Too often 'finance' is deemed to be 'paying the bills', 'collecting the income', and/or creating standard reports for submission to the senior leadership team or to the Board.

But there is a whole lot more to it than that.

Here are some ideas of detailed questions to ask:
 - how quickly are debts being recovered?
 - how much debt is there compared to income?
 - is it getting better or worse?
 - how many new suppliers are your staff engaging?
 - how much time is used up to set up new suppliers who are only used once?
 - is there a more efficient way of organising supplies from non-usual suppliers?
 - how many bank account details have been changed in the last 6 months?
 - are liability balances on the balance sheet increasing or decreasing?
 - why is that? is it a good thing or a bad thing?
 - who has access to override approvals in the systems?
 - how often have those approvals been overwritten?
 - are fixed asset balances growing? 
 - is there correct approval for the purchases?
 - are fixed assets being bought in lieu of current assets?
 - are budget holders accountable for their results? or are they only dealt with at a high level?
 - how many budget holders have asked questions about their accounts?
 
These are just some ideas, there will be many more.
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1. ​Approved suppliers. Can your staff buy what they like, when they like from where they like? They might not be getting the best deal when they buy from a range of different places. Implement an approved suppliers list and work with those suppliers to get consistent pricing to help you manage your money.
2. Easy access to money. Do you let your staff have credit cards or debit cards on the business? If you do, how closely do you guide their spending? After all, once it's spent, it's too late to stop the purchase. Implement a policy of what can be spent using these cards, and watch those small purchases here and there, they can add up.
3. Doing jobs on the cheap. Do you give away work at low or no pay? Do you add those little extras because they are little? Make sure you manage and monitor those low paid jobs so that you still recover enough money to pay your own bills and costs. You can still do those jobs, just be mindful of the effect on the rest of your business.
4. Scope creep. Similar to #3, scope creep is when an arranged job or piece of work starts to slip. Maybe it's additional time, maybe it's unexpected costs, maybe it's extra tweaks or amendments. Manage and monitor your jobs, and if the scope starts to creep, put contingency plans in place and make sure it doesn't damage your business.
5. Recover your overheads. It's easy to forget the overheads when planning or quoting for a job. Time is money and the back-office time does cost, so make sure you allow enough in your quotes to cover them.
6. Budget well, monitor well. Budgets are a line in the sand and they can move and change, so strictly sticking to them may not be the best thing, but ignoring them, or not tracking them, could leave you open to lost income or extra expenses. If you overspend in one area, balance it up by underspending on another area. 

I hope that gives you some ideas of places to look so you don't leak money. 

If you need any help identifying leaks in your financial process, do contact me. I might surprise you!

Many larger organisations have their own payment terms. Payment on the 20th of the month following the date of invoice is fairly standard in New Zealand. If you raise invoices, you can specify your own payment terms. But they may not be followed, and you may have to fit in with your client’s payment terms.

Knowing those payment terms is really important when you’re planning your cash flow. You cannot assume your client will pay when you think they will.

In my experience, the contact person that you are working with doesn’t always know their organisation’s payment terms. They will be happy to pass on your invoice, but it may get stuck in the larger payment process.

I’ve encountered lots of examples of payment policies creating cash issues for small businesses and I’ve learnt a lot about how to manage cashflow within those confines.

If you are dealing with larger organisations in NZ, here are a few things I suggest you bear in mind:

• Find out their payment terms up front – ask your contact to find out for you
• Find out what vendor set-up information they may require and abide by it
• Plan to raise your invoices to fit in with those payment terms (don’t be a day late and have to wait another month)
• Plan to receive your cash on their terms, not on your expectations
• If the payment is later than you expected, ask the Finance team if they have received your invoice. Often it hasn’t been passed on, or there is missing information that they need.
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For more information on planning your cashflows for client payment terms, contact Hilary on hilary@mathildarock.co.nz and let’s see if we can improve your cashflow.

Cash and accounting are often two different things. Receiving cash in is not necessarily the same as generating revenue, and having a good level of revenue is not necessarily the same as receiving cash.

In accounting, there are non-cash transactions, and as your organisation gets bigger, the non-cash transactions can be greater and greater.

Some areas, like expenses, can be easily plotted. They are regular and mostly known about. 
Some areas, like income, may not be so easy to plot (especially if you work on projects or have intermittent income).

Timing can be a huge influencer on cashflow! When plotting your income and expenses, look at EXACTLY when you expect the transactions to happen. Whilst you may pay your suppliers regularly, your clients may not pay you when you expect them to. Perhaps build in some buffer time - if a client pays you a month later than you expect, what effect will that have?

Statutory financial reporting requires the data to be organised into certain categories, in particular ways. Each transaction is recorded in a way so as to meet those categories and to provide the reports needed.

But that data can also be used for non-statutory reporting.

The beauty of data analysis is that data can be re-organised into information that is extra to the usual reports and can give management more specific insights into their business performance.

Do you have data in your financial accounts that can be used in other ways? That can be used to provide information about your business that the standard reports don’t tell you? That can be used to help identify specific aspects of your business performance?

I suspect you do. And I can help you find it. Contact me to find out more.

Yesterday I went to a presentation by MYOB, hosted at the BNZ offices in Wellington all about PayDay filing. A number of other finance professionals and business advisors were in attendance. The presentation covered the legislation, but the more interesting information was around the practical ways to cope with the new rules.

The first thing to note is that online processing is going to be the easiest. If your payroll deductions bill (including PAYE, ESCT, WHT etc) are under $50,000 pa, you can still file on paper but you must ensure that it reaches the IRD within 10 days of the relevant payday.  If you miss your filing deadlines three times in a row, you will draw the attention of the IRD.

Of MYOB's suite of payroll products, only one provides an end-to-end process - i.e. where a link direct to the IRD is created and submission of forms is automated. The others will create the file and then the user is required to upload it to the IRD website (much like currently).

Software suppliers or payroll bureaus who have end-to-end processes will make payday filing a simple process. If you have software or processes that require manual upload of information to the IRD, then being organised is key.

​Matters such as:
- what structure should you have?
- where are you going to work from?
- who are your clients?
- do you need stationery and/or a website?
- what legal documents do you need?
- how do you market yourself?
- should you brush up your networking skills?
- how do you close sales?
- do you have the materials to make your products?
- do you have the skills for the service you are offering?
- do you need insurances?
- what software do you need?
- how are you going to cope with the admin?
- what about staffing?
- should you buy or lease equipment?
- what about your finance and accounting?
- do you have enough cash?
- do you know how to make a profit?
 

One of the things I see in business financial analysis is that the time cost of making and processing purchase transactions is all too often not thought about/ignored/considered unimportant. It is seen as an overhead for the back office.

This is a huge mistake.

There is a saying in the design industry that says of the three criteria of fast, cheap and quality you can only ever have two criteria at the same time. i.e.

• If you want something fast and cheap, it won't be of quality.
• If you want something of quality and cheap, it won't be fast (as it'll get put to the back of the pile).
• ​If you want something of quality and fast, it won't be cheap.

This thinking could easily apply to purchase transactions but using just the two criteria of convenience and cost. i.e.

• If you want convenience, it will end up costing more.
• If you want something cost efficient, it won't be as convenient.​

Firstly, look at your bank account.
The per-transaction cost of using debit or EFTPOS cards can quickly mount up.
If you are not on a package that allows you to make multiple transactions for a fixed fee, get one quick! 

Secondly, look at your approval processes. 
The more people involved with approving transactions, the more expensive it gets.
If you have several staff creating instant purchase transactions, they are each responsible for processing the paperwork to support that transaction in your accounts. For each transaction, they'll need to get the invoice or receipt, they may need to allocate the costs according to your coding structures and they'll need to authorise that they made the purchase on behalf of the business.
To do that for a multiple transactions can take time - and most people dislike the tediousness of having to do the paperwork!
Not only is it costly in terms of their time, but also costly in terms of happiness and engagement of your staff.

If you then have a senior member of staff to review and approve the purchases, the cost of their increases the overall cost again, especially if the approver is paid a high rate.

Thirdly, look at your finance system processes.
If you use an accounting package with automatic bank feeds, you will get every single transaction coming through. Every single transaction needs to be checked and reconciled. 
And every single transaction takes up the time of your accounts person.

Traditional Cash Flow Cycle diagrams work on the basis that everyone uses supplier accounts but, in reality, the supplier account is becoming less prominent in business: 

• they take time to set up
• the forms require all sorts of information
• you are expected to provide all sorts of guarantees

But after the initial set up, the $$ benefits - and dare I say, convenience - of using them easily outweigh using processes for instant purchases.

1. Purchasing in store or online requires the same amount of actual time, you're just using a different method of payment
2. You get one invoice at the end of the month
3. Staff don't need to get individual receipts/invoices, making them happier and saving their valuable time
4. Approvers don't have to wade through screeds of paperwork to make their approvals, making them happier and saving their valuable time
5. Your finance staff have only one transaction to process, saving their valuable time 
6. You only have one bank transaction in your accounts
7. If you pay fees per transaction on your bank account, you only get charged once
8. Filing the supporting documentation is quicker and takes up less space (physical or virtual)

Don't forget or ignore the time cost of your staff in processing multiple transactions, even if it is thought they are more convenient. Just thinking it through can offer you the best of both worlds.

The research indicated that only 51% of tested accounting graduates had a "strong intuitive grasp" of double entry bookkeeping.
Given that the understanding of how debits and credits work, and how to structure and process a journal are fundamental to basic bookkeeping, such understanding is crucial to providing a good accounting service.

If you engage the services of an accounting firm, it's a bit more tricky. Many of the large firms have a graduate programme where they train up graduates to full qualification. It is likely that these juniors will be doing the bulk of your transactional processing, which is then overseen by a senior. You need to trust that the senior picks up on any knowledge gaps of the juniors.
With smaller firms, it may be possible to find out exactly who will be doing your accounts. Even then, you'll need to rely on the senior to ensure that the graduate does their work well.

If you are concerned about the quality of knowledge that your external bookkeeper or accountant has, just ask them. If you don't get a satisfactory answer, think about your options to change them. Your business could be at risk, and that's your future you need to consider, not theirs.

When it comes to managing small business finance, most people focus on their P&L account. That makes sense, it tells them how their income and expenditure is building up, their current profit (or loss) balance to date and they can allow for the income tax liability on the profit. And, if they've created a budget, it will show how things are tracking against that budget.

But that's about it.
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The P&L account does exactly that: ​

Other financial statements, like the Balance Sheet and the Cash Flow statement, have the capacity to provide more information, but it is the analysis and review - the management accounting - that will provide the answers to the questions that business owners actually most need.
The most used financial report - the P&L - just isn't enough.