Do Business Well

After your business has opened, your accountant should:

• Set up a mechanism to record your daily business transactions e.g. sales, cash receipts, purchases and all expenses.
• Open a set of books (now recorded on your computer) e.g. cash book, journals, petty cash etc. This will most likely entail the purchase and installation of a software package suitable for the recording and presenting of your financial results.
• Arrange to present your accounts to you on at least a monthly basis. You should receive a package consisting of an income and expenditure statement, a cash flow statement and a balance sheet not more than 10 days after the end of the month.
• You should insist on receiving the following information on a daily basis

1. daily sales
2. gross profit
3. daily cash flow statement

• As your understanding of your accounts grows, you will come to appreciate ratios such as the liquidity ratio, staff costs vs sales, rent vs turnover, and other ratios relevant to your business.

We can’t stress the importance of cash flow strongly enough. Most entrepreneurs put a great deal of emphasis on sales and not enough effort into the mastery of cash flow. This can be described as the “sales mentality”. You must understand that sales DO NOT equal cash. If you are running a business today, the first thing you need to check every morning is your CASH FLOW – do you have sufficient funds to cover your expenses at least 2-3 months in advance?

If you don’t master your cashflow, you will stagger from crisis to crisis as you battle to meet your salary, wages and expenses bill every month. You will learn to hate your bank manager as he tells you that you are over your credit limit and he won’t honour any more of your cheques. You will break into cold sweats as you run around trying to collect outstanding payments from your customers. And, most importantly, you will take your eye off your business while you struggle to survive financially.

Two final warnings:

First warning: Remember at school, the scorer for the 1st team was normally the straight “A” student who had little ball ability and could not bat or bowl. What would happen if you made the scorer the captain of the team? Well, he would probably use his experience as a scorer to set ideal field placing and he would probably stop some runs being scored by the opposition, but he could not make them. He certainly wouldn’t be the player who consistently leads the team to victory through inspired play.

In business, expect your accountant to be like a scorer. He may be conservative and effective at saving money, but he could lack the flair and drive of an entrepreneur. Pay attention to what he says but be careful he doesn’t cramp your style.

Second warning: Choose your accountant very carefully. Many entrepreneurs, including us, are not experts at managing money. We don’t know all the “tricks of the trade”. Managing cash flow, especially when your business begins to grow, is a highly complex art. So invest time in finding the right accountant. Make sure you check his references. Make sure you can get along with him. And make sure he has a good feel for your business. You must be able to communicate with your accountant. We promise you there will be times when, after your family, he will be the most important person in your life.

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