Investing time (and sometimes money) in your business’ important processes and systems will make your job much easier and benefit customers in the long run.
This is the right stage to think about how your everyday business processes should work. The time you invest now on developing efficient systems will likely pay off handsomely in the future.
It is important to understand that being good at what you do is not enough. To make a success of your business you also have to develop some all-round business skills. Principal among these is the ability to manage money.
Set up a good accounting system from day one. It will prove an excellent investment. Get help from your advisers, business colleagues and especially your accountant to choose an easy-to-use software package that suits your business. A program that your accountant also uses can be a bonus, saving time and costs and allowing the accountant to track the performance of your business.
- Key reports and indicators
You accountant can help you set up the initial chart of accounts tailored to your business type. Ask what reports, budgets and key performance indicators (KPIs) are critical to your type of business and find out how to monitor them. Typical KPIs for all businesses are gross profit and net profit margins. Monitoring changes in these KPIs will allow you to keep right on top of things and make timely decisions. More accounts programs such as Xero or MYOB Live Accounts are cloud based. They download data directly from your bank accounts to give you a convenient ‘dashboard’ view of how your business is performing. A good accounting program will also streamline compliance; simplifying your tax and GST returns.
- Value of a cash flow forecast
Most start-ups will experience a cash flow crisis at some stage as the business grows. You may use cash flow forecast template to manage the cash flowing in and out of your business and to spot any approaching cash flow crisis. People funding your business, through loans or equity, will take you more seriously if you show good money management skills. This includes approaching them well before a cash flow crunch rather than when the crisis has already hit you.
If you sell on credit terms then bad debts are always a danger, and one large bad debt could jeopardise the future of your business. Prevention is better than cure, so consider these debt control steps:
- Develop suitable terms of trade with the help of your lawyer and print them on your invoices. You may be able to adapt the terms used by similar businesses.
- Make sure all credit customers sign agreements to your terms before you give them credit, including agreement to any interest rate you impose on overdue accounts.
- Credit checks all new customers. Find credit checking agencies online or ask business colleagues for recommendations.
- Agree on a credit limit with new customers and set up your accounting program to flag any orders that will breach the credit limit. Be wary of any large order that follows on the heels of a series of smaller orders. Another credit check could be advisable.
Debt collection tips
- Promptness is critical to getting paid. Invoice immediately rather than waiting until the end of the month. Try for earlier payment terms if possible, such as ‘payment in seven days’ instead of the customary 20th of the following month.
- Follow up any overdue debts as quickly as possible. The longer you take to follow up, the less likely the debt will be recovered.
- A personal visit is the most effective way to recover the money you’re owed, followed (in order of effectiveness) by a phone call, email or letter.
- Be systematic and consistent. Debtors have to know that you will always promptly follow up overdue accounts – not just sometimes.
- Measure the average time it takes to collect debts (debt collection days) and set improvement goals. This will help to keep you on top of debt control.
Keep in mind that cash is critical in a start-up. Efficient credit management will help you get cash in faster.
Systemise your processes
Think carefully about the way you carry out daily business activities such as production, customer relationships, invoicing and shipping and order taking through phone, fax, email or online.
You need a process and a plan for every activity. Aim to break down each task into a series of easy-to-follow steps and develop tools such as document templates for invoicing, sending information to sales leads, or keeping customers informed about the progress of the order.
Develop sketch flows for the various tasks, such as showing how production transforms into the final product and how it is shipped to customers.
Document the steps
The next stage is to document each step in an operating manual. You can develop this over a few months, using input from the people who do the tasks.
As you document your processes, think how you can make each task more efficient. The end result should be an operating manual that will allow others to keep running the business if you had to leave tomorrow. The payoff will include:
- More time to spend on your business, not just working in it, as it will be easier to delegate tasks.
- More efficient and consistent service to customers.
- Lower operating costs.
- Faster training of new staff and an improved ability for staff to cover for others who may be away from the business.
Streamlining your operating processes will increase the value of your business and allow you to concentrate on your main task: growing the business.