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Oops and Open Books?

by Sean Foster | Nov 19, 2020 | Newsletter

Labour is once again in power: they got in with a clear majority, so I make the assumption that the majority of you are happy with the outcome. With my glass half full approach, I remain cautiously optimistic that with the introduced salary inflation there will be many thousands of people with more money to spend and that can only be good for business and the low-income earners.


As you grow your business, so too will you likely need to take on more staff and therefore more overheads and in return, your business takes on more risk. So, the first question is: are your staff better or worse than you, in your business?


Frequent “pub banter” goes along the lines of “if only there were more Me’s to employ, we would be doing great.” This usually means they don’t really have to be just like you if only they would think and act as if this were their business.


Instead, as a business owner, you feel you are stretched more and more and achieving your financial goals and level of satisfaction is further away than you ever thought possible.


When I started my first business, my business partner was turning over $350K in his other business. They had good margins, drove flash vehicles and portrayed themselves as successful.

In my simple mind, I thought to myself: “my first target is to get to $350K.”


It wasn't long after I got to 350K that I realized my new target had to be $1 million in order to make some money in this business. And when I got there, I then realized I needed a bigger warehouse, more staff, vehicles etc., but once I got to $2 million, I should be OK. (I was also becoming less optimistic about each next million!)


Despite my financial training, one day I woke up to appreciate I was chasing the wrong number, the number that most people chase: the turnover number.


At some point, we started to focus on bottom-line profitability and in so doing we realized that we needed more than our annual financial accounts or even our accountant. We started to focus on two aspects:


[1] a managerial financial view (not just an accounting one, it is different!)

 

[2] improving the financial literacy of all our staff.

 

Have you, or do you currently share a similar experience as to mine?

 

You may have your specific profit target, but at a high-level, a profitable business will have the following:

 

  • You are cashflow positive with accumulating profits going into your bank
  • You have a safety slush fund accounted for (your capital reserve fund)
  • You have no (or at least only strategic) reliance on the bank debt
  • As a minimum, you and your staff are paid at market-related salaries

I will cover this Managerial Finance subject in the next few News Briefs as they are critically important to running your business.

In preparation for this, I am intrigued if you have come across the term Open-Book Policy?

 

This term may conjure up impressions in your mind either positive or negative. Should you wish to create a business that is not reliant on you, is profitable and becomes an asset, then you should be further exploring the principles of an Open Book Policy.

 

Until the next News Brief, I would love to hear from you about your feelings towards open book policy. I would appreciate your feedback by submitting it here (this will not take you longer than 2-minutes to complete and I will share the results.)

 

Interested to learn a little more about BIG? It’s not an adults’ only shop, it is the Business Improvement Group. Exclusive membership for business owners who want to grow and improve both their businesses and themselves.