We recently talked about the drivers that creates business results, the next part is to ask what you are going to do about it? Your budget won’t just give you a monthly sales target, for example, it will help you quantify the drivers that will produce the result.
For example, if next month’s sales target is $120,000, that end-result figure is not your focus. Not on a day-to-day basis. Knowing the underlying drivers, your focus will instead become, for example:
Now you and your staff have a clear focus and are 100% accountable.
Previously we explored the importance of deciding on a direction you want go and why it is so important to budget and set goals, today we take the next ‘step’.
As you well know, sales just don’t happen. Costs don’t just drop because you want them to. Sales and costs are a result of other underlying factors. Put another way, they are symptoms of causes.
The business budgeting process quantifies the symptoms, and by asking a series of ‘What leads to this number?’ questions, it also identifies the underlying causes.
For many, the word ‘budgeting’ is about as appealing as the word ‘diet’.
It seems to imply what you will go without, rather than what you will achieve.
To a successful business owner, however, the word ‘budget’ has a very different meaning.
It’s more like a map than a diet. It’s an outline of where you want to take the business, and what you need to achieve to get there.
Over the next few days we will give you three reasons why your business needs a budget.
Single Touch Payroll ( STP ) is a new system that will require all employers to maintain their payroll systems on a computerized payroll package that will communicate with the ATO. (Australian Tax Office)
Every Pay period, STP will provide the ATO with
This information will then prefill the Business Activity Statement ( BAS ) and Instalment Activity Statement (IAS) each reporting period.
The role of the accountant has evolved and value adding is crucial. What was once the ‘traditional accountant’ has now become the ‘outsourced CFO’ as businesses now turn to their accountant for strategic advice. Below outline three basic methods accountants can value add and ultimately create a competitive advantage.
Managing cash and the levers that optimise an organisation’s liquidity is critical to its success. The administration of these components is known as working capital management. A business without sufficient cash to be able to pay their debts will fail. Conversely a business with too much cash available will endure an opportunity cost from investments not taken up.
Finding the right balance is key. One measurement of working capital is Inventory plus Accounts Receivables less Accounts Payables. To decrease working capital, an organisation can reduce the amount of inventory it holds, reduce debtor levels, or increase trade creditor levels – ultimately increasing cash flow.
Accountants play a critical role in being able to advise what the optimal level should be and provide methods of achieving this, examples include:
Without measures to assess organisational goals, businesses will be unaware if targets are met, they will remain static, and will not find areas of improvement. Accountants can provide these measures through various means – for example:
One valuable measurement tool is the balanced scorecard (BSC). The BSC provides a framework for developing financial and non-financial measures to monitor the achievement of an organisation’s strategic objectives.
It takes a wholistic approach and breaks down the organisation into four perspectives: financial, customer, internal process, and learning and growth.
Goals are determined for each quadrant with accompanying KPI’s used to measure performance.
Traditional costing methods allocate overhead costs to products or services based on a single organisation-wide measure.
This can spell a recipe for disaster, for example:
Fortunately, todays accountant has an accurate solution – Activity-based Costing (ABC). ABC allocates overhead costs based on the amount of activity required to produce the product or service. Through the use of such techniques accountants can better position their clients to maximise wealth.
Businesses can now assess their core competencies and create competitive advantages. These value adding techniques are only a few of many available, and are necessities to obtaining success in a highly competitive world.
By Adam Jacobson
Aged care is a complex area that often requires careful consideration and advice from a suitably qualified expert with relevant skills and knowledge.
Whether you are considering aged care for yourself or for someone else your trusted advisor can provide you with some basic understanding when it comes to making an informed decision.
Are you feeling unwell? (cough, cough) How do you know when to visit the doctor? How do you know when your business accounts aren’t feeling well?
It is important to reconcile your business bank accounts regularly. Reconciling your business accounts regularly avoids any documents being misplaced before reconciling and it also detects potentially fraudulent entries early. Whilst your bank account now reconciles to your statement ensuring you review the un-presented items on your bank reconciliation report and you can also investigate any long outstanding transactions or unusual items that you know have occurred. Keeping in mind that these transactions may be duplicates.
Always remember to review the creditor’s detailed report and if an invoice appears that you’ve already paid, then it is possible that the payment may have been allocated incorrectly and require appropriate action or the invoice could possibly be a duplicate.
Also, ensure that you have not forgotten to pay a supplier. Whilst these things can happen and a supplier might not have contacted you for the payment it doesn’t mean they’re not grumbling about it.
As accountants, we come across many instances where clients either do not have any personal insurance cover at all or insufficient cover to meet their needs in the event of serious injury or illness.
Most people don’t think twice about whether to insure their car or their home, but often don’t consider the importance of life insurance. Personal Insurance cover will enable you and your family to maintain the same standard of living by providing payments to cover any outstanding debts and everyday expenses.
By making sure you have the right cover and with the right terms is crucial. We recommend reviewing your policies on a regular basis.
Key Performance Indicators (KPI’s) are measures that a business uses to track performance and measure outcomes.
A Key Performance Indicators quantifies how successful an organisation is in achieving its objectives. No two organisations would utilise the exact same set of KPI’s to assess performance, even if they are direct competitors in the same industry.
Prior to developing a Key Performance Indicators, there are a number of factors that need to be taken into account. These include understanding what is being measured, and ensuring that what is being measured is useful and quantifiable in terms of determining whether an objective has been achieved.
The trouble is that there are thousands of KPI’s to choose from and companies often struggle to select the right ones for their business. The wrong KPI’s bring the danger of pointing people in the wrong direction and even encouraging them to deliver the wrong things.
Most larger businesses have an internal Chief Financial Officer (CFO) or a Financial Controller. Clearly, larger businesses can afford an in-house CFO, but it goes beyond an affordability issue. Large, successful businesses also understand how crucial the CFO role is to their business performance.
This is management input that all businesses require regardless of their size.