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A few days ago I had a meeting with a client who had asked for consulting on what systems might be suitable for his business. His accountant had asked to sit in on the meeting as he felt he had something to add to the discussion.

The client was frustrated over the fact that he wasn’t able to get the information he needed to run his business from the software he was using and his concerns mainly revolved around inventory management. He was frequently experiencing stock outs of one product or another, whilst simultaneously his overall stock on hand was far higher than he felt was right. At this point all people present in the room agreed. 

The accountant begun stating lots of arguments for why the current software was “the right solution”. He believed that it was easy to use, it was easy to identify staff who were familiar with the software, it was reliable, offered a “complete range of really good reports”. It was this last point that concerned me:  it was obvious that the accountant’s view of what comprised a complete range of reports only included a profit and loss report and a balance sheet. In simply terms, only all the things that are needed to prepare a tax return. 

The fact that the client might want to access additional reports that would assist in running his business better seemed not to have occurred to the accountant, and I should stress that I know many accountants who would be as horrified as I was by this view!

This experience made me ponder a question: do SMEs in Australia have the financial information they require to improve the performance of their businesses?   In this instance the client felt he did not and was attempting to take the necessary steps to change that, however I know of many other businesses that do not appear to worry about their financials.

There are a range of key factors that really have to be thought about;

Only a minority of businesses routinely run a P&L, and even fewer run a balance sheet. If these reports are run, it is mainly as part of the process of preparing and lodging the BAS, rather than to explain to the business owner or manager.

The businesses that do run reports don't have any tools for analysing whether the figures reported are “good” or “bad”.  For example they don’t compare results to a benchmark of other similar businesses and they don’t measure whether the performance is improving or worsening compared to last year.

For many businesses a report of even more importance is a cashflow forecast.  Not “how much cash did I have in the ballast week or today?”, but “how much cash will I have in the bank each month for the next year?”. This is a very powerful piece of information – this single report can literally be the difference between the ongoing survival of your business and its failure.  Your bank or the ATO will never pester you about a lack of profit, but lack of cash will get their attention very quickly.  Profit and cash are related, but they ARE NOT the same.  Please, please, please run a cash flow forecast: it could save your business.

Very few SMEs prepare budgets regularly. This is a huge difference compared to large business where well in excess of 90% of organisations budget annually.  The only exception to this in the SME sector is not for profits.

In more than 10 years of consulting to SMEs, I can count on the fingers of my left hand the businesses that have expressed an interest in any form of ratio or other financial analysis.
Most SME’s don't keep their accounts up to date – they will for example finalise their data entry and their bank rec after 2 or 3 months in arrears,  thus any reports they do run will be  outdated and more or less useless as a basis for making decisions.

If you're one of the many small business owners that aren't tapping into the valuable insights available from your business data, consider making a habit of running these reports - they really can make the world of difference to your business.

If you find that those types of reports aren't efficient to run from your business software, please contact us for a chat- we can help you to choose and implement systems that will empower you to get a much firmer handle on your business and your finances.
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