Three questions that address increasing profitability which are often ignored are:-

1. What makes your business succeed?
2. What are the key metrics (KPI’s) that reveal how well your business is performing?
3. Are those metrics part of your regular reporting process?

The reality is that these key numbers aren’t produced by the typical accounting system. Your accounting system tells you what happened in your business in terms of things such as profit and money in the bank.

An accounting system won’t tell you how you got there – just what the results are. An accounting system also won’t report on what would be the result of making changes to your business’ key drivers.  You need to augment your reporting function to report on these critical numbers.

We had an interesting case during the week. We have a client who runs a consulting business.  As such, there aren’t many moving parts to it.  There is no stock and there aren’t any creditors.  There also aren’t any employees other than himself; but that will change shortly.  In this case, the key metrics are all in respect of customers – retention of existing customers, conversion rate of good (not any) prospects and increasing average transaction value.  Measuring and following these metrics will involve many activities including such as:-

• Setting up a process of checking in with existing customers to see if they require repeat or new services.
• Asking for testimonials from existing customers.
• Asking for referrals from existing customers.
• Targeting new customers of the type they want to deal with.
• Being aware of any opportunity to sell a complimentary or even new service.
• Focused marketing activities concentrating on key offerings the business wishes to sell more of.

Our advanced modelling software has revealed that minimal change to these drivers will more than double the profit. As the change required to the key drivers are so small the outcome of increased profitability is highly achievable.

And rather than working hard on everything as most business owners do, he will be working hard on the matters that matter most in his business. I will let you know what ensues.

At MRS, we will spend today planning for your success tomorrow.

I had an interesting follow up meeting with a client during the week.

They have built their business to a point where they can pick and choose who they work with, and, after a few hiccups outside work, can now fully focus on growth.

Critically, they have sought and found a quality employee that they can reliably build their business around.

But the question remains, what does good business growth look like?

We are working and will continue to work with them on such things as:-

• Understand what the typical revenue looks like in the three segments of their business.
• Identify what costs directly relate to each segment.
• Modify their accounting system so they know the profit being generated from each of these segment.
• Identify which segment is more profitable – and what the more profitable areas are within each section.
• Discuss ways in which they can generate more leads in each segment.
• Work out the hours required to support each segment as well as the general running of the business.
• Started to create budgets (which will be entered into their accounting system so they can track the performance against budget).
• Started to set KPI’s for the drivers in each segment. As Peter Drucker once wisely said, there is nothing more futile than doing well what does not need to be done at all.  One needs to identify and work on the key drivers of a business.

We find a lot of business owners as new clients are gunnas. They are gunna do this and they guunna do that.  The problem is that whilst they work really hard, they don’t stop to plan and think.  And they also don’t check their ideas with anyone, particularly in respect of the financial considerations and outcomes.  And to make matters even worse, they aren’t accountable to anyone – so things just drift along the same old way in any direction the wind is blowing.

We have some cutting edge software that can show you the outcome of any decision you can make in respect of your business.   We use this with our clients that we have regular monthly and quarterly meetings to identify what can be done, what the outcome will look like and to instigate planning around financial and human resources that will be required to meet the desired outcome.

Does your accountant help you like this? If now, why not meet with us in a free meeting so we can explain the ways in which we can help improve your business.  Call us – you have nothing to loose and everything to gain.

At MRS, we will spend today planning for your success tomorrow.

It never ceases to appal me how most accountants do so little for their clients. Too many accountants’ role starts and ends with lodging historical documents such as BAS’s and Tax Returns.  They are important documents in themselves and they should be prepared with care and diligence.   However, what an accountant should do is to use their years and wide array of experiences to show a client how they can better run their business.

We met a new client late last year. Their accountant only prepared historical documents.  Worse still, the accountant didn’t understand the client’s business.  The client has a very good understanding of what services they provide and what market they operate in. They are however not an accountant. Put this together and the accountant was treating sales orders and sales invoices. The orders weren’t income!  The end result was that they have over paid a bucket load of income tax – which we will now get refunded for them. They could do with it – they were paying tax on profits they didn’t have!

Moreover, we have changed their accounting system so that they issue orders and then convert them to invoices at the time their customer will proceed with the order.

We will also segment their profit and loss so that it reports on how each part of their business is performing. We are going to have costs of new customer acquisition as a segment – our client has always wondered what it cost.  We can now put that information at his fingertips.

Going forward, our client will know where his business at any time.  More importantly, with some advanced analysis tools, we can help him better manage his cash flow, understand the outcome of making any change to his business, understand how the banks view his business amongst other insightful exercises.  But this is all a conversation for another day. …

At MRS, we will spend today planning for your success tomorrow.

It always amazes me how many businesses view an expense as a negative. This is far from the case.

I would argue that there are three types of expenses:-

1. One type of expenses are those that are uncontrollable but necessarily incurred – such as a company paying its annual review fee to ASIC. You can’t control it. It doesn’t provide any benefit (other than staying registered). They are just costs of opening the doors every day (and therein lies a discussion for another day).
2. There are also those expenses that don’t provide much benefit and/or are controllable. You might be able to get a supply that is the same at a cheaper price (such as electricity). You might also choose to buy things in bulk or buy cheaper quality items that may no difference to a firm’s ability to do what it is does.
3. And then there are those expenses that are in reality investments. They may be treated as an expense and reduce profit but they determine the long term health of a business. You spend money on them and they provide a return. It could be advertising. It could be buying basic tools that make employees life more enjoyable and productive. One wise man once said to me that such expenses aren’t expense at all – they are resources necessarily incurred to generate a result. Such expenditure should be seen as positives not negatives.

It is amazing when meeting with clients to discuss their business to see what comes out of asking them to address which expenses are in effect investments. It is amazing how the focus on their activities changes – and their results improve.  No truer is this across the board than with employees.  They are the biggest or second biggest expense for most businesses – yet it is often an area not monitored and/or subject to cost cutting.

So now I ask the question is what value to do you get from your expenses?

So what are the key investments in your business? Do you focus on them and monitor and track what is happening?

The reality is most public tax accountants just prepare Tax Returns and BAS’s. They are focused in the past and not on the potential of their clients businesses.  If you would like a forward looking accountant focused on your long term success and security, why not call us to make a cost and obligation free meeting.

At MRS, we will spend today planning for your success tomorrow.