Cashflow management is a critical issue for many business owners.
Typically, your cashflow comes under strain in the following circumstances (not an exhaustive list):
- your business is growing
- stock levels increase (eg: lead-up to Christmas for retailers)
- bringing on new staff
- increasing production capacity
- diversifying your business activities
Each of these things can be a “cash thief”.
Let’s consider the issue of inventory(stock) management. The more stock you have on hand, the more cash you have tied up. I explain this in more detail here, here and here. By reducing your stock levels, you free up a lot of cash, however you need to balance out the level of stock you need. You cannot sell what you don’t have! Effective stock management makes a huge difference to your cashflow.
Cashflow management can also be impacted by increasing production capacity. Being able to make a lot more “stuff” requires you to have the raw materials, equipment and people to do this. All this costs. Your wages come in each week, your suppliers need to be paid each month and the equipment needs to be purchased/financed. All this robs cash from the business – and you haven’t yet produced anything you can sell. By building your capacity, you will be able to (hopefully) generate more sales and/or better margins. But you have to spend first. This is where your cashflow management needs to be carefully curated.
A number of our customers have pretty regular sales. They use this to reduce their margins (sometimes!) to generate additional sales and hence cashflow. You find that there is a very clear cycle for this.
One of my favourite fishing tackle stores is in Melbourne. They have a great range of products, know what they are on about and provide great service. Over the past year or so, I have noticed that they are having regular sales in the sixth week after the end of each quarter. This is because they have the Tax Office commitments to meet. They need to free up cash to pay our friends in Canberra. Knowing this, you, as a customer, can manage your time for purchasing gear.
The same thing occurs in a lot of businesses (especially retail). Have a look at the sales cycles and you will see a trend. The margin is better in your pocket than the retailer’s!
Any time you look at the cashflow in your business, get behind the issue to find out what is driving it. Sales too low? Margins being squeezed? Inventory too high? Expanding? Diversifying? Any and all of these can have a significant impact on your cash reserves.
Cashflow management can be difficult. But when you look behind the numbers and develop your understanding of what drives your cashflow, you will be in a far better position to make the decisions and changes needed to improve things.
We have access to some really powerful cashflow modelling tools that will enable you to see the real picture – going forward. If you would like to have a chat with us about how we can help you get a better handle on your cashflow management, give us a call!
Organisational culture is a nebulous thing.
In many discussions over the years with customers, colleagues and others, the issue of what is a “good” culture is the hub of the conversation. Everyone wants to work in or with a business which has a great culture. Not surprising really, but what does that actually mean?
One of the most interesting conversations on this topic was with a colleague a number of years ago. He viewed our business as having a “great culture” and wanted to replicate this in his own business. Fantastic.
Even though he is a competitor, I wanted to see him have a wonderful culture in his operation as this would make him, his people, his customers – and us, better. Why? Because, as his business improved, he would provide more and better competition to us which ensures that we keep ourselves sharp, challenged and developing. This can only be a good thing. I have always found that where you develop everyone around you, you improve yourself.
In our discussions about how to undertake this, he wanted to know what we did and how we did it. That’s fine, but you need to remember that you cannot copy a culture. It is something unique to every group (business, social, sporting etc) and what works for one will not work for another.
I have just read a very interesting article on this topic by Steve Tobak in Entrepreneur. In short, I agree with his thinking, but believe that trying to copy what works in one organisation won’t work in yours. Take the lesson, not the method.
Getting back to my discussions from some time ago, we were discussing how our approach is that we try our best to “set our people free”. This means that we empower them to take their own path and develop in ways that matter to them. If this is broadly in line with the organisational vision and purpose, this has to be a good thing. Where you sit on them and ride the hell out of them, life becomes that much more difficult.
In discussing the management style in my colleague’s firm, he explained that he was a micro-manager. In effect, he was showing his crew that he didn’t trust them, that he was fearful that they might go “off reservation” and that his issue was one where he needed to feel in control at all times.
Not sure about you, but I could not work in an environment like that. Tried it decades ago when I started by accounting career and it was so stifling that I had to get out. It doesn’t instill enthusiasm (in fact it kills it), severely constrains innovation and creates an environment which people want to leave.
This past week, I have revisited a TEDx presentation by the great Ricardo Semler. He gets the idea and has been practicing the approach for decades. Yet most organisational leaders are fearful of adopting the approach which he did in his organisations. In most respects, they are the same as my colleague – unable to make the leap of faith in their people to enable the culture that they desire to have a chance of living.
We must remember that the vast majority of people in the world want to do good. They want to be involved in an organisation that exists to deliver something and provide some value to the world. Not wanting to get philosophical here, but it is part of the human condition.
By not trusting your people, by sitting on top of them and communicating (through words, actions and example) that they aren’t good enough, you’re getting the desired outcome – they will believe they’re not good enough. Then they will leave. Or, worse still, they will stay.
You need to release yourself from the thinking that holds you and your business back if you are going to truly lead. Simon Sinek, in his inimitable style, puts it beautifully.
Near the end of our discussion, my mate asked me when I knew the culture in my organisation was good. I told him that I didn’t. But I did know when things weren’t right as the “feel” of the place changed and became less “flow-like”.
If you want to create a superb culture in your organisation, you need to get out of your own way. That’s not nebulous.
Are you developing as you get older or are you stuck in a rut that is “comfortably uncomfortable”?
Over the years, I have seen many people who age gracefully but, at some point, don’t really seem to continue learning to stretch themselves and they merely repeat the efforts of the previous year (decade?) As I ask my guys in here – do you want 20 years’ of experience or one year’s experience repeated 20 times?
Learning is a constant and, as technology develops and continues to develop (Moore’s Law), the perspective from which you assess your business and the direction of your learning needs to change.
I was discussing this with one of our customers the other week – he works in the trades and is an incredibly competent and highly experienced tradesman. He does however have a fear of technology and this is starting to hold him back in his progress through his employer. As we were discussing the issues around the use of IT by his employer, we analysed what would happen to him in the not-too-distant future if he continues to try and deny the changes that IT is imposing on his industry. His employer is now requiring all quotes, jobs, variations and billing to be prepared on cloud-based software. This is placing this very senior and experienced tradesman (and exceptional man manager) at a distinct disadvantage and, in discussions with his employer, is holding him back from moving further through the business. As we continued our chat, he recognised that unless he makes the effort to embrace the changes being imposed, he will go the way of the dinosaur – incredibly well adapted to their environment – until their environment changed.
I am also seeing this in the accounting industry and have made numerous observations about this over the years. In discussions with an advisor to the accounting industry last week, they indicated that a lot of firms are covering their ears, closing their eyes and shouting “la la la” as loudly as they can hoping against hope that the changes won’t impact them. The advisor indicated that, based on their observations, the vast majority of firms are adopting this approach. This form of denial is not exactly sensible or sane. Just because the majority of the industry is not making the move to ensure their future doesn’t mean you shouldn’t.
Commoditisation of the accounting space is happening and happening quickly. The Economist published an article in January 2014 about this and the fact that (according to the authors) there is a distinct likelihood (94%) that accounting services will be replaced by automation by the early 2030’s. This creates a conundrum for the owners of accounting firms – what business are they actually in?
My Verasage colleague, Ron Baker, in his seminal book “Implementing Value Pricing – A Radical Business Model for Professional Firms” (Wiley, 2011) provided a summary from Maister, Green and Galfords’s book “The Trusted Advisor” of the things that customers of accounting firms want from their advisors:
- Make an impact on our business, don’t just be visible;
- Do more things “on spec” (ie: invest your time on preliminary work in new areas);
- Spend more time helping us think, and helping us develop strategies;
- Lead out thinking. Tell us what our business is going to look like after five or ten years from now;
- Jump on any new pieces of information we have, so you can stay up to date on what’s going on in our business. Use our data to give us an extra level of analysis. Ask for it; don’t wait for us to give it to you;
- Schedule some offsite meetings together. Join us for brainstorming sessions about our business;
- Make an effort to understand how our business works: sit in on our meetings;
- Help us to see how we compare to others, both within and outside our industry;
- Tell me why our competitors are doing what they’re doing;
- Discuss with us other things we should be doing; we welcome any and all ideas!
Note how very little in this list could be expanded to include “preparation of financial statements and Income tax documentation”.
For those firms that are in “compliance lock” and not doing for themselves what their customers are wanting, how in God’s name are they going to be able to do what they are avoiding for their customers? They will be like my tradesman customer – really good at stuff that no longer resonates. This is a death sentence.
So, as we age, and as the world progresses around us, we need to keep learning – to be alive to what is going on in our industry and outside it. We need to “read the tea leaves” to understand the impact that change is going to visit upon us. We need to adapt.
Because, if we aren’t doing this, we surely will go the way of the Dodo (or dinosaur). At the end of the day, it is a matter of choice. Get out of the rut.
For years I have had to put up with lawyers telling me how good we accountants have it compared to them. “You get your clients coming back every year for their tax return – we don’t” is their chant and mantra. They bemoan the fact that they are only needed when there is an “issue”.
Given what I see as coming up, they will lose their chant.
It is becoming increasingly apparent that the world of tax returns and financial statements (or “compliance” as we know it) is going to change markedly in the years to come. The timeframe over which it occurs could well be under three years.
What we are seeing is the development of software and IT “solutions” that effectively feed information straight from your customers’ records into the Tax Office. This means that they will gather data on you more quickly and before any accountant (unless you have one doing all the entries) gets a look at it. From where I sit, this poses a range of challenges to anyone and will create a highly targetted and focussed audit approach from the regulators. When we consider the speed with which information can now be obtained on a business (daily bank feeds with automatically coded transactions), it isn’t that great a leap to have nearly everything automated.
So what does this mean for the classically-positioned compliance firm working around Australia? It means that their service offering is going to be removed from them and they are going to have to find some new ways to service their customers. It won’t be based around the “compliance factory” that has been a staple for years. It will not be around the preparation and lodgement of financial statements as this will be largely automated and make the accountant/bookkeeper redundant.
The really sad thing is that, like most change, not many accountants that I have spoken to are aware of what’s coming. They believe that things will just continue on their merry way. They are also generally the ones who haven’t grasped the whole technology thing in any way and don’t “get” the Firm of the Future thinking with regard to their businesses. This is sad.
Thinking about what will happen flowing from this is that a lot of the accounting firms will then start lowering their prices to try and attract more customers as their prices to their existing customers will drop markedly (especially where they bill by time). This will place more pressure onto staff, more stress on their already overloaded systems and drive many to the brink.
Then have a think about those industries that have been established to “offshore” the processing – they will disappear too. If there is no need for the work, it doesn’t matter where it gets done! The flow-on from this for a number of these businesses will be significant.
However, there exists a terrific opportunity for those that do understand what is coming and make the changes necessary in their business to adapt to the new environment. The old business models will disappear and the focus of the customers will be on engaging accountans who can add value and do not bill by the hour. They will seek advisors rather than reporters. They will seek a professional relationship with a trained and experienced expert with knowledge and training in the areas that matter. I am afraid that someone who is really good at processing “I” Returns will be at a significant disadvantage in this new world.
So when my lawyer mates continue to gripe at me about how we have an “annuity stream” from tax work, I will gently remind them that this is coming to an end. My concern is that it will take a lot of our accounting friends along for the journey.
In recent weeks, I have spoken with nearly ten firms from around Australia on their desire to move from the “firm of the past” model (timesheets, billing at the end, micromanagement etc) to the “Firm of the Future” model as espoused by the Verasage Institute (www.verasage.com) and Ron Baker et al.
In all of the discussions, it has shown out that the biggest barrier that these firms face relates to micromanagement by the Partners/Directors of their people. The soul-destroying and de-motivating nature of this management approach is incredible.
Imagine if you will, an office full of highly experienced and qualified people who are wanting to help their customers achieve great things. Imagine further that these people are very smart who also want to contribute to the success of the business within which they work.
Now imagine what happens when the Partners or Directors of that business will not allow anything to be done without their direct involvement, nothing goes out unless it is signed by a Partner or Director, no customer interview happens without a Partner or Director in fact, nothing happens without a Partner or Director being involved. What message is that sending to the smart, experienced and qualified people working with them?
The message: I DO NOT TRUST YOU.
If your people are not good enough to trust, they are not good enough to employ.
Many of the Partners and Directors of a lot of accounting and legal firms are highly technically competent people. Unfortunately, they are not great managers. I am not sure whether this comes as a result of their training or whether it is a deep-seated personality issue. Either way, it impacts incredibly negatively on their business.
They simply are unable to see (or, to be honest, appreciate) the exceedingly positive things that flow when you help, assist and free your team up to be resonsible and accountable and to embrace responsibility. To show that you trust them. To allow them to make mistakes – and support them when they do.
I will finish off by providing an example – over the past couple of years, we have been dealing with a customer (fantastic bloke) and have built a relationship with the CFO of the business of which he is a part owner – another firm does their external accounting and tax work. Now, the CFO has handed in his resignation (relocating due to family issues) so we were approached to come in and assume the role of CFO. The role will be fantastic and allow our people to utilise a range of skills that they collectively possess across a number of facets of the business. Fantastic.
But the exiting CFO also wants us to assume a role with the business he is going to. He loves the relationship he has with our team. He enjoys the way that we work with him and his colleagues. And we enjoy the relationship back!
Now, the bottom line. How much time do I spend on the file? Precious little. How much involvement do I have with the original customer? Very enjoyable lunches ideally every month or so. How am I involved in the new CFO role we are taking on? I’m not. Our fantastic crew are doing it.
How would this be able to happen if I was micromanaging the whole thing? It wouldn’t. No way.
It all happens because we have a team of experienced, smart, qualified and engaged professionals who have the freedom and autonomy to act professionally and use their skills. Oh, that and the fact that I trust them.
Great post from one of my colleagues in Verasage – Greg Kyte. He is incredibly unusual – an accountant who also works in comedy (there are some lines there that I won’t use!) – have a read and see how silly both people and tax officers can be. Note that this is from the US of A.
Have a read of the post here.
We are absolutely thrilled to announce that mta optima has been selected as a finalist in two categories for the CGU Commerce Ballarat Business Excellence Awards for 2012. It is the first year we have been nominated for the awards which is doubly pleasing!
The two categories in which we have been selected are:
- Mercure Ballarat Hotel and Convention Centre Professional Service Award; and
- Newbiz Online Presence Award.
The final decision as to the winners of each category is announced on 30 August – we’ll see how we go!
Thanks go to Tim (our GM) and his team for submitting our applications with such style and care.
I recently had an article posted on the Verasage Institute website which tries to draw an analogy between the consultants to the accounting/legal professions and the “50 Shades” trilogy of books which has been taking the world by storm.
If you’re interested in having a read, the post can be found here.
There is a fair bit of “doom and gloom” out there in the economy at the moment – and I can understand why.
Every day you read the paper or listen to/watch the news and there are stories about businesses closing and the stress that family budgets are under. There is very little good news out there (that gets reported anyway!) for us to reset our focus onto when things look this grim.
I must admit, the ecconomy is not looking that great at the moment and the new imposts that will be introduced later this year will only serve to increase the financial burden on a lot of businesses and households. The carbon tax in particular is going to have a significant impact on a wide range of businesses and the level of this impact is yet to be fully understood.
However, I must admit that, being the eternal optimist, it is times like these that create massive opportunities for those businesses and people that look to take advantage of the situation. Many businesses will be looking at ways to cut costs and reduce their expenses – they won’t replace staff that leave, they’ll reduce their advertising, they’ll look to find cheaper suppliers for the things they do need and they will generally contract to try and protect themselves.
Whilst this may initially seem an attractive option, let’s think it through a bit further (not an exhaustive list):
- where everyone else is contracting, a business that maintains its service levels will actually improve in comparison to their competition;
- by being positive about the opportunities, you will attract other people and businesses that are like you and will help you achieve your goals/plans;
- supporting your existing suppliers through times like this will build incredible loyalty (especially when you let them know that you’re doing it – don’t assume they know) that will be of great value to both of you down the track; and
- the possibility for opening up new market opportunities created by the contraction/exit of other suppliers can be very profitable to leverage in to areas that were previously a bit difficult to get in to.
Having been through a few economic cycles now, it is really amazing to reflect on those businesses that took the opportunity created by adverse economic conditions to grow their operations. I’ve seen it so often and the approach (with proper planning and implementation) can yield substantially improved business performance along with increased wealth and satisfaction for the owners of the business.
It all depends on your viewpoint – is the glass half full or half empty? Is it a time of adversity or is it a time of great opportunity (in camouflage?)….
Over the last couple of weeks, I have had the pleasure of travelling around Australia (bits of it anyway) with Ron Baker – the Founder of the Verasage Institute. Ron is the world leader in the concepts of The Firm of the Future and fixed price services from professional firms such as accountants, lawyers, IT guys and the like. He has written a number of books on this and other topics and has a great presentation style. Anyway, enough about him – on to the message!
Ron discussed at his presentations in Hobart, Melbourne, Brisbane and Sydney the perceptions that customers have as to value they get from the experience they have with their advisors. As he mentioned, the examples of the value that can be added (by accountants in this example) include: budgets, business plans, tax advisory work and the like.
Ron argues (and I think he’s right here), that at least two-thirds of the value that we provide to customers is “intangible” or, as he puts it, “spritual”. The argument goes that the care provided, the thinking, the concern and the other “stuff” that comes from a very positive, open and frank relationship is held in much higher regard than a tax return or set of financial statements (which are often a grudge purchase).
Thinking about this over the past week or so has shown that he is right. The things that I value in the relationships I have with my advisors are not really connected with their professional competence (that’s a “table stake” according to Ron) – it has to do with their apparent concern and care for what’s going on in my life.
This approach and the underlying decency inherent in it will gain a lot of traction in the coming years. Things will move from “we’re the expert” to a more collaborative approach where advisors and their customers will work together on mutual goals and achievement of the things that are really important to and for the customer – this can only be a good thing on so many fronts.
So when you next have the opportunity to assess the quality of your advisor, have a think about how much “intangible” support they provide you. It might well be a pause for reflection – by both parties!
As it was said somewhere before – people don’t care how much you know until they know how much you care.