Why finance isn’t just for the end of the financial year

I had breakfast the other day with Scott Kilmartin of Haul.

I like talking to Scott about the retail market because he has heaps of experience and quality insight.

He felt that the small independent retailer was on the wane at the moment and on June 30 a lot of accountants would be advising their clients to shut up shop.

That isn’t because unique offerings aren’t palatable to a jaded marketplace, it’s because most small independent retailers haven’t moved with the times and have failed to embraced social, technological and commercial landscape changes.

For instance, any shop that thinks that just having a Facebook page is a social media strategy is almost certain to die.

That got us onto a discussion about accounts, finance meetings and what accountants were saying.

Scott, the proprietor of a retail business, is fairly typical in what he does.

He doesn’t look at his accounts if he has money in the bank, he meets his accountant once a year to discuss tax returns and the idea of having a finance meeting by himself seems a bit silly.

I tried to give Scott some practical advice:

1. If your accounts aren’t useful for decision making change them so they are. The list of accounts on your balance sheet and profit & loss is called the “Chart of Accounts” and you can change them to whatever you want for your own reports. For instance, I like to split out landline, mobile and internet phone calls, rather than have an all-encompassing expense called “telephone”.

2. Try meeting with your accountant four times a year and ask him to offer proactive advice, not just reactive advice on your tax. You may be surprised what he come up with and if he comes up with nothing fire him and get a new accountant.

3. Have regular finance meetings and if you have staff arrange for a senior staff member to be there. You may also like to have an adviser, bookkeeper or your accountant there.

I like finance meetings in small businesses because they highlight what’s going on in the business and the places you need to focus on to become more profitable.

Some of the topics you can cover are:

• Building a budget – so you don’t end up spending more money than you earn. Especially tricky are costs that only crystallise once or twice year but are being generated silently all the time, things like leave loadings and car servicing. Depreciation is a good example.

• Compare your actuals to your budget and determine an action plan to address variances.

• Build some simple financial policies such as “what should your working capital be?” My position is that for most small businesses three months of expenses is a nice starting point for discussions. Another policy could be “how much profit should you distribute and how much should you reinvest?” or “If you have excess cash at the bank how should you invest it?”

• Finally a personal favourite, work through a couple of expense line items each meeting to determine whether they are still valid. You would be surprised how often expenses get reduced or vanish when you put them under the microscope.

If you don’t intend putting finance meetings in the diary for this financial year it may be worthwhile asking yourself if you intend being around in the next financial year.

Brendan Lewis is a serial technology entrepreneur having founded: Ideas Lighting, Carradale Media, Edion, Verve IT, The Churchill Club and Flinders Pacific. He has set up businesses for others in Romania, Indonesia, Hong Kong and Vietnam and is the sole Australian representative of the City of London for Foreign Direct Investment. Qualified in IT and Accounting, he has also spent time running an Advertising agency and as a Cavalry Officer with the Australian Army Reserve.