing models and provides a consolidated system that supports the entire business cycle from lead generation to contract renewal. It is specifically suited to software and service businesses with all business functions automated on a single platform.

MYOB Advanced is the second choice. The original MYOB has been available for some years now and was a favourite of small business. MYOB Advanced is tailored for bigger businesses and includes accounting, inventory management, workflows, manufacturing, payroll and other functions. This software provides management with integrated data in real time for better decision-making, providing the opportunity for faster growth.

For the final pick, idu-Concept emerges as the ideal budgeting, forecasting and reporting system for mid to large-sized businesses. This versatile software is suitable for manufacturing, education, financial services and other sector businesses. The system also tracks spending and manages assets and equipment as well as other functions. It is also available as an outright purchase for installation on a company server for those organisations that prefer local control of their information.

Successful business owners should look at their operational software from time to time to make sure that what they are using is giving them the best value for money. What they should also be looking at is setting up their own SMSFs (self-managed superannuation funds).

Superannuation is one of the most effective and low-tax ways to plan for retirement, and most business owners have their own SMSFs instead of using retail or industry funds. Those who are too busy to look after the complex administration and reporting requirements of running an SMSF engage other companies such as SMSF Assure to look after these details for them, just like they hand over operational tasks to their own staff. Both approaches work well and give the busy entrepreneurs some leisure time to themselves.

CASH FLOW MANAGEMENT A MAJOR CHALLENGE FOR SMALL BUSINESS OWNERS

One of the biggest challenges for those running a small business and who do not have a strong background in bookkeeping or accounting that they don’t understand the difference between cash flow and profit. Many promising sole trader businesses have run into trouble because the owners started using the business bank account as their personal ATM, falsely believing that the money left at the end of the month was profit they could use for their own pleasure.

Cash flow is just that – the flow of money coming into the business from revenue and going out to cover expenses. If this is not carefully managed, there may not be enough money available to pay business accounts as they become due. Regardless of how much profit the business is making, if there are no funds to pay the bills, suppliers may refuse to continue supplying essential stock to satisfy customers, and banks or lenders may withhold funds.

Careful management of the business finances is the best way to ensure this does not happen. To do this, owners must understand the variables that impact on cash flow. Customer and supplier terms, the timing of loan payments, future business decisions and many other factors affect cash flow, but by planning and monitoring it, owners can predict shortfalls and surpluses, and make financial decisions accordingly.

One way to do this is to prepare an annual cash flow forecast or statement wherein the owner estimates and records several important parameters. These include the total monthly cash inflow, the total monthly cash outflow, the net cash flow and the opening and closing balances. The cash inflow should include income such as sales, capital injections from borrowings or owner funds, interest revenue or any other sources. Cash outflow would include purchases, loan payments, supplies and expenses such as telephone, electricity, wages and the like.

Bearing in mind that this is only an estimate, the next step is to monitor the inflows and outflows monthly and compare them with the actual figures which, by now, should be available. If the business is not tracking as planned, then the figures need to be reviewed and adjusted throughout the year.

Management may need to look at their stock control to save money on storing and insuring stock they do not need. Careful management of debtors, following up on outstanding accounts and establishing a sound credit policy are all a necessary part of good business management that will support the cash flow forecast. A review of product pricing, improved customer service and a renewed marketing push are all ways to increase income. Reviewing overheads and looking for ways to reduce costs such as power and water bills will also improve cash flow.

The skills of an experienced accountant are often the best investment a business owner can make, especially if handling the financial side is a new experience. Many owners are juggling the demands of running a business as well as the management of their SMSF (self-managed superannuation fund). By using the services of a company such as SMSF Assure to assist with the administration of their SMSF, they will have more time to spend with their accountant on improving aspects of their business such as the cash flow.

Computer Technology Freeing Up the Talents of Accountants

There is no part of our economy or any sector of our society that has not been impacted by the extraordinary advances that have taken place in all areas of technology over the past 30 or so years. While some industries have all but disappeared along with thousands of jobs, new ones have emerged, creating employment opportunities and requiring a new generation of highly skilled workers.

An excellent example is that of a typical modern business office. The equipment, business management systems and even the layout bear no resemblance to the old-fashioned model of rows of desks with clerical staff bent over stacks of paper and typists pounding away on manual machines. Computer software can now process a weekly payroll for over 200 people with only one or two clerical staff checking the input, and then transferring their wages directly into nominated bank accounts.

The same advances in computer technology and business management systems have also changed not only the way accountants do their job, but also expanded their skills base. Before the office environment became computerised, much of the accounting work was performed manually. Eventually, hand-written journal entries were replaced by ledger machines, and then basic computers with limited processing power were introduced, followed in large companies by mainframe computers that took up an entire room.

The introduction of the personal desktop computer accompanied by word processing and accounting software liberated not only accountants but also administration staff from boring and laborious tasks. Instead of spending countless hours manually analysing computer printouts to produce monthly Income Statements and Balance Sheets, modern accountants can now generate reports weekly and even daily if required.

With the data entry performed daily by a suitably trained bookkeeper, accountants now can run reports on “what if” scenarios applicable to their business. This enables them to suggest possible new business opportunities to management, or conversely, to advise against a business direction under consideration that has a significant element of risk attached.

Some accountants have also become proficient at the administration of self-managed superannuation funds (SMSFs). Many business owners are setting up their own funds to accumulate wealth for their retirement and are finding that the reporting and compliance requirements so onerous that they are unable to concentrate fully on their business. Companies such as SMSF Assure are now offering their clients the services of a dedicated superannuation team, which includes qualified accountants.

Technology has also allowed accountants to spend more time on developing important decision-making tools such as cash flow projections, financial forecasting, monitoring and measurement processes and establishing clear and achievable financial targets. This is not only good for the business, but also for the ongoing personal development of the accounting staff.

Accountants are still completing tax returns, but these days, there are no multiple page forms. Rather, the information is lodged directly with the ATO via an electronic portal. No longer shackled to endless manual tasks, accountants are using today’s technology to widen their influence, offer high quality advice to their management team and expand their skill set by undertaking new and exciting areas of specialisation.

WANT TO BE A SUCCESSFUL BUSINESS OWNER? THINGS TO THINK ABOUT

The trend for some years for many business owners was to rely on the eventual sale of their business to fund their retirement. It seems that in the effort of establishing and running a successful business, owners set aside any thought of retirement planning in the hope that economic conditions will be favourable when they decide to sell.

This retirement strategy had served the taxi industry well until the arrival of Uber. Almost overnight, taxi licenses that cost hundreds of thousands of dollars to purchase plunged in value, leaving many taxi owners with huge debts and businesses that would be unlikely to attract buyers when they were ready to retire.

With all this history in mind, it is worth reviewing some essential practices that successful people know and use, not only to develop and maintain wealth at work, but also to actively plan for a well-funded and comfortable retirement.

The Importance of Cash Flow

Understanding the importance of cash flow is no secret to the accounting industry but seems to baffle first-time business owners. Cash flow is not to be confused with profit which, put simply, is revenue less expenses. Cash flow refers to the inflow and outflow of cash through the business. The business needs it to operate, so cash flow management is one of the most important secrets to a successful business.

Know the Competition

The second practice is to thoroughly research the competition. Only through knowing your competitors and how your product differs from theirs, can a business owner set competitive prices and respond to rival marketing strategies. Keeping an eye on the competition should be an ongoing activity so that your business offering can stand out against theirs.

Know Your Customer

It may seem obvious, but the third practice is to absolutely know your customer. Don’t assume that because you think your new product is sensational that your customers will too. Find out what they need and give them that. Talk to them face-to-face, survey them and use your social media presence to get their feedback; do whatever it takes to get the right product and price point to place your business where you want it to be.

Be Passionate

Number four practice or secret, if you like, is all about you. Be passionate about what your business does and how it reflects your values. You can always employ professionals to help you with your accounts, IT and similar tasks, but exhibiting values such as honesty and integrity through your actions and rhetoric will flow through you to your staff and hence to your customers. Create a business culture that transcends a business plan and draws exceptional people to you.

Take a Long-Term View

Once your business is established, you should now be ready to look to the future to see where your industry is going. Try to envision a sustainable future where your business, in its present and future forms, can develop and thrive. You will have to ask hard questions but as we now know, if the taxi industry had done this when Uber was just appearing, perhaps their outcome may have been different.

You should now be considering a retirement plan, and there is no better place to start than with your own self-managed superannuation fund. SMSFs have become so successful that they currently hold 30% of all superannuation assets in Australia. Be warned, however, that setting up and running an SMSF is completely different from a business. The good news is that there are now reputable companies such as SMSF Assure that exist solely to assist with the management of SMSFs, so you can have the best of both worlds – control over your own superannuation investments and assistance with the fund administration.

GET PROFESSIONAL ADVICE BEFORE DECIDING ON A BUSINESS STRUCTURE

When someone decides to go into business for themselves, their first decision is whether to buy an existing business, or to start from scratch. Both approaches have different priorities. An existing business should have some type of structure because it is already trading, but the start-up usually is a one or two-person operation without structure but with competing demands. The most critical demand gets the attention first, and in these early stages, the business structure is often left to be sorted out later.

This is a common mistake that would-be entrepreneurs should be addressing early in the life of their fledgling business. They can choose from four different structures here in Australia, and each one has implications for taxation, personal liability, degree of control and the ongoing costs and amount of administration required.

Sole Trader Structure

The sole trader option is simple to set up and operate and gives the owner full control over all operations of the business. It also makes the owner fully responsible for everything related to the business including any debts and losses. It is a low-cost structure with minimal reporting requirements but puts all personal assets at risk if anything goes wrong.

Partnership

A partnership has two or more people involved who distribute income and losses between themselves. There are three different types of partnerships with key differences, but again, they are relatively easy and inexpensive to set up. The partners require separate tax file numbers (TFNs) and each partner pays tax on their share of the net partnership income each one receives.

Company Structure

A company business structure is more difficult to set up than the others and business operations are controlled by directors and owned by shareholders. A company is a separate legal entity with obligations under the Corporations Act 2001. Company members have limited liability and directors must understand and comply with all legal obligations.

Trust

A business can be operated as a trust, but this structure can be expensive to set up and operate. A trust must operate under a trust deed that formally sets out how it is to be run, and the trustee is required to undertake formal yearly administrative tasks.

This is just a brief summary of the four most common types of business structures. There are many more issues to be understood and addressed before deciding on the best structure for the business. The best way to make the right decision is to discuss the options with an accountant.

Once the business is up and running the time may come when the owner decides to plan for retirement and set up a SMSF (self-managed superannuation fund). After running a successful business, the owner would be familiar with the business structure, the accounting methods, the formal reporting process and the tax requirements. This may lead them to think that, because they have business experience, getting a SMSF started will be easy.

However, the structure and operating processes surrounding a SMSF are completely different to a business. The administration is complex, and the reporting required by the ATO (Australian Taxation Office) is specific and time critical, with penalties for non-compliance. Business owners wanting to take control of building their own wealth for retirement engage companies like SMSF Assure to handle the administration and reporting of their SMSF while they get on with managing their business.