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Understanding the stories behind the numbers

Navigating your way through the early stages of business ownership can be no easy feat these days. Whether it is your first business venture or start-up journey, there are definitely certain “i’s” that should be dotted and “t’s” crossed before plotting the way forward.

While you may have had a good handle on managing your own personal comings and goings, it can be a totally different kettle of fish when it comes to dealing with your business’s finances and the associated challenges that come with it.

The key to ensuring business success in the longer term is being able to unlock and understand the stories behind the numbers, or simply, “becoming more financially literate”.

Financial literacy helps to set some solid foundations for business owners — so, through a combination of the right digital technology/ software solution, understanding what the key financial metrics to success are, along with building a mutual relationship of trust with an independent adviser, these in turn work together to ensure you and your business are better equipped for success by being able to make more timely and informed decisions.

Want to get started, but unsure how to proceed? Check out the following suggestions on how to take the first steps towards improving your own level of financial literacy:

1. Making sense of the jargon

Definitely a great first step is to concentrate your efforts on learning the basic financial “lingo”. Become familiar with terms such as gross profit, net profit, assets and expenses, and the differences between them all. Enquire or seek guidance on how to read key financial reporting documents such as the profit and loss statement and balance sheet, and understanding the relationship between profit and cashflow. Once you have grasped some of these key concepts, slowly but surely it will give you more confidence on how to better interpret the key messages from within your financial information.

2. Real-time data, current and up to date

The next step is to ensure your financial records and information are as current as they can possibly be — or as they say, in real-time data. Out-of-date business processes including paper-based systems become challenging, consume far too much time and pose too many risks for your business.

From the start, organise your business data using one of the many excellent cloud-based accounting software platforms available, such as Xero and the suite of associated applications. Your accountant or trusted business adviser will be able to recommend a digital solution that complements the needs of your business, giving you the ability to produce key reports with ease, and saving you time and money so that you can enjoy the things you value most in life.

3. Tracking business performance

Financial reports provide a detailed summary of your business activity by painting an accurate picture of how your business is performing. Cloud-based accounting software and integrated applications can offer peace of mind by enabling this whole process to happen.

It is critical, though, for business owners to understand and to feel comfortable working their way around these essential financial reports. Familiarising themselves with the importance of cashflow movements (in and out of the business) can ultimately lead to more effective and sound strategic decision-making.

4. Keeping a watchful eye on the numbers

Once the confidence is there and you start to understand the power of the information your financial reports are showing you, the future won’t look as frightening as you first thought. Next step from here will be to create a budget and forecast for your business. Understand where your business is currently positioned financially, compared to where you want it to be.

Business software systems and Key Performance Indicators (KPIs) provide important information for business owners to monitor performance against goals and give opportunities to implement corrective action early.

In a world with Covid-19, where trading environments can change so quickly, even more emphasis has been placed on scenario planning and financial forecasts, cash or otherwise.

With a proper budget and forecast in place, you will now have an action plan for driving your business forward.

5. Advice you can trust

Invest wisely in an independent business adviser who can continue to support you through the different phases of your business journey. There is so much that business owners need to take on board at the outset which at times can be quite overwhelming. By ensuring you have the right level of guidance at the start, will be positioned well for future success.

6. Accounting for non-accountants

In a previous Business Quarterly, we discussed the programmes we have invested in to help you understand your business better.

Keeping an eye on your financials helps create success, but for some people it’s a totally different language. It takes time to understand all these new concepts and terms. If this describes you, then Colour Accounting is worth considering. The goal of this product is to teach business acumen to non-financial people. It does this by being visual, hands-on, language-driven and delivered in a fun workshop-style approach.

Another option is to join our Xero Master Classes. These sessions are designed to take you through the most useful features of Xero, irrespective of your experience. Split into three sessions — beginners, intermediate and advanced — you can attend all three or just one, taking you from what you know now, to what you want to know going forward.

If you would like to enquire about any of these workshop programmes in more detail, please contact our office on 06 869 1400 to speak with our BDO Gisborne business transformation team.

■ Steve is an associate at BDO Gisborne and heads its business transformation team, which works closely with clients to assess, recommend and implement tailored digital-technology solutions based on the unique requirements and needs of businesses.

Steve Ostler