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9 Steps to seize Control of your
Back Office
A Special Report for Queensland businesses prepared by The CERTUS Group the accounting professionals.
1. Decide how much detail you want in your accounts and use the appropriate accounting system.
Your starting point when considering your back office system is to decide exactly what it is you want out of it. Spend five minutes thinking about the subject, then jot down two lists. Call them the ‘essentials list’ and the ‘wish list’.
The ‘essentials’ are fairly obvious. The system must be able to allow you to comply with the law, particularly tax law. It has to give you the information you need to be able to prepare a BAS and run the payroll. Your accountant also needs to be able to prepare a tax return based on its reports.
Now look at your ‘wish list’. Some of the items on it may be things like ‘detailed profit and loss statements’ or ‘detailed breakdown of revenue’ or ‘expense reports for employees’. The possibilities are endless. It’s possible, in fact likely, that your wish list will change when you have read the rest of this report, so leave it open for now.
Once you’ve compiled your list, ask yourself whether your current accounting software and procedures are capable of delivering what you want. Now, don’t be surprised if the answer to your question is actually ‘yes’. Most modern accounting programs such as MYOB, Quickbooks and the like are amazingly powerful. There isn’t much they can’t do provided that they are correctly set up and configured.
It’s true however that more than 90% of such systems are not delivering on their promise. This is because either they’re not correctly configured in the first place or the operators aren’t performing their work systematically.
It’s a fact that many, (possibly most) accounting systems in are actually ‘overkill’. They’re far too complex and timeconsuming.
In practice they tend to deliver only the items on the ‘essentials list’ and little, if anything, on the ‘wish list’
So, if you are finding that your powerful accounting program isn’t delivering the reports you need, what’s the solution? Well, there are actually two possible solutions.
Firstly, you can streamline and refine your existing system so that it delivers on your ‘wish list’. You’ll find many techniques for this further in this report. This approach has the advantage of keeping what you have already got.
Remember though, you may have to unlearn some bad habits! The second solution is to change your accounting software and procedures altogether. There are several accounting packages that are far simpler and therefore less timeconsuming than what you may be using now. In fact, one popular system called Banklink actually pre-processes most of your transactions automatically. In spite of their simplicity, many simple systems are perfectly capable of delivering most, if not all of the items on your ‘wish list’
So, how do you decide which way to go? The answer is that there is no one-size-fits-all answer. Every business is different. But as a start, read through the rest of this report. Then, you should talk it over with an accountant familiar with your industry and willing to take the time to help you make the right choice.
Remember, an accounting system is not an end in itself. It’s just a tool that adds value to your real business, which is, of course, selling and managing properties. It should give you what you want and then get out of the way.
2. Document your system. Most businesses are pretty organised, or at least that’s the impression they like to give. Usually the sales function is organised. Leads turn into sales effort, which turn into sales.
The reason that there are procedures and protocols for sales is that there are usually several people involved. If the process wasn’t properly organised, it just wouldn’t happen.
The accounting function in most businesses tends to differ from the sales function in one important respect; with accounting, there’s usually only one or two people involved rather than a whole team. This means that systems and procedures for performing the work tend to reside in one person’s head, rather than on paper.
There are many consequences of this and all of them are negative. Firstly, it means you can’t effectively delegate. Even if you do try to delegate, you will always have to check the work yourself to ensure that no steps have been missed.
Secondly, you might miss things. If you have checklists to complete as part of your process it’s far harder to make a mistake.
And thirdly, the very process of documenting your system tends to enforce simplicity. Putting it all down on paper forces you to think systematically. Effectively, you’re explaining things to a blank sheet of paper.
Now, I often run into resistance when I suggest documenting an accounting system, but consider this: It should not take more than two hours to document your whole accounting system and the procedures should not exceed five pages maximum. If it takes more than two hours or five pages, change your system, it is way too complex.
Your document should not be a textbook on how to operate the software. You probably already have one of those. It should be a simple, plain-English summary of the steps you take. Always make use of checklists where appropriate. Your ‘target audience’ for the document should be someone who already has a basic understanding of the software and just needs a general overview of what to do.
Again, for guidance, talk to your accountant about developing the documentation.
3. Make sure the right person is doing
the right work.
Why do you come to work each day? Is it to do bookkeeping? No, I don’t think so. Your job should be the real work of the business; getting customers and sales. So why is it that so many business owners do the bookkeeping themselves? Is that really the best use of your time?
Here are some common reasons why business owners do the books themselves:
“It’s the only way I can keep in touch financially…”
No it isn’t. Grinding through transactions won’t tell you what you need to know. But quality financial reports will. Like any business owner, you need regular, accurate, pertinent reports. Do not waste your time crunching numbers.
“I don’t want the staff to know my personal financial details…”
Get over it. Tell the person who’s doing the work that it’s confidential. That’s all there is to it. Confidentiality is part of the job. If you seriously have concerns about your staff’s ability to maintain confidentiality, stop reading now, you have bigger problems than this report can address.
“It would be too hard to explain to someone else what to do…”
See ‘Document Your System’ above. If you have done your job properly it will be a piece of cake.
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4. Take the time to look at your own financial statements.
It might seem obvious, but one of the reasons that you have an accounting system is that it can produce financial statements.
Amazingly though, many business owners don’t actually look at their profit and loss statements and balance sheets from month to month. There can be a number of reasons for this. The ones I usually come across are:
“I can’t rely on the figures, my accountant always makes a thousand adjustments, I never know which is right…”
That’s because your accounting system either isn’t correctly set up, or properly maintained, or both. This is a simple practical issue. If your accounting system is correctly set up and maintained there should only be a minimal number of accountant’s adjustments through the year or at year-end. If your set-up and procedures are good, your reports will be reliable.
“I don’t really understand this stuff anyway. I know what is in the bank and what our sales last month were so what else is important?”
You can fly a plane or drive a car without looking at the instruments. That doesn’t make it a smart thing to do. The same applies with business. Financial statements can give you the story behind the story, or at least tell you where to start looking.
For example, consider ‘variance analysis’ which is a flash name for a simple idea. Just compare your income and expenses to the same period last year. Identify the major differences and investigate them. That way you stand a chance of fixing what went wrong and consolidating what went right.
Work out your breakeven point. Work out the actual cost behind securing each sale. Understanding these things can help you focus your marketing effort. These are just a few of the valuable uses that financial statements can give you. And again, your accountant should be able to help you choose, read and interpret these reports. Which brings me to my next point…
5. Demand regular reviews with your accountant
Take a ‘consumer attitude’ with your accountant. If all you get from your accountant is a bound set of financials, a tax return and a bill, then you, and your accountant, are really missing the point.
Accountants in public practice spend years at university, do post-graduate work and by the time you see them, they’ve often had years of business advising experience. These are people who can seriously add value to your business. So if you don’t think you are getting your share of that value you should be asking yourself why.
At the very least, you should be getting help with all of the topics I have discussed above. And in the long run you should be saving money on your accountancy bill also because the major cost in compliance accounting is sorting out substandard client records.
Basically, if your books are neat and reliable, your fees for compliance accounting should be less.
6. Set budgets
There’s no special reason why your type of business should set and monitor budgets. It’s just something that every business should do.
Half the value in having a budget is the benefit you derive from setting it in the first place. It forces you to look at your business with a critical eye. It makes you question what you’re doing and how you do it. When things go off the rails, your budget will help you pinpoint the problem.
Financial accounts are about telling you what happened in the past. Budgets are about predicting the future. The future is going to happen whether you want it to or not so you’d better be prepared. Budgets are your opportunity to plan for success and to spot avoidable problems while there is still time to take action. Budgets are an essential tool in managing cash flow.
The other virtue of budgets is that they give you something to aim for. Don’t make them impossible, but don’t make them too easy either.
Almost all accounting software programs allow for budgets.
7. Capture, create and use Key Performance Indicators (KPI’s)
Fortunately, a lot of businesses are doing this to some extent already, although they may not call them KPI’s.
KPI’s are like the instruments on your car’s dashboard. They are a handful of critical statistics about your business. To be effective you should only look at a few of them. Typically they will include monthly measurements like the numbers of new customers, new contracts, leads converted. and actual cash flow versus budget.
This list is not exhaustive; what suits you will depend on your own circumstances.
KPI’s are complimentary to budgets. Budgets are about setting the standard for the future. KPI’s are about the here and now.
They’re your early warning signals.
8. Don’t be afraid of change
Changing your accounting systems and procedures should not be a major drama or take a great deal of time. In my experience, problems will only arise when you try to take shortcuts or act without planning.
Pick your moment. Often the best time to make major changes is at the beginning of a quarter, but if your system has serious problems, any time is a good time.
Which brings me to my final point…
9. Seek professional advice
An ounce of prevention is worth a pound of cure. Remember that you are not alone. Your accountant should be willing and able to help you refine or replace your system.
The CERTUS Group have years of experience in serving the needs of small and medium sized businesses in Queensland. We enjoy the challenge of adding value to our clients’ businesses.
We’d love to be a part of your success too.
Call David Thomson, John Pearce or one of the team today to arrange a meeting at your office to discuss how we can work together. |
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