[Homer is scrambling to complete his taxes]
Marge: I put the tax forms on the top of your ‘to do’ pile a month ago.
Homer: I have a ‘to do’ pile?! [looks at the mountain of papers next to him on the end table, which wasn’t there before] Marge, how many kids do we have? Oh, no time to count, I’ll just estimate! Uh… nine!
Marge: Homer, you know we don’t have…
Homer: Shut up! Shut up! If I don’t hear you, it’s not illegal! OK, I need some deductions. Deductions… Oh, business gifts! [hands Marge the sailboat painting from above the couch] Here you go, keep using nuclear power!
Marge: Homer, I painted that for you.
Homer: OK, Marge, if anyone asks, you require twenty-four hour nursing care, Lisa’s a clergyman, Maggie is seven people, and Bart was wounded in Vietnam!
Marge: Homer, you can’t write that.
Homer: [With his hands across his ears] Shut up, Shut up! If I can’t hear you, it’s not illegal!
It’s that time of year again. The Self-Assessment deadline is looming, marking a period of joy unfettered (!) for optical business owners and locums. And for many, January and March/April (the end of the tax year) are the two key touchpoints they will have with their bookkeeper and accountant. It’s easy to view finance professionals as a ‘necessary evil’, the source of a large bill for fees, closely followed by another from HMRC. And while their role in minimising tax liability is appreciated, many ECPs gain little further benefit from this – quite significant – investment.
At lookahead Consulting, we believe this is a mistake. Used effectively, a good accountant can add value to your optical business throughout the year. Many will offer a range of business support services, from negotiating with banks/HMRC and sourcing good-value merchant services, to advising and assisting with cashflow planning, providing quality management information, or reviewing your business plan.
There are three key phases in effective financial governance of any organisation, and we’re going to outline these in this blog.
As with most things, the ‘Five P’s’ priniciple applies here: Proper Preparation Prevents Piss-Poor Performance! The preparation phase is not simply limited to preparing effectively for tax returns (although keeping on top of your invoices/receipts/credit notes is certainly vital). To begin extracting real value from finance professionals, optical business owners need to be thinking about goals and targets for the coming year. The simplest way to do this is to work with your accountant to ensure that your business plan is up-to-date. Your BP should reflect the needs of your business both tactically (short- to medium-term) and strategically (longer-term). Particular attention must be paid to high-impact events planned or expected for the coming period (eg capital purchases, the shopfitting cycle, staffing changes, imminent rent review etc.,). The effect of new products and services should be assessed (and not just those in your own business, but also those in your community and those of your competitors). Your BP then becomes a point of reference throughout the year, both for the business and for your accountant: set your benchmarks, and then ensure that you can easily measure business performance against these. Your accountant may run a Porter’s Five Forces analysis with you to help with this stage (although many analytical other tools are freely available).
Advances in technology have brought key elements of bookkeeping and accounting well within the reach of the business owner – even the time-poor. With minimal training, anyone working within the business can engage effectively with the finance function, including reception and admin staff. This adds value in two ways: firstly, by significantly reducing bookkeeping/accounting spend; and secondly, by developing your existing knowledge and understanding of key financials within the business. We are constantly amazed at the number of professionals paying their accountant to do simple bookkeeping work (and often paying over the odds for them to do so). More concerning is the proliferation of optical business owners who view business finance as something of a ‘black art’, and who do not even have a basic understanding of the Profit & Loss or Balance Sheet.
lookahead Consulting is an accredited partner of one of the major online accounting systems, which means that we can provide training and support in using (and getting the most from) the system. A system like this – if used effectively – means that your accountant and bookkeeper have far less work to do (and so should submit smaller bills!), and will also provide near-live ‘business intelligence’ (including management reporting) to support decision-making within the business. Regular and effective analysis of this information helps with three aspects of implementation: reflection and review (that is, looking at historical financial information, eg last week’s sales figures), prediction (that is, managing expectations for the next clinic/coming week etc.,), and the identification of risk factors/possible threats – although, as the adverts say, past performance is not necessarily an indicator of future performance! Your practice management software will certainly be capable of delivering some in-depth reporting, but does not replace higher-level financial analysis like a dedicated accounting system.
Underpinning all of this is, once again, your business plan. Your BP is a working document, and it should be expected to evolve over time in light of new information, including financial information.
While reflection and review needs to be ongoing, your accountant should also work with you at the end of your financial year to examine the overall performance of the business. This will include comparing actual figures with targets set; but must also include a look at the successes and areas for improvement within the broader business plan. This review should also include revisiting both your overheads (eg utilities, merchant services contract) and ‘direct cost of sales’ (lenses, frames etc.,), something which is often neglected through force of habit.
These analytics then become a vital part of your preparations and business planning for the coming year… and so we come full circle.
This is not meant to be a comprehensive study of optical business finances. At lookahead Consulting, we provide support and guidance on any aspect of your business finances, including changing accountant (we recommend at least once every three to five years – ask us why!) and writing/developing your business plan. You can start saving today by contacting us for a no-obligation chat. We look forward to hearing from you.