Live alerts, efficient budgeting tools and timely reports are substantially useless without data integrity and small business owners just don’t have the necessary skills or resources to produce accurate numbers…
Ever get sick and tired of fixing messy client files? When Craig Badcock at Unicorn Business Solutions takes on new clients their financial records are always a mess. Most of the balance sheet accounts are incorrect and the Profit & Loss at best gives a vague approximation of the real results. Unfortunately, this situation hasn’t changed with the increased use of Xero and Xero add on products. Clients are just making a bigger mess faster.
So, why do we need to change this?
Small businesses are the engine room of our economy and according to some studies 4 out of 5 fail before the end of their 5th year. The main reason they fail is poor financial decision making and the main reason for this is poor quality financial information.
If we can help to provide them with quality financial information, the impact on the economy could be substantial and the impact on the lives of individual business owners, their families and their employees could be profound.
Our experience is that most small business owners want accurate records on a timely basis even though they don’t fully appreciate how important this is. They would rather have a tidy Xero file than an untidy Xero file.
To move small business owners towards accurate numbers every month we have found the following process.
Increase the client’s interest in their numbers
Small business owners don’t understand financial statements and even if they did, they don’t tell them everything they need to know.
We start by building a simple financial model and demonstrate how small changes can make a big difference to profit and business value (Figure 1).
We ask lots of questions and build this model based on estimates because the accurate information is never available. The right numbers are even more important that getting the numbers right.
Following a discussion about where the numbers in the model come from and how the key drivers can be increased, we ask the client what those numbers could be. In this example, the $1,491,411 upside leads to a sudden increase in the client’s interest in numbers.
We then help the client set KPI targets and build a monthly Profit & Loss and Cash Flow budget and monthly reporting system.
This process often leads the client into our coaching program, but that is for another article.
Make it easy for them to get their numbers correct every month
Having the client motivated to produce accurate numbers every month isn’t sufficient to overcome a skill and resource shortfall. The next step is to correct the mess and train the business owner or person responsible for data entry.
It is also important to make sure they are using the most efficient and effective system available.
We prepare a modern office blueprint and give them a proposal for implementation, training and support. This will include accounting, administration and sometimes operational issues in their business.
We review their Xero file every month to an end of year standard. We make the changes necessary, but importantly wherever possible we train the client to make these changes. Actual figures and KPI’s are then updated against the budget, and for coaching clients, discussed in a monthly meeting.
Sometimes the first few months with a client are challenging, but the payback usually lasts for years,
Give them an incentive to get their numbers right every month
Avoiding becoming one of the 4 out of 5 small businesses that fail by the end of their 5th year provides some motivation. Some clients are just happy to have everything neat and tidy. Some appreciate our positive feedback in their monthly meeting.
All clients appreciate that we don’t charge them for their end of year financial statements and tax returns. Because each month is completed to end of year standard and utilising Xero’s single ledger and the XPM tax integration, end of year work is almost as simple as running the right reports.
Xero has enabled us to change the way we work with small business owners to an efficient monthly cycle providing increased value. The right clients that want to build a business that works for them rather than the other way around, are prepared to invest 10 to 12 times what they were paying their previous accountant.