Engine Room Blog

Running a business without a budget is like navigating a ship without a compass. As the financial year end approaches you need to set aside time to examine and revise your budget and cash flow to know where your business is now going and what challenges lay ahead.

Think about the key business assumptions and drivers and whether they have changed - in particular, your sales expectations and margins based on your current pricing.  Analyse your spending trends and plans for purchasing and overheads over the remainder of the financial year.  Identify and cost special projects that will take place, consider the impact on sales and costs of seasonal fluctuations.

How will the Canterbury disaster and the unrest in the Middle East impact your business?

Now that you have a realistic budget and cash flow do you know what it means?  What are the implications on your cash reserves or lending facilities?  Do you need to revise expenditure and projects to a time when there is improved cash flow from customer receipts?

It’s important to stay on course and stick to it, and compare it to what actually happens.  Sharing it with your team, financial advisors and accountant can help you ensure greater success in achieving it.

Running a business without a business plan is like rock climbing blindfolded. Your chances of making it successfully to the top are slim. And the process will surely be a death-defying one.

A business plan is a step-by-step guide to running your business and creating a product or service that will make it in the marketplace. Now is a great time to review your business and plan forward.

Whether it’s formal or informal, every business has a plan. The smart owner of a local hair salon would have assessed the need for a shop in that area of town, the ability to attract clients there, the appropriate amount of chairs, etc. The owner who waits to figure things out using trial and mostly error will be lucky to be left with his/her wits, much less any customers.

Writing your business plan down:

1. Helps you identify all aspects of business operations
2. Increases your chances of considering all the important factors in your business
3. Increases your chances of success
4. Provides a means to analyze and determine how to boost your business out of the doldrums

Retail is a tricky business at the best of times – in the good times everyone makes money, though not always a lot.

When times get tough, retailers need to be on their toes. 

So how do you survive the tough times and get ready for the good times…

1.                              Know what sales you need to do to make a profit – calculate your overheads and work backwards to calculate sales.  If you need to do $600,000 in sales and your average sale is $50 that means 12,000 sales per year, 230 per week. 

2.                            Manage your stock well – if it is not selling reduce the price and clear it out.  Money in the bank is far better than stock on the shelf.  If your stock is seasonal clear out as much stock as you can at the end of the season even if it as cost or below.

3.                           Don’t go in to sale too early. Malls tend to drive discounts early in the season but if you are not competing with them don’t discount.  If your stock doesn’t go out of fashion do you need to go into sale at all?

4.                           Understand your customer – if they are buying in the medium to low price range that’s what you need to stock.

5.                           Become a destination store – this comes by providing exceptional service, understanding customer needs, adding value by being knowledgeable about your product range.  If you do this, your business will grow by word of mouth and you can save money on advertising.

6.                           Keep your eye on the costs – when times are tough don’t spend on anything the business doesn’t need.  Save money whenever you can – if it doesn’t add value to the customer it isn’t necessary. It is amazing what is available second hand, in good condition as other businesses fold.   Turn off unnecessary lights, reduce staffing in quiet times, there are always places to save money.

7.                           Negotiate hard – your suppliers are businesses too, they want sales.  Can you negotiate extended credit terms, better discounts for bigger orders or paying on time, rent relief?

 Keep your eyes firmly on the business and know your customers to make this a better year for you.

 

 

We would all love to be able to retire when we want, holiday when we want and buy what we want.  The GFC has certainly made it clear a large part of the population can’t. 

Many years ago I read that most people are two pay periods away from bankruptcy – I very much doubt that this has changed.  For a large number of wage earners if they lost their job through redundancy, ill health or accident they could not survive.  Without an income do you have sufficient savings to pay the mortgage, credit cards, hire purchase payments, and regular living expenses?

Now is the time to make a change:

1.                              Have a plan – work out what you need to live on and start saving to have at least a months living expenses set aside.

2.                            Don’t finance your life with borrowings – if you can’t pay cash for it you don’t need it.  A new lounge suite on 50 months interest free terms may sound like a good deal, but nothing is truly free – it is already built into the price.  Your existing furniture may not be the latest and greatest, but if its not falling to pieces it will probably do for another couple of years.

3.                           De-clutter your life – Trademe and Ebay are a wonderful way to get cash for those things you no longer need or want. Otherwise donate to one of the many charities who will re-home it for you.

4.                           Reduce debt – credit card debt is exorbitantly expensive.  Pay the most expensive off first or get a debt consolidation loan.

5.                           Review insurances – are you over or underinsured?  I’m not a great fan of insurance but in the short term if you need cover to pay expenses it is easier to get while you are well than if you are ill.  Accident Compensation will cover you for an accident and pay 80% of you income, but if you become ill income replacement insurance is your only options if you have no other income or savings.

 

To paraphrase Rachel Hunter – you can’t do it overnight but you can do it.  The sooner - the better.

If you listen to the “experts” 2011 will be a slow shallow recovery, a healthy recovery helped by the Rugby World Cup, or more of the same as 2010. Does anybody really know... It's a bit like the weather really.

One thing is certain – if we don’t help ourselves no-one will.  Conversations I’m having with business owners show some pockets of good recovery, those who are just maintaining the status quo and those who cannot struggle on any longer and want out. 

Admitting defeat is a difficult thing to do, but is sometimes the only option and a great relief once the decision is made.  If you have already depleted all your reserves and need cash to re-stock for improving times your options are to borrow from your bank, negotiate longer payment terms with your suppliers or bring in an investor.   If the business has already tried all these it may be time to cut your losses.

Those that are doing well in this economy really understand their customers and make regular changes to match customer buying patterns.  You can’t do this from your office – you need to be face to face with customers, no matter what your industry, to be able to anticipate their needs. 

One thing is certain is that if you continue to do the same thing you are unlikely to get a different result.

Take time out to think about what you want to achieve – even half a day - and plan some thing new to make it happen.

Make sure that 2011 is better for you…

We all know that there are two certainties in life – death and taxes.

 Your accountant can help you plan for paying your taxes – though a savings account with money in it is a good start!  Death is slightly more complicated.

It never ceases to amaze me the number of times I ask a client if they have a current Will to find that they have no Will at all.  

While it is easy to assume that you are young and don’t need one, life doesn’t always work that way.   You need a will if:

1.                              You have dependents – to ensure they will be cared for by someone you trust.

2.                            You have assets – so they can be distributed as you wish not as the state requires. This article has more information on the distribution of assets.

3.                           You have specific wishes for how your funeral will be conducted.

Preparing a will is relatively straight forward – most law firms will prepare them for a modest fee or you can find a “do it yourself kit” on line.  If you prepare your will yourself you do need to make it sure it is appropriately witnessed to be valid.

 Public Holidays 2010/2011

The general rule for public holidays is that they are taken on the day they fall. There are four public holidays that are treated differently.

These are Christmas Day, Boxing Day, New Year’s Day and 2^nd of January.

When any of these four public holidays fall on a Saturday or Sunday the first step is to look at your employees’ work patterns. You need to determine if the public holiday falls on an employee’s ‘Otherwise Working Day’. You can use the Department of Labour’s Holidays Online Tool to help you with that. You can then use this chart to help you determine which day the public holiday will be taken.

	Not an otherwise working day	Is an otherwise working day
Christmas Day  (Saturday 25th December)	Christmas Day taken on Monday  27th December *	Christmas Day taken on Saturday 25th December
Boxing Day (Sunday 26th December)	Boxing Day taken on Tuesday 28th December *	Boxing Day taken on Sunday 26th December
New Year’s Day ( Saturday 1st January)	New Year’s Day taken on Monday  3rd January *	New Year’s Day taken on Saturday 1st January
New Year Holiday ( Sunday 2nd January )	New Year Holiday taken on Tuesday  4th January *	New Year Holiday taken on Sunday 2nd January

 

 

*If the day that the public holiday is taken on is not an otherwise working day for that employee then the employee observes that public holiday as an unpaid public holiday.

• Additional information on Public Holidays,
• Use the Holidays Online Tool
• Get information on the proposed changes to the Employment Relations Act 2000 and Holidays Act 2003

With 1 October rapidly approaching, business owners need to be thinking about how they will handle the GST increase.

B2B businesses generally have little problem other than making sure their accounting software can cope with the changes and that they understand how to complete the transitional GST return.  Be alert to the effect of GST changes on existing contracts that carry over in to the new regime.

If your business is direct to consumers (B2C) things are more complicated:

1. Will you increase all prices on the due date? If this is a big job you may want to put two prices on all stock starting now (pre-increase and post-increase).
2. Do you have slow moving stock that you will want to hold prices on?
3. Lay-bys outstanding will be at the old price and the GST increase generally cannot be passed on – this means a loss of profits to the business owner.
4. Will you have a sales spike pre 1 October? And a sales decline afterwards?  This is particularly likely with high value items. What will be the impact on cash flow if this occurs?

Many of these issues need decisions soon….

It is wise to check this with your accountant if you are unsure or send us a message through contacts and we will send you our information sheet.

My eternal frustration is having a bill to pay with no supplier bank account information on the account.   I have three choices – contact the supplier for the bank details, go on a search to find the cheque book or file it in the too hard basket!

With the UK expecting cheques to be fazed out over the next few years, and the rest of the world likely to follow, it is time to make it easy for your customers to pay.  Always put your bank account details on your invoices, and look to offer payments by credit card   (at least Visa and Mastercard).

Please don’t make me go looking for the cheque book….  I probably wont…

If you know all there is to know about business, business tools, knowledge, techniques, good on you.

On the other hand if you are a typical business owner in New Zealand admit it, it’s been tough the last 18 months and you could do with some inspiration, to find out what’s new in business, meet some people who know stuff you don’t or know stuff you do and they’ll challenge how you think about it. And the bonus is you get to collect lots of free sweets to take home for your team as well as your kids.

That’ll be the Auckland Bizzone 2-4 June at ASB Showgrounds, Greenlane. The collective knowledge in that building is HUGE so don’t waste it – get in there and get inspired!

If you are going to get back on your feet and do better than before, you’ve got to be financially well organized. What successful business isn’t? First things first, you need something fun, sexy and addictive – like Xero, the online accounting system – so that you actually want to be involved with the numbers in your business.

You can have a play with Xero on our stand (133a Hall One) and discover SmartPayroll, another online solution.
There’s also plenty of wisdom being shared at the National bank Seminar Series on the other side of the hall.

Never a dull moment at Bizzone and maybe you’ll just learn something new that gets you back on your feet.