A survey of over small business owners revealed an alarming statistic – 25 per cent of those surveyed said they turned to friends and family to ask for advice on how they could make and save money in their business. While chewing the business fat over a BBQ with your friends may give you a few simplistic insights into your own business, it’s no substitute for the expert advice a bookkeeper can provide.
Working with thousands of small-business owners across the country, one thing is clear financial literacy is not as high as it should be. Many small-business owners commence a new business with little financial knowledge and once their business is up and running, they often have minimal free time to catch up. Fast forward several years and if they have been lucky or smart enough, they have a bookkeeper who has taken care of the financial side of their business while they have been spending time establishing it.
But it’s often at this point when the wheels start to come off. Small-business owners can find themselves in the position of not knowing the right questions to ask their bookkeeper, but also being afraid to ask anything for fear of appearing financially illiterate.
Knowing the right questions to ask your bookkeeper is the first step in skilling yourself in financial matters that are important to your business. Here are some of the key things you should be regularly asking to manage your business finance better.
1. Is my business profitable?
It sounds simple, but many small-business owners don’t even realise if they are profitable or not because they don’t really understand their bookkeeping records and how they can use them to forecast for coming financial years.
Small-business owners should be asking their bookkeeper about the financial trends of their business from year to year. Factors such as staffing costs and things that might have been out of the ordinary for a particular year, like a high-profit-generating client or project, need to be considered when making comparisons between financial years.
Results from First Class Accounts’ survey of small business owners revealed that maintaining cashflow was one of the top three challenges for those surveyed. Knowing how to correctly compare your business performance from year to year can help you plan to have sufficient cash flow during the leaner months or years.
2. How much am I spending on wages?
It’s a question that often goes unasked, but small-business owners should know how their wage costs are tracking. Wages are a major component of business costs in Australia and small-business owners need to know whether the wages they are paying are tracking at a reasonable percentage of their overall business income.
Benchmarks for wage costs differ depending on the type of business you operate. Within the production industry, for example, wages are a direct cost to the sales generated and the ballpark benchmark for this industry is three per cent of income generated.
Stay tuned next week as we cover the final two questions you need to ask your bookkeeper.
Victoria Wilkinson, Owner & Manager, First Class Accounts bookkeeping franchise