Running a successful business is not just about making money. You have to manage it right. Ashley McGuirk, Director of Business and Management Advisers, Core Business, gives his eight steps to build the financial health of your organisation.
We asked Ashley Mcguire to share his insights on what business leaders must do to keep their companies in good financial health.
1. THE 60–40 RULE
“When a butcher decides to run a butcher business, there’s a lot less cutting meat.”
Running your own show takes you away from the very activity that may have driven your success to date. The minute you start a business you become 60% expert, 40% business owner. The first step to a financially healthy business is understanding and preparing for this shift.
2. TAX MANAGEMENT IS REAR-VISION STRATEGY
“Stop using the rear vision mirror approach to tax management, look through the windscreen.”
Managing your tax obligations protects the cash in your business for working capital. Getting it right must be a proactive, forward-thinking exercise not a retrospective scramble after the end of the financial year. The best businesses plan their minimisation, deferral and cashflow strategies before June 30.
3. COMPANY STRUCTURE MATTERS
Get advice on the appropriate legal structure for your company. Different structures (joint ventures, trusts, sole traders, companies) have different advantages for asset protection, taxation, succession planning, industry requirements, grants/incentives, etc. The right structure will help keep your money available to run and grow the business.
4. PLAN YOUR DEBT
Taking on debt to start or grow your business or to introduce a new product can be an excellent decision. But plan how much you borrow and when. It may be a decision with life long implications. Are you chasing short or long term debt? Do you put up the house? Is it going to help you grow your business sufficiently to cover the debt, and are you clear on the risks?
5. CASH MAY BE KING, BUT IT’S COMPLICATED
Too much cash is not always a sign of business health. Ashley remembers a client telling him that although business was quiet, he wasn’t worried because ‘there are packets of money’. However, debtors were rolling in, but new stock was not being purchased as orders had dried up. A vacuum was resulting in the working capital cycle about to lead to business distress.
6. SET GOALS, CREATE BUDGETS.
“If you aim for nothing you hit it with amazing accuracy,” says Ashley. 95% of Core Business’ clients have a 90 day budget, but as few as 10% have a 12 month budget.
7. TRACK THE RIGHT KPIS
Include at least three financial measures in the KPIs that you track consistently. Create a reporting system that keeps them visible and acts as a barometer of business health.
8. DON’T DO IT ALL YOURSELF
Have internal assistance to ensure the reporting is clear and focused on the KPIs. Whether it is a bookkeeper or a financial controller will depend on the size of your business. Have external assistance also, such as your accountant, other key advisers and members of your business network to share ideas and take mentoring from. Even the best tennis player in the world has a coach or mentor, says Ashley.
HOW DO YOU FIND THE RIGHT BUSINESS ADVISOR TO SUPPORT YOUR ORGANISATION?
Ashley McGuirk recommends you take time to find the right business advisor. To do this, write down the questions you want to ask, be clear about your business goals and what you need from the advisor so that you get the best value from your first meeting. At the end of your meeting, ask yourself the following questions:
a) Did they understand my specific needs and the future direction of my business?
b) Did they articulate how they could add value to me and my business.
“Remember, every success in your business is of your own making,” says McGuirk. “Enjoy the successes, but take responsibility for mistakes and make better choices the next time around.”