Information: Your key to business finance

A business owner needs more than just information… they need the RIGHT information.

So many business owners aren’t getting what they need, presented in the right way.

Before determining WHAT information you need, it’s critical to understand WHY you need it. Fundamentally; what are your goals, both for your business and your life? Not just retirement – but in the years from now until then. Once you can articulate these, the information you need to achieve them should become clearer.

Some information must be compiled for statutory reporting, but an annual tax return and set of financial statements won’t give you what you need to run your business – especially months after year end. Neither will management reporting if it only shows actual results and isn’t received in a timely fashion.

Operationally, strategically; you need to make decisions, obtain funding and insurance, manage cashflow – you need contextual, relevant and current data to use with your team and advisers, focusing on the past only in-so-much as it can be used to impact the future.

We’ve taken on clients who rarely heard from their previous accountant unless it was time to sign something; or worse still, given regular reporting packs they weren’t sure what to do with.

Good reporting utilises a three-way budget (profit and loss statement, balance sheet and cash flow statement), comparing actuals to budget and prior periods, giving relativity and identifying trends. It’s good to understand why the numbers are what they are, but more important to understand how to change them going forward.

This is even more important when it comes to financing; the Royal Commission into banking has recommended “no additional statutory obligations should be imposed with respect to the making of loans” to small to medium enterprises (SMEs).

And yet, it seems harder to source funding; more hoops to jump through, lower loan-to-value ratios (LVR), difficulty with interest-only debt, personal guarantees required. The Financial Review anecdotally confirmed what “appears to be an unintended consequence”, with businesses “blaming the royal commission for causing nervous banks to slow lending”.

And so, more than ever, information presented to lenders needs to tell a story and make a case in order to get the result. Very simplistically, lenders want to know:

• Who are we lending to?
• What are the funds being used for?
• How and when are we getting our money back (repayments/security)?

and numbers in isolation can’t address those points.

There is no one-size-fits-all answer to business reporting, but there is a ‘critical minimum’ every business owner should be looking at. We’d suggest this includes:

• Management reporting – most relevant within two weeks of month end
• Three-way budget and ideally a Funds Flow / Source & Application of Funds – to show you where the money’s gone
• Covenant monitoring
• KPI reporting, with someone holding you and your team accountable, exploring how to make practical changes where required.

The majority of accountants provide compliance services the statutory bodies require – but we believe true advisory means taking business owners where they want to go, rather than just reporting on where they’ve been. We work with many business owners to generate the information they require to make better decisions and maximise their potential. This service is scalable depending on the needs of the business owner and what’s more, with modern technology this is very cost effective.

They say, “there are a million ways for a business to fail”. A lack of timely, pertinent and accurate information should absolutely not be one of them.