Afterpay : Dangerous or a great budgeting tool.

In a world where we can communicate without speaking, send coordinates of where we are at the drop of a pin, find something that’s lost by pinging it … it’s no wonder we were going to evolve to ensure we had what we wanted to buy long before we had to pay for it, without the upfront commitment of interest like a credit card arrangement … enter Afterpay.

Afterpay … the new layby system of our time modified to cater to the age of instant everything.  For those who aren’t aware of what Afterpay is, it is a payment system that allows consumers to receive their goods now, in exchange for a direct debit commitment of fortnightly payments over 4 equal instalments, completely interest free.

That is of course, if you adhere to the terms and conditions, what could go wrong?  Perhaps everything, perhaps nothing.  In thinking about the premise on which Afterpay is built, I’m a huge fan of the system.  What’s not to love about it?

First and foremost, I can have my stuff now … I’m a “I need it now kinda gal”.  Secondly, the payment arrangement excludes any cost to me whatsoever. And lastly, there is no second guessing the arrangement .. the payment plan is set and not negotiable and is connected to a direct debit to your account, so it’s all taken care of for you.

And my favourite part … it can be easily budgeted for as all the information is known.

So why does it go so wrong for so many people?  The lack of managing the responsibility that comes with the power of using it as a financial resource.  You see, just because something is available to you, doesn’t mean it’s right for you. 

A financial strategy such as Afterpay can only be successful if you employ some simple techniques when using it;

1.     Live within your means

Whilst you have been approved to utilise Afterpay, doesn’t mean you don’t have to ensure that your purchases are still made with repayment in mind.  You need to be able to service the debt.  Don’t forget this!  So if you can’t, either don’t make the purchase, or make it at a later date when you either have cleared the balance a bit, or paid another contract of an Afterpay purchase off.  Therefore, incorporate it into your budget and have full understanding of the financial impact it’s going to have on your available funds at the time the obligation falls due.

2.     Don’t use it as your only financial source

Reliance on one financial strategy can present its own set of problems.  So when thinking about using Afterpay for any purchase, ensure you understand the impact of this financial resource side by side with other means of financial support in your business to ensure it fits in.  Afterall, with any financial instrument comes obligations … know them.

Whether you use Afterpay or not as a financial source, be sure to understand the implications between how you use it, when you use and what you are using it for.

Happy shopping x

When relying on the sales number is just not enough

After working with business owners for over 20 years now, it still surprises me how many don’t even know of the hidden gems that can be found in the financial information in their business.  You see, financial information goes well beyond just understanding whether you have made a sale.  The “slap in the face” truth of it is that sales information is generally historic by the time a business owner sees it or is made aware of it, it’s happened, it’s done.  And for some, it’s the only financial reporting they care enough to focus on.

Sounds far-fetched?  Guess again … You see, it’s in our nature as business owners to be driven primarily by the sales numbers of our businesses, and whilst I can respect that this is such a significant number, and with the right amount of attention to it, it can impact a business positively … it has no significance unless measured against other numbers in our business. 

Did you know that a sales number can be smaller than last year’s number and yet return a profit? And worse still, it can be greater but return a loss to your business?  A sales number reviewed against slow selling stock assets can prove to be less than desirable even if it’s greater than it was the same time last year?  Given any thought to the impact a sales number has against the rising value of customer debts in your business?  All of which are really valid questions you should be challenging in your business regularly.

Here’s the kicker … you won’t know this, unless you capture it appropriately, against other numbers like expenses, or assets, or gross profits or if you don’t have a Profit and Loss Statement that is accurate and prepared in a timely manner to even shed light on this outcome in enough time to make a positive change.   Without that, how the hell are you making appropriate business decisions?

The bottom line is … you simply have to care enough to want this information.  Because the reality is, it’s already at your fingertips, whether you have a dedicated financial representative, an online financial package, a simple excel spreadsheet, or even nothing official …  you have it, all of it, already … it’s the one thing that sets a successful business apart from one that’s not.  Which are you?

Data is only good to you if it comes to you clean

One of the first things I ask any business owner when I work with them is how clean is your data.  Often perplexed by this question I find myself explaining what clean data is. And put simply clean data is accurate and timely financial data, with the focus of having it clean enough to work with and use it for good.  Whether we are relying on someone else to prepare our financial information, or whether we are doing it ourselves, getting our data accurate in the system in a timely manner to make business decisions is imperative.  And should be top of your list when working with your numbers.

You see whilst we have loose reporting requirements for our financial information, it’s not a race.  Getting your information accurate and complete is more important than meeting any deadline.

So what is it that you should be looking for and doing to ensure that your data is clean?

1.      Set aside uninterrupted time to enter your data

We are all prone to mistakes when we’re busy, so it’s important to make sure that when you are taking the time to enter your financial information whether it be in your online system or on a simple spreadsheet, that you aren’t doing anything else at the same time.  Being distracted is a primary cause for making mistakes.  It could be something as simple as entering wages as revenue.  In doing so you would overstate your revenue and understate your wage expense.  This would increase your profit and therefore you would make decisions based on an increase profit.  This could significantly damage your cash flow.

So, take a moment, set aside some time, and ensure that the point of entry your financial data is accurate.

2.     Review your financials frequently

Your financial information should never be set and forget.  Especially if you have somebody else preparing it for you.  Whilst it’s important to trust the external party preparing your information, it’s just as important for you to check their work.  Even if they are the expert in accounting, just remember you’re the expert in your business.  Therefore by checking your financials frequently, you will understand more how the information hangs together, and be able to clearly identify when something doesn’t seem right.  But without that check, key information can go unaddressed and cause significant impacts on a business.  And you don’t want to find out what they are when it’s too late.

3.     Get to know your numbers

As mentioned above, you are the expert in your business.  So be an expert in all aspects of your business.  Spend some time understanding how your information hangs together, ask relevant questions if you don’t understand something, and be sure to do this frequently.  After all practice makes perfect.  Knowing your numbers will provide you with a great deal of power in your business.  You will see very clearly your direction, understand how to measure success in your business, learn how to address any changes and their impact, and know the outcomes true performance of your business.

It’s the point where we come full circle, understanding our business well enough to be able to identify the numbers and ensure the accuracy and cleanliness of the information by which we are making our business decisions on.

Payment Terms and Small Business

It goes without saying that cash flow is a big thing in any business! But what’s important to understand about cash flow is, that whilst a lot of businesses believe that most of the time they can’t control the flow of cash and that it’s a guessing game for the most part, you actually are in complete control of as and when cash comes and goes in your business.

What do I mean by this? … As a business owner you need to start to take control of how you operate your business and taking control includes having some sort of contact with your suppliers, understanding what your cycle time is with them and how that can impact on your own cash fluctuations. Know those outflows that you can’t change the timing of, and use this information to build what sort of payment terms you actually give to your customers.

One of the biggest things I find with business owners is that they often submit themselves to this whole notion of 7, 14, 21, 30 day payments terms purely because “that’s the way its always been done” and “that’s the way everyone else is doing it”. But ask yourself honestly … does that suit YOUR business? … does that actually help YOUR business? … You’ve got to be able to examine correctly what your needs are as a business owner. What your payment cycle times are and how your business will tolerate those payment cycle times. It’s one thing to say “ok I’m going to give 14 day payment terms” or even 7 day payment terms but is that 7 day payment terms once the work has been done? Because the reality is, you’ve probably spent already more than 7 days working on the project … so does that constitute 7 real days? Can your business handle that? … Can your obligation to your own costs handle that? … Can your cash flow handle that? … and if they can’t handle that, is 7 days actually worth it for you?

Should you consider implementing up front deposits as a strategy? Or simply consider having different payment terms for different clients based on the different tasks, services, or products that you provide to them. Do you need to have payment terms at all? Should it be paid upon receipt?... There is no Plan B if you’re not getting paid as a small business owner.

So if you’re working tirelessly to be able to achieve a particular outcome for your business, you have to understand what the constraints are in offering up any type of payment term. We often don’t even look at this and so many businesses fail as a result of it. It has to be what suits you and when I say ‘suits you’ I’m talking about does it suit the cycle of your payments going out? Consider a cost like wages … if you’re not getting your money in on time, and you’ve got to allow for not everyone paying immediately, can you afford to pay your wages out if they don’t pay you? Can you afford to pay what you need to pay out in the time that your waiting for someone else to pay in? Not all of us have excess cash sitting around that we can draw upon to be able to fill in those gaps when payments aren’t coming in because we’re still performing the particular task for the most part.

Some further considerations; implement a deposit system prior to the work commencing, offering a retainer system, have different types of payment options available to them eg: EFTPOS, Direct Debit, Credit Card, PayPal etc, placing an administration fee on overdue accounts, or simply ensuring that a signed contract is in place for the agreed service delivery (regardless of job size) and include obvious and strict payment terms for your clients to legally be obliged to commit to.

Whatever structure you choose to implement in your business, its success is reliant upon ensuring it’s based on your businesses individual needs and your consistency in measuring it’s success and implementation!! After all, a sale without payment isn’t a sale at all!!!