What is really happening in the life of our small business?
As a small business owner for over 20 years, that’s a question I’ve asked myself many times. And one I’ve frequently been asked by other small businesses. It’s often hard to step away from the day-to-day running of things to take in the big picture. But it’s essential to know when to call a stop to the every-day so we can take an objective look at what’s really happening in the business – and use the information to make decisions that will contribute to its overall success.
In days gone by, obtaining useful financial information was tiresome. It took time and money to get accurate, up-to-date data to review in order to understand what was happening in the business. But now we have real-time, single-ledger access to online data – and those of us in small business have fast come to expect clean data. We want to know what is happening on a daily basis – and want to project ahead rather than look at what happened in the past.
As a small business owner, we can act to make sure we’re getting the information we need and that the story it tells about our business is correct.
Vital metrics for your business
- the cash you have immediately available
- your cashflow projections including projected turnover
- debtors – money owed to your business
- creditors – money your business owes to others, mainly suppliers
- your sales tax and payroll liabilities
- income and other tax liabilities for future year and upcoming years
- equity ratio – seeing whether your equity is building and where your money went
Before I started at Xero, I ran several businesses – which included an IT services company and a motorcycle dealership which offered finance brokerage. These were the days of desktop computers. The constant chore of entering a backlog of data – which often got left to last – meant seldom having up-to-date data. This made it very difficult for me to see what was happening in the business.
We all have a gut feel of what’s going on as far as the money coming in and going out is concerned. But often we can’t see the real picture or the trends without actual data. That’s what I knew I needed, so I gave up many nights and weekends to the task of entering clean, accurate data. I lost a lot of family time during this process – not a great work/life balance. Had I adopted cloud technology then – it was just starting to be introduced – my business and my family would have benefited hugely from the real-time access to data and automation it offered.
The basic formula is: Automation + Real-time clean data = Current financial information
The formula + automated bookkeeping
This formula allows the business owner and their advisor to see what is happening. And having a fully automated bookkeeping process is vital to achieving this. Not having a system in place is a direct opportunity cost to the business.
So what does an automated bookkeeping process look like? The first step is connecting with an advisor who can help you set up and implement a system. Then they should work with you to understand, plan and shape your business journey – to put into words what the numbers are saying.
If you choose Xero as your online accounting software, it will not only automate your accounts, but will become the foundation of your business. A Xero advisor can help you to select and use any of the more than 500 software applications that exchange data with Xero, eliminating duplicate data entry and adding functionality.
These tools include Receipt Bank which captures images of source documents and feed them into Xero for you, and Crunchboards which uses your Xero data to tell the story of your business. Crunchboards is a powerful all-in-one forecasting and reporting engine. It gives you and your advisor live, real-time visual reports showing how your business is performing against KPIs and benchmarks, right down to an hourly basis.
But only clean data gives you the accurate financial info that translates into the true clear story you need – no matter whether it’s good or bad!
So how can you get started on the journey to truth? Contact an advisor here.