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We all know that cash is king. Knowing you have cash is one thing but to know how it will be impacted by key strategic decisions is another.
I talk to many clients and ask how versed they are with their cash position i.e. do you know where you are at financially at any point in time? Most clients are aware of how much they have by information provided by their bookkeeper or knowing what is in the bank.
While I understand this is the most accessible form of information, if you have growth plans or strategic changes underway, it is imperative you know how these impact your cash position. More importantly do you have the cash in the business or access to cash (working capital) to implement these strategies?
This is where I use and recommend ongoing cash flow forecasting. I live by it and always have because of its value in helping you prepare for anything that may happen in your business.
For example, if you decide on a 20% growth plan and you have debtors days of 60 days and creditors of 45 days, you need to see how your cash flow is impacted, i.e. if you then start invoicing 20% more and wait the same number of days to receive payment, coupled with purchasing 20% more in goods and services and pay in your usual terms, the above scenario could cause a cash drain on the business. Now depending on the changes in dollar terms, whilst this 20% growth target sounds like a great idea, it could be catastrophic to the business if you cannot cover that cash flow drain. This is what's referred to as your working capital requirements.
This is a simple example, however one I come across all the time. That is why I do believe a cash flow forecast is worth the paper it is written on, and a very important step in knowing the numbers for your business.
If you need a cash flow forecast prepared or would like to discuss the cash flow requirements of your business, please feel free to contact one of our team here at Rochdale on 6620 0300.
On behalf of the team at Rochdale Accounting & Financial Services, I would like to wish our valued clients and friends all the best for the festive season and a happy and healthy 2012. Our office will close at 12.00pm on Thursday 22nd December and re-open at 8.30am on Monday 9th January.
Until next time,
Troy
Over a series of Blogs I thought I would share some of the experiences I have had in my career. Although my specific commercial time only spans a period of 7 years: it was certainly action packed and has taught me some valuable lessons. Lessons, which I continue to draw back on when helping clients through their own journey's in business.
My career started in 1991 when I started Uni and shortly afterwards decided to work in my chosen field of Accounting and continue my Uni study part time. I could not see myself sticking at the theoretical side of my chosen career and wanted to start applying it practically as soon as I could. It is interesting my first choice as a career was a fighter pilot, however colour blindness prevented me from doing that. I have no regrets because as it turns out my business career had me dealing with the defence force in a major way, which was the next best thing really (more on that later).
I had some great mentors and got to work in some very reputable second tier firms in Brisbane. Having worked with BDO Nelson Parkhill (as it was formerly known) and Grant Thornton I was 7 years into my career and making good progress, however I found that whilst I was advising my clients on all aspects of their business I really did not know what it was like to be in business. Our training to this point was very technical and I could not effectively advise on all facets of business. My audit training to date did provide me some insight however I wasn't quite sure.
My family had their own business in Darwin and I was their Accountant (thankfully they had made that decision) and it was getting to a point where Dad needed more help. My two brothers and Mother worked in the business, However none of them had any formal training just a good work ethic and an opportunity to be involved in a business. So in 1997 I make the decision to leave the public practice arena to try my hand at commerce. I had no idea what impact that would have but have never regretted it.
So I turn up to work in January of '98 and as can be the case in many family owned businesses, communication is not always the best and my role had not really been explained to my brothers. Without that communication at the outset we were now working in a world of perception, which is never good. Suffice to say one of my brothers did not stick around too long and is very sad as he has never spoken to me since, nor my Mum and Dad. The man can hold a grudge!
My mandate (my objective) was to establish what we should be doing with a strategy for the business, i.e sell, close the doors, or try and set up the business to trade its way into a good position to provide Mum and Dad for retirement. They had lost virtually everything when they owned pubs in Warwick Qld. I was 26 at the time and naively thought this would be easy.
The business was essentially a wholesale business of food and grocery items, and we were what was called a Ships' Providore. We supplied all grocery and catering needs to the offshore oil and gas industry and general shipping. I soon established our market place and our competitors. A couple of small players and our major competitor "Sealanes", which was quite significant in size and operations in Darwin and on the west coast, and based in Fremantle. The way the staff talked about them and particularly my Dad, it was like two rivaling footy teams and it does not matter what they do, you just hate them. If a ship pulled into Port and you did not have the contract already in place, you had to be first onboard to get the gig. I likened this to tow truck operators are at the scene of an accident. Very cut-throat.
Anyhow I felt I had something to work with, with this business and could see potential, so in my mind just closing the doors or just selling seemed a waste. After lengthy discussions with my parents, they knew they could not retire anytime soon and on the basis the company was worth nothing at that time, trading their way forward was the best way to go with a sale some time in the future, and yes you guessed it, my view was that our rival footy team was their ticket to retirement.
So that was my plan, I set a three-year timeframe and away we went. I did not know this at the time, but that essentially was the business plan. It was not very well thought out and the implementation of the plan was not established yet but a vision was there. In hindsight l learnt that this is where all successful businesses start - with a vision. However that will never be enough. What I have learnt through my own mistakes is that you need to take that vision and break it down into a well thought-out plan and this is where my advisors should have come in. They knew what my plan was however offered no assistance or even a sounding board. This is common with a lot of Accounting firms and business advisors. I have taken this lesson into my role as a business advisor now. When I become aware a client is about to embark on a new venture, I will insist I be there in some capacity to play devils advocate.
To be continued...the next chapter is about the next phase in the plan: "becoming competitive"
Regards
Troy Furness
Rochdale Accounting and Financial Services is part of a network of accountants that is ranked in the top 10 accounting firms across Australia.
BRW magazine has just released the annual Top 100 Accounting Firms, ranked by Revenue for the 2010 – 2011 period.
Newcomer to the list, the Proactive Accountants Network has come in to the top 10 as firm number 9 ranking alongside industry heavyweights such as PwC, KPMG, Ernst & Young and Deloitte.
Rochdale Accounting and Financial Services is a member of this network, made up of firms from across Australia and New Zealand.
Interestingly, Proactive Accountants Network only launched as an official network in May 2011 with 65 members. In only 5 months it is now over 80 members strong generating $135 million in revenue each year.
But what does that mean for you?
A proactive firm will focus on long-term interests and overall business success rather than being an accountant that just offers compliance and tax related services.
By becoming a member of this network, we have committed ourselves to being proactive and setting ourselves apart from the rest. It allows us to broaden our expertise by being a part of a network but still remain independently owned to service our clients within our region with the same personalised service we pride ourselves on.
Here at Rochdale we offer advice to help your business reach its potential such as:
· How to grow your business
· How to improve cash flow
· Increasing profitability
· Advising on succession planning or sale
· Ensuring your assets are properly protected
· Doing everything legally possible to minimise tax
· Planning for financial retirement
When I am working with a client I go through a process to establish their real objectives. Out of that we develop a targeted action plan to follow. Our involvement can be at varying degrees, from providing tools to implement the plan themselves to working side by side to see the plan through. I encourage a quarterly catch up to ensure the focus remains and the business owners stay accountable to the implementation of the plan. I have found over the years it is quite easy to come up with the ideas but very hard to be disciplined enough to work on your business and see the implementation through within the desired timeframe. The role probably becomes more of a business coach and mentor rather than an advisor. As quoted by well known business coach Michael Sheargold “the power of an idea is in its implementationâ€
Over the next few months I will be sharing some of my own stories in business, which will provide the readers an insight to my experience and history. I will point out the lessons I have learned by the old school of hard knocks, with the aim to save my clients the same mistakes. Look forward to sharing it with you and any comments, questions or feedback you may have.
Signing off until next Blog.
Troy
The purpose of my blog is to reach a wider audience and provide information and my ideas. I have spent the last 15 years working with small business owners including 7 years owning my own business. I have learnt a lot from that experience and most of it from mistakes I have made first hand. My aim is to work closely with my clients and provide my expertise to improve your business and thus your quality of life. Check out our website for the key areas I like to focus on Growth, Profits, Cash, Asset Protection and Plan My Future
My blog will always be a work in progress so I would appreciate your feedback, or if you require any more information please post a comment or email me at troysblog@rochdalehouse.com.au and I'll respond as soon as possible.
Of course, nothing beats direct contact so please feel free to call my office on 02 6620 0300 or email me to arrange a meeting.
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