I was reading the results of a survey recently which looked at how equipped entrepreneurs are to succeed in business. The results were somewhat surprising.
Fail to plan and you can plan to fail!
In this survey 16 per cent of entrepreneurs didn’t have a written business plan. Now, I’m no advocate for the kind of business plan you might learn how to write in business school. But I am in favour of a set of measurable goals and detailed strategy outlining how the goals will be achieved. Without considering the key areas of your business - finance, people, processes and customers – you are unlikely to have a full picture of all the challenges you face, or all the opportunities open to you.
Every business needs a plan. It should be as detailed as your business needs. That is, if you’re a small company your plan may be written in a few key headlines or bullet points. If you are a larger business with multiple divisions or layers of management you may need a more sophisticated plan, with goals set for each area of the business.
Any accountant worth their salt will be able to help an entrepreneur with the business and financial planning process both before start up and on an ongoing basis.
Baffled by financial terms
I wasn’t really surprised to read that entrepreneurs sometimes find even basic accounting terms confusing. It was surprising to learn that almost half don’t know the correct definition of gross profit and 31 per cent do not know what turnover means.
Without understanding these terms it’s hardly surprising that business owners don’t try to track the relevant financial measures in their business.
I’m always at pains to work with clients on key performance indicators (KPIs) that are relevant, and more to the point, understood. Without this information how can you hope to know whether your business is on the road to success or doomed to fail?
The survey noted that entrepreneurs didn’t know things like the VAT threshold (£73,000, by the way). Well again I’m not particularly surprised by this and in fact in my view they don’t need to know what the threshold is, just that there is a threshold and that they need to register when they reach that level. Their accountant will help them with that in any event. It is true of course that VAT can be one of the pitfalls for small businesses. Getting it wrong can have a negative impact on cash flow and leave a business vulnerable to a penalty from the HMRC.
To me, this just highlights the importance of getting the right advisors on board right from the start. If things like financial record keeping, VAT records and so on are set up correctly from the start there’s far less likely to be an issue as the business grows.
So, what help do entrepreneurs really need from their accountants? Good, sound business planning advice, a quick lesson in the key financial measures they need to track and understand, patience to explain these things again if they weren’t understood the first time, and expert advice on the technical aspects of running a business and keeping HMRC happy. If your accountant doesn’t provide this, find someone else!
Chartered Accountant and Business Advisor, Birmingham