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.

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3 tips on getting better business behaviour

By on April 5, 2011 in Business Behaviour

In a service business such as One Sherpa, it is important for me to get the maximum advantage from the talents and skills of my people.

Much of this is dependant how people behave in our business and behave around each other.

Sometimes tiny changes in behaviour can make a significant difference in the effectiveness of people in our organisation. Whether you have 5 people or 50 people in your organisation, getting the best out of your people is a key success factor in maximizing the results of your business.

Below are three simple tips to help you move toward better business behaviour in your organisation.

TIP # 1 Take responsibility for your own behaviour

How well do you know yourself?

Have you ever made an intentional effort to find out your strengths, struggles and communication keys?

Understanding yourself is the first step in getting better business performance because without a clear understanding of self it is almost impossible to take responsibility for your own behaviour.

If you have never done any of this type of work there are a number of tools available to make a start. Two of the most common are DISC and Myer Briggs but the best we have found is Business DNA which can really help identify the unique aspects of someone’s behaviour which is where most of the conflict arises when interacting with others.

Once you understand your strengths then you can build on these to enhance your effectiveness.

Once you understand your struggles you’ll be equipped to manage these because it is the area where the relationship issues always arise. Conflict rarely arises from people’s strengths and nearly always arises from mismanagement of struggles.

TIP #2 Get into the other persons shoes

If you understand yourself well then it is possible to try and understand someone else’s point of view. Remember that people can be very different to you so it is not easy to authentically step into someone else’s shoes but worth the effort.

In business with a balanced team there are many different personalities, talents and skills. Not everyone is like you so…

Draw a deep breath, forget about your world and try to appreciate other points of view.

If you have some understanding of their personality and what makes them tick then this can be much easier. Even if you don’t, start to think how they react to things. What situations seem to ‘press their buttons?’

What areas have caused a conflict in the past?

Make a genuine effort to draw a context of ‘their world’ rather than try to bring them into your own world.

It will likely feel awkward and difficult but after some practice you will find that the benefit of really understanding their context will improve the business behaviour in your organisation significantly.

TIP #3 Cut colleagues some slack

Think about a time when you have made a mistake and wished the earth would open up and let you escape.

What kind of behaviour were you looking for from the people around you in the business?

How were you hoping that other people would look at the mistake?

I bet the last think in the world you would look for is to be told by some one else that you’d made a mistake. You already know that fact and probably more of the detail behind it than any one else. Being reminded by others only adds to the pain you’re already feeling from knowing you’d made a mistake.

In these circumstances you needed people to cut you some slack and work with you towards a remedy. Moving forward will help more than dwelling on the past and focusing on the mistake.

Do you have any tips you’d like to share?

How you can construct a simple financial statement template

By on March 10, 2011 in Financial Statement Template

Have you found that financial statements can be a little confusing?

Well you’re not alone because many business owners have great difficulty in understanding their numbers and for many they look like ants walking up a page!

The beautiful thing is that when you understand your financial numbers they can become a very powerful management tool for your business and of course all of us want to know ‘Where the Money’s Gone?’ in our businesses.

So before you rush into trying to create your own financial statement template let’s go through the basics of what you’ll need.

The first is to realise that financial statements are made up of three different statements which all connect together:

  1. Profit and Loss Account
  2. Balance Sheet
  3. Cash Flow

Most business owners think they understand their profit and loss account without realising that it is simply a regurgitation of the customer invoices, supplier invoices and employee wage payments summarised into a single statement.

If the timing of this is not carefully monitored then income and expenses will not be matched correctly and the profit and loss account is worth no more than a ‘bunch of wet tram tickets.

So making sure you have the correct timing in your profit and loss account is critical in ensuring your financial statement template means something.

The next section to consider is the balance sheet which is an area where many business owners’ eyes glaze over because they never read a balance sheet and it doesn’t relate to their real life. Like it or not, we live in a world dominated by debt and many business owners have borrowed against their home to get into business.

People now think differently as a result of living with debt over long periods. You don’t save up to buy capital items any longer.

At best you get a deposit and borrow the rest to buy capital items. So constructing a balance sheet format that takes this into account will help you understand the balance sheet better.

Don’t use
Assets minus Liabilities EQUALS Equity for your balance sheet!

Use
Working Capital + Fixed Capital EQUALS Debt + Equity and it will relate better to your personal life.

Once you have your balance sheet in the correct format you can make sure it connects to your profit and loss account by using the following equation:

Opening Equity (Balance Sheet) PLUS Profit (Profit and Loss Account) EQUALS Closing Equity (Balance Sheet)

This will ensure both of your statements tie together.

The last of the statements is the Cash Flow and this is a very difficult task for many business owners because they start with their bank statement and never know how to tie that back to their Profit and Loss Account and Balance Sheet.

While in a single dimensional way they understand their cash, it doesn’t help them in the overall strategic management of their business.

The first place you must go to bring this together is the Bank Reconciliation in your accounting books.

If this is not filled out correctly then your books might show something completely different to the Bank and you’re in real trouble.

Once the reconciliation is correct and up to date, you can balance your cash flow to the bank account in your BOOKS and then you tie your Profit and Loss Account, Balance Sheet and Cash Flow statements together in a simple financial statement template.

This is often known as a three way forecast and provides a very powerful forecasting tool for the big picture overview of the financial health of your business.

What have you done in the past to prepare a financial statement template in your business?

How you can avoid being shocked when using Business Valuation Software

By on March 8, 2011 in Business Valuation Software

I’ve met many business owners who have an inflated view of what their business is worth and it is not until they actually try selling their business that they have an incredibly rude awakening!

Using business valuation software is fine but you must put in the right data to get the benefit of a valid valuation for your business.

You may have heard the term ‘Garbage in, Garbage out’ when referring to software programmes and this is obviously true when dealing with the whole subject of business valuations.

Most businesses are sold on what’s called a multiple of sustainable profits so this means you need to work out two things:

  1. The Sustainable profits AND
  2. The multiple of earnings

The single biggest issue for small business owners when trying to value their business is what to put in for the cost of the business owner.

So let me ask you this:

Do you take a wage which is included in the costs of your business or do you simply take a drawing from the profits?

If you are taking a drawing from the profits, presumably for tax reasons, then the costs of the business owner are ZERO and you will have difficulty finding someone to do the work of the business owner for nothing. In calculating the sustainable profits you must include the costs of the business owner.

When we’re doing this we make our best attempt at what a market cost would be for that position. We ask ourselves the question: ‘What would it cost to hire someone to do the work of the business owner?’ Often this is more than the business owner is taking from the business!

Calculating the sustainable profits is a key ingredient in establishing the value of a business and buyers will be highly focused on getting this correct. This is probably the hardest component to complete when before using business valuation software.

The second part of the equation is the multiple of earnings and this is a factor which is supposed to measure the growth prospects for this business. If a business is growing fast then the multiple is higher than if it is stable. If you want to know more about this then go to www.bizexchange.com.au where you can find the multiples across various different sizes and types of businesses.

What’s your story on business valuations? What positive or negative experiences have you had?

5 things to remember about budgeting worksheets

By on March 3, 2011 in Budgeting Worksheets

I’ve been talking a bit about budgeting lately. Now, before rushing into preparing your budgeting worksheets, here are five useful tips which will help you get the best value out of the exercise.

  1. Purpose

    Many business owners never prepare a budget because it is too fearful for them and they worry more about whether they’ll achieve it than the whole purpose of budgeting in the first place.

    Budgets are not a rod for the back of the business owner. They are an opportunity to provide overall direction for the next year for a business.

    Without some sort of goal a business normally finds a level of equilibrium and then stays there for ever.

    2.  

  2. Timing

    Budgets are prepared at a point in time with the best information possible at that time. They are never perfect or completely right but they give a goal for the business to aim for.

    In small business particularly, it is important to be nimble and to maintain the ability to adapt to changing conditions. As a result budgets have to change during the year.

    However make sure that you don’t change the goals to match up with your current experience. Use them to draw you towards higher levels of achievement

    3.  

  3. Context

    The context of any budgeting worksheets is the future. They are never about the past even if they’re built on business history.

    As a result they are predictive and the very good worksheets are those that allow the user to enter information as a series of inputs and the worksheet does all the number crunching and comes up with the answers.

    This allows the user to run scenarios through the budgeting process and come up with budgets that have been tested before finalisation.

    4.  

  4. Content

    The value of a budget is the ability to match actual beside it during the year. I have seen many budgeting worksheets that are prepared in a way which is impossible to match actual against.

    Standard costs and standard pricing methodologies are often used in budgeting worksheets and it then is difficult to match actual back against this information.

    You may have this problem any way when trying to prepare theoretical costing information with the actual information coming from your financial records.

    Remember that a budget is only valuable when it can be compared to an actual and the content of your worksheet should make this as easy as possible

    5.  

  5. Audience

    If you are preparing the budgeting worksheets then remember that others may want to look through the detail to see what you’ve done.

    This is always a good thing because human beings make mistakes and it is always good to have your work checked by an independent person.

    In designing your worksheet make sure the information is easily understood and headings, totals etc have descriptions that others would understand.

    Sometimes a few moments putting in the right descriptions on a worksheet can increase the value to other exponentially.

What’s your experience on preparing budgeting worksheets?

5 tips to help you build an incredibly powerful expense template

By on March 1, 2011 in Expense Template

Over my career I’ve had to build hundreds of different templates, starting with Lotus 1-2-3 and then moving onto to Microsoft Excel.

During this process I have found that to build an expense template that will last for more than a couple of months I’ve had to do some thinking about the overall shape of a template before rushing in to get it completed.

So here are five tips that you may find useful on your journey to building incredibly powerful expense templates.

  1. Add down and across
    This may sound very basic and simple but you would be surprised how often this is forgotten and the expense template lacks the integrity of being correct. May be it is my anal accounting background but I’ve always found that if I make check totals by balancing figures down AND across as I work on the spreadsheet, it is far easier to balance everything in the end and also ensure that nothing is left out of the template.

    2.  

  2. Carefully choose the context
    Headings and the naming of sections of the template will assist people to read the information. If you simply have a string of numbers without any explanation then readers won’t have a clue what you’re talking about. Make sure you clearly understand the context and put it as a heading on your template. E.g. Sales Expenses for the period ending 30th June 2010.

    3.  

  3. Don’t miss the wood for the trees
    Finding the right level of detail in an expense template is critical because if you go for too much detail, the template can become so huge that no one other than you can understand the content. On the other hand if you miss out important detail the template can point to conclusions which may be wrong.

    4.  

  4. Think communication more than data collection
    It is very easy when putting numbers into any template to focus heavily on collecting the data and making sure it is all balanced and correct arithmetically. However, if you are to be an influencer of others then it is the communication of the information which you must focus on in preparing your template. Who is going to read this other than you? What do you think they are looking for from the template?

    5.  

  5. Think of the flow of information
    This last point is probably my most important in the construction of an expense template. Remember that others may want to read your template and how the information flows down and across the page will either make this very easy or incredibly difficult. Most people read from left to right BUT accounting convention is from right to left. Think about this when constructing your template and make it as easy as possible for non financial people to follow the flow of your information.

What’s your experience in constructing templates?


Are there any particular formats that you’ve found really work?