Using Xero? Add these 3 accounts to your expenses today

The beauty of Xero is it can be so simple to start. But the chart of account (all those income and expenses you can allocate to) are preconfigured, which means as business has changed…some changes should be made.

The general rule of thumb is if a particular type of expense is more than 10% of your whole expenses, it should have its own account.

So here are your 3.

Software -critical systems (Xero, G-Suite, all the things you NEED, domain names too) Software adds so much depth to a business, and understanding this separate to other costs is useful. This should be increasing as your time spent doing useless admin is decreasing.

Software - Useful systems (Canva, Planoly, Evernote - stuff that helps, but it’s replaceable) This account allows you to understand if you have on-going subscriptions that you need to prune. Pretty much guaranteed to save you money in the age of the SAAS trials and subscriptions.

Client expenses to be repaid This is critical to make sure if your business buys materials or subscriptions on behalf of your clients, they need to be repaid. Having a separate account helps you identify any missed expenses that are coming out of your pocket.









Get to know your cost structures

Get to know your cost structures

When we start working with a business, one of the first things we do is review their historical Profit and Loss to get an understanding of sales growth and channels, margins, and cost structures. Whilst all really important, we often find business owners have a great handle on what drives their sales but not so much their costs.

The distinction between variable and fixed costs is an important one and the best businesses recognise this. To remain agile and be in a position to quickly react to changing market conditions requires intimate understanding of what cost are locked in versus those that are flexible, those that are business critical versus those that are nice to have and those that are lead or sales generators versus those that won’t bring an extra dollar through the door.

3 Tips to Combat Cash Flow Issues Now

3 Tips to Combat Cash Flow Issues Now

We’ve been working with a client who a few months back found themselves in a real spot of bother when it came to cash flow.

They were experiencing a sales slump which was heightened by some negative business events which were outside of their control. This perfect storm lead to a complete depletion of cash holdings in the business. Gone were the savings or cash buffers that once existing and these unfortunate business owners found themselves in unchartered waters with growing ATO debt, unpaid suppliers putting them on stop supply, and the inability to restock a warehouse with their top selling items. They had entered a vicious cycle and without quick action they knew they would be faced with ruin.

When we assessed all of the factors at play the number one priority for everyone was to get cash in and fast. It wasn’t about major structural or process changes. Sure, both were needed but right now they weren’t going to keep the business afloat. Quick wins were what we needed.

Strong margins will gear you for growth

Strong margins will gear you for growth

I know it seems like I’m constantly banging on about Cash flow and Gross Margin and that would probably be because I am. Healthy margins and cash flow almost always result in strong businesses that are geared for growth. This is what you should aim to be and hopefully our tips and blog posts are getting you one step closer to this.

To give you some context, we recently conducted a detailed margin review for a client who had experienced a decline in profit despite sales and overhead expenses tracking along as forecasted.

When setting the price point for their products, they calculated that they’d have a 55-60% gross margin (or 40% material costs), approx. 40% in overhead expenses and a net profit margin of approx. 20%. Good healthy financial results, which would result in a self-sustainable business that was cash flow positive and had the ability to invest in further research and development (R&D), whilst continue to aggressively advertise and promote their existing product range.

On paper the forecasts looked great. They were well thought out and appeared to be based on sound calculations. However 6 months into the financial year, things were not running to plan. Sales were strong, with many of their growth projections being met, however gross margin was tracking well below expectation. Instead to tracking along at 60%, the actual gross margin was only 45%. With 40% in overhead expenses, net profit before tax only represented 5% of total sales.

Really understanding your gross margin

Really understanding your gross margin

Let’s talk about your Gross Margin. Do you know what your margin is on the stock you sell or the services you offer? And if you do know, do you track its development? Often, I receive a yes to the first question, but the second questions is met with a blank stare or we’re told, I don’t need to, it doesn’t change. My response is always, are you sure about that?

So first things first, for those that aren’t all over it, let’s go over what this thing called a Gross Margin actually is. In a nutshell, your gross margin is the difference between what you invoice a customer for a product, and what you paid the supplier for that product, plus your on costs (inbound freight, duty, packaging ect). Different industries will have different margins on products, however your margin should be at a level that it covers your overhead/fixed business costs and leaves you with a reasonable profit.

Time to track KPIs in your business

Time to track KPIs in your business

One of the biggest misconceptions amongst small business owners is that KPI’s are something that big businesses set and track. They and their business are not sophisticated enough for KPIs or they don’t need a KPI to tell them how their business is performing or they’re snowed under with work and don’t have time for more admin – these are just a few of the common responses we receive when we question how they track performance and growth.

So what exactly is a KPI and how will it help you manage your business? A KPI is a Key Performance Indicator. Coming in different shapes and size, they can be implemented to measure just about anything worth measuring in your business. They can have either a financial or operational focus and will not only help you grow and remedy pain points, but assist with strategic planning.

Different KPIs will tell you if your business is growing as quickly as you think, or if you’re really making as much money as you believe. If your pricing is right or if you can afford to invest in new equipment. How long it takes you to convert a sale into cash or how long stock sits on a shelf.

We've Got Your 2019 Cash Flow Forecast Sorted

We've Got Your 2019 Cash Flow Forecast Sorted

Happy New Year!! I hope you all took the time to celebrate your wins in 2018, enjoyed some well-deserved downtime, are feeling refreshed and ready to take on 2019.

So have you checked your business bank accounts? Are they looking healthy? If so, hats off to you and keep up the great work. If not, it sucks, but you’re not alone. The Christmas/holiday period through to mid-January is often the most difficult time to manage cash flow.

Let me set the scene, your B2B customers have all been on holidays, many haven’t settled their December accounts and may not do so until their finance teams are back from holidays. Everyone being on holidays also means that end user sales are slow into January, which is made worse by the fact that most people are about to receive their post-Christmas credit card statements. Once they get over the bill shock, chances are they’ll cut down of general spending to pay off the damage done in December and again sales will take a hit. All the while, you’ve had to pay leave entitlements to employees during the holidays while little, to no cash was coming in.  All of these factors aren’t good for business right now, or your cash flow over the coming months.

Want to get paid faster? Here are 6 ways to make it happen..

This week I was sitting down with a client and an all too regular comment was made - “Seriously, why can’t people pay on time?” No matter what the size of the business, they all ask the same question. Getting paid according to our standard terms is all we want, yet it seems to be one of the biggest challenges we face.

Chasing delinquent accounts costs us time and money. Quite frankly, ain’t nobody got time for that!

Despite not being able to control the actions of our customers/clients, there are a few things we can do to encourage or even better, entice them to pay on time. Here are a few measures that work well:

Stock on hand can have a big impact on cash flow

Stock on hand can have a big impact on cash flow

Buying stock is challenging at the best of times. It can be difficult to gauge what stock to buy, or what are the right volumes to order, or what the right product mix is. This is a challenge faced by businesses big and small, however a few bad decisions can have a much greater impact on small businesses that don’t have enough of a cash buffer to carry them through.  

Generally speaking the faster you turnover your inventory, that is the faster you sell it, the less time your cash is held up in stock and the better your overall cash position. An easy way to assess how quickly stock is selling is to calculate your stock turns using the following equation:

 

Cost of Goods Sold/ (0.5 x Opening stock + 0.5 x Closing Stock)

Why I use a budget in running a business, and never stick to it

If you've ever prepared a budget for someone else's business, you probably shudder at the thought of doing one for yours.  But in a small business, it's crucial and can take under an hour.

It's creating a plan of how much you need to sell.  If you need to take home x after tax, then how much do you need to sell/ invoice.  That's it.  You get a pretty good feel straight away if you need to adjust hour rates, eliminate some services or even Aquire new customers.

It shouldn't be a manacle, or something to procrastinate about.  Check back in at least quarterly, because your business changes.  Opportunities come up, staff get hired.  Make it a living breathing fully flexible guesstimate.   

Don't lie in bed wondering if you can make payroll if you want to hire someone new.   We run a fully flexible budget, in that we will never say no to an expense that is in line with the strategy and will grow our business.  We just update that document and make sure we hit our new goals.  

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Businesses change too rapidly to be able to forecast out 12 months in advance, and we always vary from a budget, as it was only ever a guess.   But you always have a clear vision of what you do need to be doing to succeed.

Create a budget on the back of an envelope if you have one handy, and use it to set some goals for your business.  

Debtor control equals cash in the bank

Debtor control equals cash in the bank

Have you had months where your sales have been solid or even better than usual but regardless of how many leads you convert and new invoices you raise, it's just not reflected in your bank balance? Well you're not alone.  There are many factors that contribute to poor cash flow but one of the big ones is customers/clients that don't pay their bills on time (if at all).

This is a challenge faced by every business that offers their clients payment terms other than Cash on Delivery. Businesses offer payment terms in good faith that customers will uphold their end of the deal and for the most part, they will pay on time, however there will be some that take advantage of your goodwill and drag their feet. Collecting delinquent debt costs you time and money whilst having a substantial impact on your cash flow.

A good way to look at debt collection is that a sale isn't a sale until you have been paid. Customers will delay payment because holding off on paying you is cheaper than digging into their bank overdraft. You're offering them cheap credit, but you're not in business to finance someone else's growth.  Always remember, you're not a bank, so don't let them treat you as one. Converting sales into cash is key to securing your future. 

Being proactive with regards to debtors is much better than being reactive. With this in mind, here are some easy tips to help get control over your debtors:

Tax Planning - Take back control of your tax bill

Some people might find this surprising but one of the most important services we provide as accountants isn’t preparing your tax return or annual financial statements, it’s tax planning. It may seem obvious to some, however to the vast majority of business owners, tax is something they worry about once the financial year is over. As the tax deadline looms, they begrudgingly compile their financial information and track on down to their accountant’s office for their annual visit. By the end of the meeting their taxes have been completed and they’re left to digest the bad news that a substantial tax liability will be due and payable in the coming weeks. Often the size of their tax liability comes as a total shock, possibly presenting owners with some cash flow challenges that could have all been avoided had adequate tax planning been conducted.

Does this story sound familiar to you? We’re always amazed by the number of business owners that have no idea that tax planning is a thing. That there are numbers we can review, actions we can take and long term plans we can make to reduce and/or better manage their yearend tax liability. The aim of the game is to be well informed and avoid surprises, to be ahead of the 8ball and ensure we utilise every provision available to maximise your tax position. However it’s essential to conduct said planning before the financial year is out because once the year is over, so is our opportunity to implement any tax saving actions.

Being proactive and taking ownership of your tax position will not only give you greater control over your cash and profitability, it’ll also empower you with the information to better run all aspects of your business, even those that seem to be out of your control.

Don't be a messy businessowner. 5 simple apps to get you sorted

Freelancing can look like an ideal job.  But it can be hard.  You're doing the work, and you also have to be the office manager, IT department and finance team.

Lucky we're going to recommend some apps to help with that.
These are 5 of the top easy to use apps.

Who? Cushionapp
Where? http://cushionapp.com/
What does it do?  Don't know how much work you have coming up?  Not sure when you will have time to take on a new project?  Cushionapp is designed for freelancers to see their future, current and invoiced projects, and see what their forecasted income is and when they have gaps in the workflow.  
Cost? $10 per month
Who should use it?  If you stay awake at night worrying about money and upcoming projects.  

Who?  Harvestapp
Where? https://www.getharvest.com/
What does it do? Job management through time tracking and invoicing made easy.  Syncs across multiple devices and if you have to record your time, this is the app for it.  
Cost? Free for micro businesses, $12 per month for solo freelancers
Who should use it?  If you're doing time-based billing, yet your income isn't stacking up to how hard you're working.

Who?  Inbox from gmail
Where?  https://inbox.google.com/
What does it do?  It's very similar to feel to the Mailbox app, which was our old favourite.  You can swipe and archive to zero out your inbox every day.  If you can't do it today. Pick another day to deal with that email and it will disappear from your inbox until then.
Cost? Inbox is free however if you're using your own domain you need to pay to use gmail for work
Who should use it?  If you're already using google apps for work and using email clients or the gmail interface, move over and have some zen over your inbox.

Who?  Wunderlist
Where?  https://www.wunderlist.com/
What does it do?  It's essentially the best to do list in your life.  It syncs across platforms (so you can't lose it), and you can collaborate with it.  Create launch schedules, to-do lists and more with wunderlist.  I'm a huge fan of using the hashtags feature.  If I'm in a writing zone, I pull up all the #write.  If I'm waiting at the airport, #5mins to do quick easy tasks.  Integrates with your email- so add it to your todo list and archive that email.
Cost?  Free for most, $5 per month if you want to attach large files in there
Who should use it?  Everyone who writes lists.  If you aren't a list maker, that's not going to suddenly change.

Who?  Lastpass
Where?  https://lastpass.com/
What does it do?  It's a secure password manager which works across platforms, stores all your passwords and keeps your sanity (and security).  It can also suggest super secure passwords.
Cost?  Free option is very limited, only $1 per month to sync across devices/platforms

Don't waste your time on administrative tasks when you could be doing what you do best.

How much should you set aside for your tax bill?

The most frequent problem we see with freelancers, is they start their business, quit their job...and then come and see us when their first year of business is done.  And it's tax time.  It's a mess, and they don't know how much the owe - and then reality hits.  They haven't put aside enough money.  

Don't fall into this trap.  We'll do another detailed post on the why this is a huge trap (here's a hint - the PAYG instalment transition HURTS).   

So by popular request we're putting this out.  It's not the prettiest little excel calculator, but if you put in your profit each month it will let you know very roughly how much income tax is on that.

Click here for the goods.

The video here goes through a worked example, and if you have any questions please let us know by email info@brambleandbriar.com.au.

Case Study - The Quilt Shop - Vend and Xero

Vend + Xero 

Alison and Sharon wanted their systems to be as well designed as their dream store. They use a Vend + Xero integration, with wireless iPad, printer and scanner technology.

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For a new store in Eltham, a simple to use POS was their goal.

ABOUT THE CLIENT 

The quilt shop is a local business in leafy Eltham.  Committed to providing not just a quilt shop, but a whole feel good experience. The Quilt Shop will be a place where you can just pop in and say hi or stay for a cuppa and a slice of cake.  They sell fabric, kits, patterns and supplies.  The store is beautifully presented.  The instore experience  is throughly enjoyable for customers.

THE CHALLENGES 

The Quiltshop wanted the countertop to be uncluttered and stylish.  

The biggest challenge was the fact that the inventory needed to be sold in portions.  Fabric is measured (and priced) by the metre. Therefore any POS system such as Vend needed to be able to sell items in part.  

The integration needed to be seamless and help them manage the complex inventory.  With thousands of different product lines, hundreds of ranges, and dozens of Brands.  All with ease of use.

Other challenges during our planning meeting identified that they needed inventory management.  
Suppliers sent incorrect items or only part shipped purchase orders frequently.

THE SOLUTION

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The first thing we did to ensure ease of use was the combination of Xero and Vend.  We created a beautiful physical guide, tailored to their business and processes.  From how to do sales, refunds, inventory counts, to even how to post COGS into Xero.    This printed guide was also provided as an ebook and loaded into their ibooks on the store iPad.

The Hardware visible to the customer is an iPad Air mounted on a studio proper base.  All the other items, wireless scanner, wireless printer, and cash drawer are tucked away out of sight.  This kept Sharon happy with the finished custom countertop.

The Quiltshop collects customer details as part of a VIP loyalty program.  Part of the appeal of Vend was the creation of promotions not relying on discounting.  

Part receipting purchase orders and viewing outstanding items has made Alison's role easier.  Alison had been doing an amazing job keeping track of inventory shipments with a colour coded highlighter system.  Vend now saves Alison time (and highlighters).

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Pictured is the 70 page printed guide created by Bramble and Briar.  Used for training and as a reference.

Vend and Xero has automated much of the accounting processes.  Business admin can be managed all during business hours - no matter how busy it is instore. 

Yet if Sharon and Alison need to take time out to be at home, they still have the flexibility to log into the system any time, any place.

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Sendle and Xero

Xerocon 2015 features a crazy amount of new apps and integration options - but it did feel like there weren't many innovating new players to watch.  With one exception - Sendle.

Sendle is an app that has been developed out of an existing userbase within another app, TuShare.  TuShare was a crowdsharing recycling community, where users could give away things they no longer wanted, to someone else - for free.  TuShare overcame the location barriers by creating a way to tap into a variety of couriers to create an easy, flat rate shipping service.

With people listing items just to access the shipping component of their service - you can see the huge potential of Sendle.

It's still in early stages, with their only integration being directly to Xero - but from the testing I've done, the service was great.  

The prices are amazing, and it's much easier than waiting at the post office, or dealing with 8 different courier websites.

The only tricky aspect of integrating Sendle into your business will be ensuring the client data in your Xero file is correct and complete.  If you're using an e-commerce integration, check whether the billing or shipping address is the updated field in Xero.  Compared to the normal shipping processes, that's an investment!