My team and I have spent the past few years dealing with marginal entrepreneurs everyday. Marginal entrepreneurs are people whose business are teetering on the brink of collapse. They have cash flow problems so they call us & say, “please help, I need a loan or an investor”. When we walk into their business to have a look at where they are and why they are there, we confront the same reality: the have poor numbers-etiquette.
Numbers etiquette is what happens when you know what is happening in your business. What is your marginal cost per unit, your fixed costs or variable costs, your four major cost drivers, your value adding and non-value adding costs or even your EBIT. Knowing these numbers and more should be your single most important pre-occupation.
So inevitably we ask the entrepreneur for a peak at the financials. They find an old dusty cabinet, find the lock in the back of their bakkie, go to the cabinet and open it. As the dusty cabinet shrieks open and the cobwebs appear at the top of their files, they bravely reach through the cabinet into the back and there they find a seldom seem flip-file marked financials. They pull it out, blow off the dust and, as the room fills with the filth of dust, they place the file on the table and open it like a relic-bible recently by anthropologists discovered from a cave of the middle ages.
I can guarantee a singular reality about these entrepreneurs, they have no idea what is in the file.
This is because we have a very serious problem in South Africa. We have emphasised compliance over utility. Audited Financial Statements are a statutory tool that gives you a picture of your business AT A POINT IN TIME. Business is dynamic. Customers are demanding and more and more becoming frugal. This means your business is changing as you read this piece. Having a numbers-etiquette is the only way to not only survive but also thrive.
Here are some real questions for the entrepreneurs;
1. Do you have a budget? Is it broken down into monthly projections? Do you track real vs. actual monthly?
2. Do you have a monthly P&L. How many days or weeks after your month end is it finalised, tracked and remedial steps assigned to address the burning issues?
3. Do you run your SARS recons monthly? Who compiles the numbers, drafts the reports, does the submissions and makes the payment?
4. Do you have a working capital cycle target and how do you keep track of it? How often do you track it?
The above is what you need to effectively run your business. Financials are only for the taxman, a potential investor or the bank. They need data. You need insight.
Speaker. Investor. Disruptor
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It all starts with a due diligence otherwise it’s a classic investment blunder…
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