Another episode in the Q&A video series for SME’s and business leaders.
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Intro: I’m Stuart Ayling and in this episode of Q&A I have the pleasure of speaking again with Justin Hogg who is Founding Director of Right Source. And in this episode we’re going to be exploring how to get the best value from the financial information in your business. Maybe it’s an area you haven’t really thought of before. Now whether you work with an accountant, an outsourced CFO or another financial advisor to help you with your business numbers, we’ll be looking at how to get the best value from your financial data to help you make smarter business decisions.
Stuart: I’m speaking now with Justin Hogg. Justin is the Founding Director of Right Source, and he helps prevent businesses from running out of cash, which is a pretty good thing. He provides the ability to have an honest conversation around financials and works with not-for-profits right through to multi-million dollar businesses. Through these conversations Justin helps businesses to gain transparency, manage risk, and ultimately make better decisions within their business. So thanks for being here Justin it’s great have you along.
Justin: Yeah thanks good to be back.
Stuart: OK well we might get straight into it because I like to keep these short and sharp and get to the nitty gritty of each topic so this particular chat is around how does a business owner get the best value from their financial support. What do you see that being like, what is the finance support for a business? Who is that, what do they do?
Justin: Quite often I suppose we think of business support as being the tax or the compliance aspect of an accounting team or finance team. Really, and I think McKinsey (consulting) did some studies on this in specially with business, in that actually the major area of value that an accounting support team can provide is in the management accounting processes.
For those not familiar with the term management accounting that’s really your accounting that helps understand your business and look towards the future as opposed to compliance work which is more historical accounting.
Stuart: Yeah OK so Management Accounting is where the action is. Is that what you’re saying? That’s right, that’s where the fun stuff is. Sounds like, coming from an accountant, that’s where the fun stuff is. Alright, so what I’d like to ask is around that issue of transparency. How does this area of Management Accounting, getting value, how does this give me transparency in my business? Isn’t it just more numbers?
Justin: Well, I suppose, and this is very important, when a business owner looks at the numbers of their business it should mean something to them. And this is really one of the core aspects a good accountant should be working with the business owner to understand, and it’s a two-way process, understand one what they’re expecting to see from the numbers because normally the business owner has an implicit understanding of their business. They know their stuff.
If the numbers don’t make sense to them something isn’t right. And from the flip side it’s also the accountant educating the business owner on what the numbers are supposed to represent, because they could be that they’re expecting to see something but they don’t understand what the numbers are supposed to be telling them. So there’s a two-way process there.
But if you can help that communication process as an accountant to show what the numbers are meaning and get the business owner to see the value of what they’re representing it can actually then start the business owner will start to understand their business in an even deeper level, and that’s with the transparency starts to come through.
Stuart: OK so as a business owner I’m not familiar with all the accounting processes, like I’m not the accountant. That’s why I have an accountant, so what should I be asking for like shall I just say hey, I need some management accounting. Tell me how do I know what to ask for?
Justin: You really don’t want a lot of numbers. That’s actually quite important. You want to know as a business owner what do you need to know to run your business? Well I need to make sure I’m collecting my cash. OK well show me a debtors listing that makes sense. So what cash is outstanding that we need to collect? That should be pretty self-explanatory in terms of the information there.
In terms of how my business is performing, well what’s your key drivers? Is it how many hours you charge, how many widgets you sell? Is it a margin? So it’s really only having a couple of key KPI’s that you’re looking at and actually being able to know these are the ones that make a difference in my business.
You know, knowing your stationery costs probably doesn’t affect your overall profit. It’s good to know and good to manage it, and you can look at it when it’s there. But it’s not something you’re going to want to see very often.
Stuart: OK so I, once again as a business owner, I should be more thinking about the outcomes within the business, those KPI’s and really not worrying so much about the accounting process behind it, but looking at what do I need to be able to monitor within the business and then going back to my accountant and saying hey, tell me what I need to know to be able to monitor these outcomes?
Justin: Absolutely, it’s like driving a car. You don’t need to know how the engine works, you just need to know what pedal to put your foot on to make it go fast, and what other pedal to press to slow it down.
Stuart: Alright just, finally on this topic. How how does that information stay up-to-date? Like how, what’s the best way for a business owner to make sure they’re looking at, whether it’s real time, like is real time like every minute of the day? Or what’s best way for a business owner to stay up to date.
Justin: That really depends on you and your business. With with systems and processes these days there’s no reason why your financial data shouldn’t be up-to-date on a daily basis, at worse on a weekly basis, so really you should be able to have a once a week catch up, log into your system, things should be set up for you. I mean some of these systems now they come with the dashboard built in, they bring up your key information. That stuff should be able to be set up by your accountant so that it just pops up once a week and can give you a good picture of where things are sitting.
Stuart: OK that’s great. Well look I appreciate you sharing your thoughts on that Justin, on how we can really get the best value out of that accounting information that’s often sitting in the back of the business but we don’t tie it to business results. So thanks again for sharing your expertise.
Justin: No worries Stuart, thanks.