The findings of a business survey1 were discussed at a Business Thought Leadership Panel held in Montreal, QC, in May 2011. Moderated by the Business Development Bank of Canada2, the panel included experts from Cartridges Certifiées3, Prévost, Parent et Associés4, and Sage 50 Accounting5.
This paper highlights four key best practices for business success as discussed by the panelists: focusing on the business, managing your finances, investing in technology and setting up a plan for succession.
Focus on the business.
Managing numerous financial management tasks and dealing with burdensome government bureaucracy is not usually top of mind when starting a new business. It's burdensome and unavoidable but there are ways to minimize the time spent on these tasks and instead focus on the parts of the business you enjoy.
In fact, dealing with government-mandated financial reporting is—according to survey respondents— one of the least favourable aspects of running a business in Canada. Matthieu Laroche, co-founder of Cartridges Certifiées agrees: "Managing the financial and tax pieces of our business cost us, on average, 20 hours a week that would have been much better spent on the development of our core business."
"Clients are always surprised by how much time it takes us—accounting professionals—to deal and negotiate with the government on even small issues," adds Philippe Prévost, president of the accounting firm, Prévost, Parent et Associé. "It's understandable why business owners are unlikely to invest the time to try and better understand the mechanics of accounting and taxation—it's not easy."
While the government has shown some improvement in process—the CSST (Commission de la Santé et de la Sécurité du Travail du Québec) tax remittance for example, is now included with other deductions and processed once a month instead of yearly—business owners need to look at ways to improve their financial management efficiencies in order to focus on what's important: growing the business.
Many business activities such as paying bills, creating invoices, and tracking inventory can easily be captured by accounting software as the transaction occurs, making overall financial management easier and more reliable. "So when it comes time for tax remittance, for example," says Hugo Croft-Lévesque from Sage 50 Accounting, "accounting software can automatically access the necessary information and automatically send it to the government in the proper format – no manual calculations required."
As Hugo Croft-Lévesque continues to explain, accounting software allows businesses to meet regulatory financial requirements within a matter of minutes and then quickly get on with the business of generating revenue.
Manage your finances.
According to survey respondents and our experienced panelists, efficient invoicing and billing, managing costs, and cash flow are the top three financial management tasks for business success. Moderator Matthieu Céré, from the Business Development Bank of Canada, asked the panelists to discuss each of these financial tasks in more detail.
Invoicing and Billing
Accurate invoicing and billing provide a firm foundation for generating cash for the business. The quicker invoices are sent out, the quicker they get paid.
"When you realize you have not invoiced on time, it's embarrassing to ring the client 6 months after the good or service was rendered and ask for payment – even if it's for a small amount," says Matthieu Céré. Matthieu Laroche adds, "it makes you look like you aren't serious about your business and you can bet the client doesn't think you're serious either."
Laroche continues, "Implementing an efficient invoicing and billing system is much easier through the use of accounting software. You can immediately assess who hasn't paid, how many days the payment is overdue, and, if any automatic reminders have already been issued requesting payment."
However, as Hugo Croft-Lévesque points out, the choice of software is not as important as the discipline a business applies to the invoicing and billing process. What follow-up methods should be employed? When are clients called about overdue payments? When do reminders get a little less friendly? Accounting software can help by establishing an automatic process for follow-up but at some point additional action is required in order to collect what is owed.
According to the survey, 16% of business owners have trouble determining and managing their operating costs. Many business owners are guilty of not properly tracking their finances and send paperwork to an accountant once a month only to discover what their cash position was 30 or 40 days previous, with no clue as to their current financial status.
Matthieu Laroche illustrates the point best by explaining how Cartridges Certifiées used to invoice with Microsoft Excel yet did not annotate the transactions for up to a couple of months in some instances. Cartridge Certifiées now uses accounting software in-house that can pull up-to-date statistics like profitability, cost of sales, and revenue by product, for an accurate picture of their financial health. As costs of sales fluctuate over the course of time, Cartridges Certifiées can be flexible in their decision making, tweaking their business strategy based on the information available.
This access of information, through report creation and data analysis, is a critical component of cost management for any business.
The panelists agree that preparing accurate cash flow projections is one of the most important things a business can do—alerting business owners to potential problems before they arise. Having ample cash on hand ensures that bills can be paid on time and allows for investment back into the business.
"For proper cash flow maintenance, you need to know the amount of money you receive or expect to receive from customers, and the bills that are due to suppliers and vendors in the future," Hugo Croft-Lévesque mentions.
Philippe Prévost points out that while accounting software enables businesses to easily track cash flow, he warns that "if information is input incorrectly into the system, the resulting reports will not be useful—garbage in, garbage out." Keeping an accurate record of all payments, bank statements, and bills, including payroll is essential to keep track of the cash that is going in and out of the business.
As a business owner, having a disciplined approach to invoicing and billing, cash flow, and cost management will save time and money in the long run. As the tracking and understanding of the business' financial position improve, owners are better equipped to make productive business decisions.
Invest in technology.
Business owners have hundreds of things on their wish lists but with limited time, resources and money, priorities need to be set when it comes to investing back into the company. According to Hugo Croft-Levesque, while entrepreneurs recognize the need for web-enabled technology investments (website, social media, mobile apps, etc.), they are also heavily focused on software that improves operational efficiencies, such as better management and tracking of business finances.
Mattieu Laroche agrees, "While we do heavily invest in website related technologies—and these investments are instrumental to our growth strategy—we've also prioritized productivity technologies to help manage and maintain control of our finances. At first, we were reluctant to purchase payroll software add-ons, once we saw it saved us 10 hours of manual payroll calculations we realized it a very worthwhile investment."
When it comes to technology, Philippee Prévost closely analyzes the return on investment but is also motivated to meet his clients needs. He's currently looking at investing in cloud computing technology so clients can easily and securely access financial reports and updates from the Web instead of calling to have the information sent over. Prevost advises business owners to ask themselves how long it will take to see the return an a technology investment and understand how it will improve the business.
As a business owner, your time is valuable and is not always best spent on to-dos that are not part of your core skill set. No one can be good at all tasks required to run a business, so look to technology to meet many of the business' needs.
Plan for succession.
63% of companies surveyed have been in business for more than 10 years, with many owners identifying themselves as an older demographic. Many are struggling to come to terms on how to transfer ownership with retirement looming on the horizon.
"It's important to expand and validate your company's net worth several years in advance of selling," Matthieu Céré says. "Improving cost management and increasing profitability will set up a business for the best appraisal possible."
Succession planning isn't all about finances however; owners must also take a hard look at the operational side of the business.
"I have many clients who are thinking of transfering or selling their company," mentions Philippe Prévost. "But many are sole proprietors which makes selling more difficult. In order to retain the value of the company, owners may be asked to stay on as a resource or consultant. If they don't, only a client list, not a business, is available for sale."
"If an owner decides to stay on board in a consulting capacity, it's often a difficult personal transition to undertake," comments Hugo Croft-Lévesque. "You are no longer able to make business decisions the same way, and you answer to others after many years of being your own boss."
For owners who chose to end their participation in the business when the business is sold, they must ensure the company can survive without their presence. Both Philippee Prévost and Hugo Croft-Lévesque advise owners to start building a team who can, over time, run the business as efficiently and strategically as the owner. An autonomous business model can prove to a potential investor or buyer that the business will continue to suceed wether or not you are at the helm.
"Separating the owner from the business itself, allows not only for more freedom in his or her personal life, but creates a system of profit generation instead of simply a salary for the owner," concludes Croft-Lévesque.
Looking for more detailed information on how to run your business? The Sage 50 Accounting Business Resource Centre contains the latest industry news, articles, and check-lists for business owners who are looking to successfully grow their operations.
The panelists agree that a great first step for any business to start readying for success is by using accounting software to help set up an organized and accurate process for managing your finances. We suggest you take a look at Sage 50 Accounting. It allows you to do what you do best—run your business—and gives you access to a diverse line of accounting options as your business changes and grows.