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Salmin Khan Salmin Khan
01 May 2018 Posted by 

How to avoid the five most common business mistakes

FOR several years Salmin Khan worked as a corporate insolvency accountant.

He seized company assets, investigated dodgy dealings and laboured over company data to see exactly what killed these once promising enterprises.

He came upon a very striking conclusion. Most of these companies had decent businesses but as they grew, they couldn’t deal with growing pains. One hiccup and the machine came to a grinding halt.

Now that business accounting expert Salmin Khan runs his own accounting practice, he focusses on ensuring his clients avoid the mistakes that he saw time and time again.

ONE – FAILING TO MANAGE CASHFLOW

The absolute number one cause of insolvency is the business running out of cash. It seems like a dumb mistake to make but it can sneak up on you. Not allowing for the quarterly BAS bill can leave a rolling debt that snowballs. Equipment replacement, unexpected staff holidays and even minor legal battles can leave your wallet rather thin. All it takes is an aggrieved debt collector and the business is facing a winding up.

The smart way to deal with this is with a simple cashflow plan. Your accountant can help you figure out how much cash to set aside per month to pay tax debts. It’s also a great idea to work out what your overhead costs are and set aside three months’ worth in case there is an unexpected break.

Old customer invoices are practically worthless. I ensure that my clients’ accounting software automatically follows up overdue customer invoices. This means less time spent chasing cash and more money in the bank.

Finally, you should have a plan in place for working capital funding in case you need it. A bank overdraft works but there are also specialist lenders that tide businesses over in hard times. Owners are often blindsided by predatory lenders who take advantage of your lack of time so it’s better to have this in place before you need it.

TWO – FAILING TO INVEST IN MARKETING

The most common answer I hear from small business owners when asked how they market is “word of mouth”. It’s true that a referral is the most powerful way to influence a potential customer but there are severe limitations on this channel.

Businesses that don’t actively have a marketing plan rarely grow beyond mediocrity and often wane out. A marketing plan addresses the risk of “dry spells” because you know who your customer is, you know how to get in front of them and you’re actively inviting them to interact with you.

Before you invest money in marketing, work out what the most cost-effective way is to reach your target demographic. If possible, run a small trial. The important thing is to consciously have a plan and follow through. Keep a database of your leads and customers. Repeat business is easier to get than new business.

THREE – FAILING TO MANAGE STAFF

A too common scenario was a small business that had employed a few staff members but neglected to bother with employment contracts. After all, that kind of paperwork is only for large companies, right?

Unfortunately, when staff are terminated, there is too often a violent disagreement about their entitlements which would normally be in the black letter of a contract. Getting legal advice, attending fair work hearings and sometimes having to pay hefty entitlements due to ambiguity are headaches that no business owner needs.

Good staff management starts with recruiting the right staff. Make sure your employees know what’s expected of them and how they’re being evaluated. It makes a world of difference when the team knows what the big picture is.

Above all, know your legal obligations and stick to them. Have at least a simple employment contract, give your employees written warnings about any misbehaviour and never terminate an employee without documentation. It’s very much worth the hassle of having your paperwork in order to avoid a future disaster.

FOUR – FAILING TO HAVE THE RIGHT ADVISOR

Running a business means devoting 110% of your time to being phenomenal at what you do. This means that you can’t be an expert at everything. When investigating failures, Mr Khan often came across business owners who had tried to save money by picking the absolute cheapest tax agent they could find. Be very wary of the accountant who brags about guaranteeing refunds.

Currently, Mr Khan fields client calls about where to finance equipment, training staff, how to protect assets or simple marketing planning. Most of these calls don’t cost the client extra but months down the line it’s great to hear “it’s a good thing I called you that day”.
When picking a good accountant, look for someone who asks you questions about the general business and where you want to take it. There is so much more to good advice than just tax.

FIVE – FAILING TO KEEP CONTROLS

Fraud was a scarily common thread in a lot of the failures that came across Mr Khan’s desk. This was especially true where a business partner was going through personal problems caused by marital breakdown or gambling issues. Add stock theft, forged receipts and employees pocketing cash; and dishonesty quickly becomes a serious problem in a lot of businesses.

The answer to this is to have at least some kind of internal controls. Even in a small business, having a routine where the previous months accounts are reviewed lets you spot any irregularities. Fraud thrives when people believe that no one’s watching. Simply checking the figures and asking a few questions makes any opportunists think twice.
Contact Salmin Khan through his website

www.tactnsw.com

Or call (02) 9188 0815.

Salmin Khan is a Chartered Accountant with 12 years of experience, a qualified turnaround expert and a registered tax agent. In a previous life, he worked on saving some of Australia’s most high profile business failures. Nowadays, her runs his accounting firm, Tact Advisory.

 



editor

Publisher and editor, Michael Walls.
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