Not everyone likes looking at facts and figures and that’s why we asked Andrew James from The Catering Accounting Company to speak to us about how best to tackle the M word. You will have seen Andrew giving invaluable advice through our webinars over the past year which has helped many of our members. Here, Andrew talks about why looking at money is difficult for businesses and how to best look after the financial health of your business.
Money is a tough subject because not everyone is skilled in finances, but you can get your head around it using common sense and support from an adviser – outsource the bits of your business that you find challenging. Choosing the right accountant is important and the relationship with your accountant is key; you must find someone who you can work with who provides information on a level that you understand and can put into practice.
Not everyone uses an accountancy firm and the biggest barriers to doing so are cost and potentially fear, however, accountancy has changed. Gone are the days of over-formality – it is much more human now and importantly, it’s about the relationship you build with your accountant.
A good accountant makes you feel confident. They can take away the fear of numbers and give you down to earth explanation of unfamiliar terminology. It makes sense to work with someone who is an expert, especially when you don’t find this part of your business the easiest. They can help you keep your finances up to date, find out costs that you’re not claiming for, make sure that you are working within the law and everything in-between.
Why not everyone uses online software to support them in managing their money
There is a cost associated with accountancy software, but the cost will be outweighed by the benefits. QuickBooks for example will enable you to see your financial results on a regular basis, enabling you to see the progress your business is making throughout the year on a month-by-month basis.
When businesses use online software, it allows meetings with your accountant to be much more valuable as they can make the appropriate suggestions when they can see all your figures in one place. As well as month to month reporting, accounting software will ensure that your year-end accounts are prepared quicker and more seamlessly and because there are apps that tie in with your software, your bank will always be balanced, expenses easily accounted for and your tax will be correct. You can also link this software with your EPOS system which makes looking after your finances even simpler.
Accountants like Andrew want to help support you in:
- Feeling confident about looking after your business’s finances
- Take away the fear of finances
- Give you a range of tools to support you
- Understanding the value of everything associated with your business – fuel, overnight stays, per diems etc. all need to be accounted for – watch every penny
From a financial point of view, there are 12 steps to running a successful business, here are his top tips for looking after your financial health:
- Setting your goals – many business owners consider this a bit woolly but trust me, if you do not set your business and personal goals at the outset (preferably written down so that they can be revisited), you will not achieve what you set out to achieve.
- Turn your goals into a business plan with detailed forecasts. I actually do this for clients using Liveplan which is a piece of software that measures forecast to actuals on a daily basis. You can set this up yourself, it is a simple system that does not have to be done by an accountant.
- Understand what your time is worth and accounting for that cost. If you are going to an event and have to travel to it – say it is a day, you need to account for that in what you want to earn at the event – you have to apportion some cost for your time, it doesn’t need to be £100/hour but you need to factor in some kind of cost – maybe look at £30/hour and see what that looks like when you are planning.
Remember your time is important and should be looked at subjectively. You may be paying staff £10-15 an hour – your time is more valuable as you are responsible for everything so you should be costing this out as more.
- Measure how well you perform every month. Use cloud software to prepare monthly financial accounts otherwise known as management accounts. This should also include other information such as performance indicators like sales Vs labour costs or net profit from an event – you should have your fingers on the pulse of all the numbers that matter.
Set milestones based on these results to drive your business forward. One page business plan templates work well as they outline which information you should be looking at to show the whole picture of how your business is doing including how many enquiries you have had, customer feedback, how much you’ve been upselling through meal deals etc.
- Get to know your Gross Profit – This is the difference between sales and direct cost = gross profit. If you make a 50% margin compared to a 70% margin – getting to 70% makes a huge difference to your gross profit. Understanding what goes into your gross profit, food, prep etc is important and by affecting your gross profit in a positive way you can make a huge difference to the overall profitability of your business. There is software that exists that shows the impact of how improving your gross profit will impact positively on your business. Get in touch if you’d like to know more about this.
- Prepare annual accounts – these are required by law but in my opinion, they serve little other purpose to the business owner because they are historic – what matters most is to be able to influence the future and use historic data to do this.
- Evaluate performance compared to previous years – we are looking for trends here. Look at whether your margins are getting better to make decisions on pricing for example – this should be in line with increases in wages, food, rent costs etc.
- Benchmark your business with the rest of your industry to identify your strengths and weaknesses. What are your fellow traders doing, are sales vs wages costs right? Are some units overstaffed / understaffed for example?
- Estimate the value of your business if you ultimately intend to sell it. You would need to look at this with your accountant to get an accurate valuation taking into consideration the brand you have created and what the value of this is.
- Look at profit improvement strategies. For example, see what difference increasing customers by 10% would make on our results and then devise a plan to achieve that. This is ‘Simple Strategy Tools that Work’ if you put your prices up by 5% or upsell to a meal for example you can measure the impact. Your accountant can advise you on what the best element of this to focus on could be.
- Revisit last month’s plan and add the ideas for the current month. At the end of every month, you should write yourself an action plan – even 2 or 3 things that you want to do to develop your business. It’s important to set realistic actions every month and get them done to make a difference to your business.
- Keep on top of your finances – make it part of your weekly tasks – don’t just look at your numbers when you have to and there is a deadline in place – make sure you do this regularly. The same goes with your paperwork etc, getting it done then and there will benefit you in the long run. If you don’t like numbers then outsource it, there are lots of apps out there now to make managing your finances much easier and of course, your accountant can support you.
Tools that could help you:
- Bank Feeds
- The Catering Accounting Co. Business Process
If you’d like more information on any of the guidance, tools and strategies covered in this article or would like to arrange to have a chat with The Catering Accountancy Company please get in touch with us via [email protected]