One of the most exciting business activities we undertake here at Capricorn is to help small businesses, restructure, grow or divest.  The use of the word “exciting” is deliberate.  More often than not the task is an emotional roller-coaster, where best intentions are often undermined by client fear, once “supportive” banks, angry creditors and warring business owners.  Through our involvement with small business, one thing has become clear – many, many small business owners have no idea of how to run a business.

Now, before you bridle at my perceived arrogance, consider that we are nearly always called when things are obviously bad, and we nearly always find that everything is in the owner’s head, the financial records are terrible, and there are no budgets, business plan or financial model in place.  Frequently, we find that the situation has been brewing for months or years and that the ATO is owed money.   Overwhelmingly, we are called in with the expectation we will “fix everything”, using the simple tools of charm and magic.

The basic fact is that shit happens in business.  You cannot accurately predict when you will lose a client, a crop, or a valuable staff member, but you can very much take ownership of your business, formally understanding it, and putting in place disciplines such as those mentioned above.  Compared to growing your favourite crop, or selling interesting products, or fabricating machinery this mightn’t sound too exciting, but without these disciplines you won’t be getting much joy from anything when the shit does hit the fan.

Sound dramatic?  Consider that it can take several months to build a formal set of accounts from the data normally found in the back offices of small businesses, and to build bankable forecasts from that.  Believe me, you won’t have that time if you really are facing a downturn.  Consider also, that recognising and quantifying a downturn before it really sets in gives someone like me much more opportunity to address the situation early – something that the banks will appreciate and that will give you the best chance of coming through the other side.

So, financial consultants like Capricorn can be a very big help in structuring and ensuring your business is well run and able to manage through downturns, but in every case the effectiveness of that help starts with you.  One of the best things you can do is get yourself a good accountant.

Too many businesses choose their accountant because they are a “good bloke/gal”, but like financial planners, accountants come in all shapes, sizes and levels of professionalism and competence.  Too many are simply collectors for the ATO.  Too many have a high opinion of themselves, and charges to match, but don’t really deliver anything useful and too many clients view the role of the accountant as one of tax reduction. 

What a really good accountant will do is not only help you fulfil your statutory obligations but make sure your accounts actually mean something to the business.  From the way your accounting software is set up to the production of financial reports, the accounting data is at the heart this.  It is your window into how things are really going and it needs to be collected and tabled regularly and rigorously, to clear and generally accepted standards, and in any event suitable for handing to the bank as-is. 

At the end of the financial year your internal accounts need to be reconciled to the formal statutory accounts, so that management accounts for the new year start from the right base.  If you don’t do this, you’ll be completely lost – it’ll only take a few months.

In summary, few accountants are good business consultants or strategists, and most business consultants and strategists focus on just that.  To get the best result you really need to consider engaging both, preferably in a form where they agree to happily work hand in hand.  If you do this, your financial records will become a tool through which business management becomes easier and easier, you will have less worries because you will be more in control, and you will have an informed support base armed with detailed and up-to-date data, for which there is no substitute when a storm approaches.

David French is a consultant with Capricorn Investment Partners.  He has many years’ experience in successfully building, managing, researching and advising small businesses of all types.

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