Ever wondered ‘Where’s the money gone”?

‘Where’s the Money Gone?’ traces the learning of a typical business person named Mike. Mike believed that to be successful he just needed to make a profit.

You are here: Home

Banish One Step Thinking – The key to better understanding (Part 2)

By on April 20, 2009 in business finance

In the last post I mentioned that the learning was to make sure that you use the same process for sales and purchases in your books.

In this post we’re going to look deeper into making sure that items are matched correctly in your profit and loss account.

Many people have turned their books of account into a glorified set of cash books.

What do I mean by this?

They post the transactions in their computer records as though they were spending money from the bank. All the money out goes on one side and all the money in goes on the other side and what’s left is money in the bank.

Sounds simple doesn’t it

In fact this is often encouraged by external accountants because business owners with their DIY attitude can often get their accounts so mixed up it takes a long time for the external accountant to unravel the mess when it comes time to file a tax return.

Well everything remains simple until there are transactions which are time critical. The timing of the cash is different to the timing for the profit.

An example would be making a sale on credit and not recording it until the money is received from the customer. How would a business owner know what their current sales are? Receiving the cash could be at a very different time to making the sale.

Another example would be buying a new piece of equipment and recording the TOTAL cost in one month which would not make sense when calculating profitability.

What this means is that TIMING becomes a critical element in working out how much profit a business is making. We all know that intuitively but fail to see how this works in keeping the business records.

The effect of timing can make a huge difference when trying to work out whether you’ve made a profit or not.

In practice, most people get the timing of their sales correct because computer programmes handle the two step process of recording the sale, establishing the account receivable and then later receiving the cash.

The biggest area of confusion is on the purchasing side of the business.

Why do you think this might be?

There are three areas which often cause the purchasing side of a business to use incorrect timing and therefore confuse the reporting of true profit.

They are:
1. Beating the Tax man.
2. Failure to keep up to date with book work.
3. Failure to appreciate the affect of inventory in the business.

The next part of the series will discuss these three issues.

Banish One Step Thinking – The key to better understanding (Part 1)

By on April 14, 2009 in Management

What would it be like for you if you only had one leg?

How would walking work for you?  Probably more like a hop I suspect!!

This is how many people think about the money side of their business.

They never think about the ‘other side’ of what they’re doing.

Cause and effect never enter their minds because they’re completely focused on the single task at hand.

Let me give you an example:
When you make a sale, what do you get?

The answer you may have come up with was CASH,
but in most circumstances you get an account receivable.

It is a two step process to get to CASH!

How about when you make purchases?

Most of you would hope you could get the goods on account
and then at a later stage pay the supplier.

Again this is a two step process.

Now the fun begins in bringing these two types of transaction together.

In a business most people want to know what their profit and loss account shows them so they try and match their sales and purchases together to see what profit they made.

BIG PROBLEM
For many people this is a complete miss match because they use a two step process for their sales and a one step process for their purchases.
What do I mean by this?

Most computer programmes automatically do a two step process for sales.
When it comes to purchases the same is offered but people choose to ignore the accounts until someone is screaming at them to pay and then AFTER paying they enter the amount into their books.

Think about it. What sort of profit and loss account is this going to produce?

A miss match of sales and purchases which will tell the business owner absolutely nothing about their real profitability!

The learning here is to make sure that you use the same process for sales and purchases in your books.  There is another step which I’ll talk about in the next post which relates to matching real sales against cost of sales.  This is different to purchases so look for part 2 in this series.

Empowerment – The Key to More Success

By on April 6, 2009 in Management

Lately I’ve been thinking about words that contain a hidden meaning within them which can open up better understanding and success.

One of those words is EMPOWERMENT which is a term often used in management and business today. Everyone wants to empower others to help them but unless correctly used it can lead you no where.

If you look at the word like this EM – POWER – MENT and strip away the syllables EM and MENT you’re left with the hidden word POWER.

The secret in empowerment is to delegate the power to someone else and if you want to hold onto the power then effective empowerment does not take place.

Think about all the places where this might apply to you.

    I want some one to help me with the books of the company BUT I don’t want them to control the money.
    I want to have sales people working for me BUT I don’t want them to negotiate terms.
    I want to employ a manager for my business BUT I still want to have a level of veto on everything they do.

What level of empowerment has taken place?

Giving others the power to act and do things is the secret of effective empowerment.

The Jekyll and Hyde of the Business Owner

By on April 2, 2009 in Management

You know that there’s a little bit of Jekyll and Hyde in everyone of us who are business owners.

May be you don’t believe me but think about this example.

When you’re about to lodge your tax return how high would you like your profit to be?

When you want to value your business to tell someone how well you’re doing in business how high would you like your profit to be?

Unless those two analyses come up with exactly the same number you’re in the same boat with the rest of us.

You’ve got a little Jekyll and Hyde in you as well.

SELF FULFILLING PROPHECY

By on March 20, 2009 in Mindset

Isn’t it amazing watching the rhetoric flowing through the media at the moment?

Ever thought about what drives the media?

It’s BAD news because bad news spreads much faster than good news!

So why do you think that is?

FEAR is one of the fastest moving emotions that is known to man and when it gets let loose, it drives everything in its path to being negative.

I was reflecting recently that our brand promise actually ‘flys in the face of this’…

Can you remember what it is?

FUTURE CONFIDENT .. that’s what business people want to FEEL..

Sure we may be in tough times but through them we must feel confident about the future.

That’s what walking with a Sherpa can do for you.