Money Management in Business

Published on 02 May 2019

Photo of Elize Hattin and Marni McGrath sitting on the couch at SmartHub Rockhampton

When it comes to business, money really does make the world go around. Having a proper understanding of your business finance can be the difference between success and failure. In a recent Hub Live, Elize Hattin sat down with Marni McGrath from Evans Edwards & Associates to speak to her about the best ways to manage money as a business.

Marni has been an Accountant at Evans Edwards for the past 18 years and works with a range of businesses on their finances. “I think people have this imaginary perception that we deal with money and that there are big bags of it that we are out the back counting, but you’re really dealing with it on paper, or on the computer now. The numbers paint a picture of the business and tell a story,” she said.

Getting Money and Getting Started

Money is key to making a business run. From the very beginning, a business needs money to start the ball rolling effectively. “It’s important to understand where the money’s coming from,” Marni explained, “It can be from your personal money, it can be from the bank and hopefully it’s coming in from your customers too. Hopefully they’re paying you when they should be paying you, so we can make the wheels turn more quickly on our businesses.”

One of the issues Marni sees often when people are getting their starting funds together, some people don’t consider costs outside the immediate startup costs. “We have to consider working capital, which is the money you need to keep you going for the first few months and understanding how long that is. Once you’ve got plans in place it’s easier to understand. You can mix together different sources of funding, like putting up some of your own money, but also applying for outside funding like a bank loan or a government grant.”

Government grants are a popular way to finance a new business, but they come with their own set of risks. SmartHub Mentor Steve Baxter once said that taking investment or getting a government grant only delays the inevitable in business, that you need to sell something and take money from a customer. When the government puts money into a business, that business often doesn’t survive beyond the first year. The reason for this is that they delayed the inevitable, which is taking money from a customer as it’s often difficult.

According to Marni, government grants are useful but must be used carefully. “It’s great that they’re there, but they really should be the cream. It should help make things a little bit easier. Unless you’ve worked through the process of understanding how your finances work and what you actually need, a government grant can just be a Band-Aid. If a grant is easy for a business to get, they may not put in as much effort as they need to in order to get money from customers,” she said. When you put in your own money to get yourself going, there’s more pressure to get the flow going as quickly as possible.

Working Capital

In the accounting world, working capital is an important term to understand. In essence, it’s the sum of all of your current assets less your current liabilities and is used in day-to-day operations of a business. In order for a business to be successful it must have positive working capital, so that any fees, payments or other liabilities are taken care of without having to use any money reserves. “If you’re not keeping an eye on your money, people will be using your money instead of giving it to you,” Marni explained. “The sooner you get paid for your product or service, the less liabilities you have.”

In a previous Hub Live, Chris Harris of C.T. Harris & Company Chartered Accountants spoke about understanding your bank balance by knowing what you’re expecting to come in and what you’re expecting to go out and using that as the basis of financial decisions, which Marni agrees with wholeheartedly. “You have to stay up to date and have accurate information. It’s no good running by the seat of your pants and looking at your bank balance on your phone and going, ‘Oh dear, I haven’t got enough to pay the bills this week.’ You really do need to have something to keep you up to date, even if it’s just basic accounting software. It’s so terribly important if you want to keep control of your money.”

Accounting Software

No matter what kind of business you have, Marni recommends having accounting software to help you manage your finances. There are a number of options out there, such as Xero, QuickBooks, Reckon and MYOB. Cloud based accounting software has the benefit of allowing advisors or accountants access to the most up to date version of your finances. The software you choose for your business depends on your circumstances, as Marni explained. “I’m a fan of Xero for its simplicity, but I tend to say to people that if you’re familiar with one, use that. If you’ve got friends or family that use one or are familiar with one, perhaps that’s the best way to go because they’ll be able to help and support you. Whichever one you choose; I think talking to your accountant early and getting it set up right for your business so you can get useful information out of it is the key. If you leave it too long, you end up with a whole pile of gobbledygook and it’s just useless information.”

Keeping track of your finances is key to keeping your business afloat. Many businesses can forget to check in on their bank account on a regular basis. If you lose track of what payments are due and how much you have in your account, you could end up in debt. “This doesn’t just happen in businesses that are new or starting up, you can see it in businesses that have been established for quite a while. They’ll get slack on their processes, money might be flowing well but eventually you’ll hit a bit of a hurdle or a rough patch and you’ve taken your eye off the ball. It’s just remembering to schedule it in. At Evans Edwards I sit down and work through it with my clients where we simplify it and ask, “This is the bank balance today, but what do we expect it’s going to be at the end of next week and the week after that?”

When you’re keeping track of your cashflow, that’s when you’re able to make predictions and to prepare for future bills or payments. You can look at your bank and say, “I’ve got a big bill coming up in two weeks, what am I going to do about it?” If you don’t know about that bill until it hits, there’s not much you can do about it and suddenly you can’t afford it and you’re in debt. You can only change what’s going to happen in the future and I’m really big on that, planning and looking ahead to see what we can do now to change what’s going to happen in the future,” Marni said.

In order to be prepared for upcoming payments, Marni recommends looking 12 weeks ahead, as the biggest cost small businesses are caught out on is their quarterly tax obligations. “They might be paying GST, they have one or two employees to pay, and then they’re putting away money ready for tax that they’re meant to pay. Some people want to be really exact with it, but you just need rough numbers and to get close if that’s easier for you.”

A great way to prepare for quarterly tax obligations is to create a separate account for PAYG and BAS payments, keeping that money separate from the rest of your business funds. This could be unlinked with the rest of your account or even having it with a different bank all together in order to prevent temptation to use this money.

Top Three Tips

With the amount of time that Marni has worked in the finance industry helping small businesses, she has seen a full spectrum of businesses with all kinds of issues. This makes her a wealth of information, and she wanted to give her top three tips to help businesses with their finances.

“Firstly, understand your costs. Think about how much you’re selling for compared to how much it costs to provide your product or service. If you don’t understand your costs and you’re not controlling those costs well, there’s going to be less left for you at the end."

Secondly, you need to keep your financial information in your accounting software up to date. Your accounting software gives you the required information to make smart decisions in your business, but only if you use it. You can’t make informed decisions without information.

Finally, you should always look ahead and plan for the future. Schedule time each week to go over your finances and plan. The simplest things are the most important. At Evans Edwards, we still do the basics every single week. We sit down and look at our bank balance, what’s going in or out.

“These basics are so important to the long-term success of your business. You won’t get it right all the time, but once you’ve made it routine, it just becomes regular.”

Working with the SmartHub

Evans Edwards has been part of the SmartHub for years now, and Marni loves watching local businesses flourish and grow. “It’s so rewarding for Tony and myself and we’ve got a few of our senior accountants now that are enjoying coming along and just meeting with the people down here and the SmartHub. We really enjoy being able to just give back a little bit of our knowledge to help them out. It’s really great.”

Marni and others from Evans Edwards often come and host events at the SmartHub, including Lunch and Learn events. “People tend to be able to ask questions and they have direct access to ask you the question, and if they don’t want to, they can always give us a call later on which happens often,” Marni said. Access to these workshops are completely free of charge to SmartHub members.

The SmartHub has grown now to over 70 members and is continuing to expand! If you’d love to learn more about the SmartHub you can send a private message via Facebook or just drop in to Customs House at 208 Quay St, Rockhampton.