A Difficult Lesson I’ve Learnt Recently

Since coming up with the idea of starting my own bookkeeping business in November 2009 and commencing in March of 2010, it has given me so much. Maturity, independence, perspective, patience and improved our finances. Most importantly, it’s given me the time and flexibility to be around for my son as he grows up.

But while I am always grateful that I’ve been given this opportunity to take my destiny into my own hands, it’s not always a smooth experience. I’ve learnt some hard lessons along the way and I’m sure will continue to do so.

For example, I’ve recently lost one of my major clients to business growth. They’ve reached the point where they need to employ someone full time rather than a contractor. Don’t get me wrong, I understand that there will come a time when a client has grown to the point where the service I provide will no longer be sufficient. I’m ok with that and I’m happy for their success.

No, the painful lesson I’ve learnt in this instance is that I was told I was no longer needed 3 DAYS before the new employee started. Prior to this, there was no mention of dissatisfaction with the service and certainly no indication they were even looking for someone. After almost a year of service, I thought my relationship with them certainly afforded me a bit more than a mere 3 days. To drive the knife in further, when talking to a friend about the whole thing, she pointed out that in order to find someone so early in the new year they would have commenced the recruitment process well before Christmas. So while they were wishing me Merry Christmas they were planning to give me the boot. Bitter, you say? Hell yes! I couldn’t care less about the fact that they were going to get someone else. I’ve successfully transitioned a client to replacing me with a full time bookkeeper before.  It was the insensitivity of the delivery of the news that got my blood boiling.

As an independent service provider, I’m not entitled to the same protection as employees are. A client can terminate our contract immediately. With no notice period, the financial effect of this on a small business like mine is disastrous. For this particular client, they have effectively cut my income by a third. I have had to let my casual employee go because I don’t have enough work for her. Thank goodness that there is enough work to keep the business running.

So what can I do to prevent this from happening again? Not much. Just a request in future contracts stating a 2 week notice period of termination, which isn’t really enforceable. Other than that, I just have to ensure that I’m always upfront with my clients and that we have a good relationship so that they feel comfortable enough to be honest with me.

For those of you with businesses that provide a similar service to mine, has this ever happened to you? Are there any of you who have measures in place to prevent this from happening? I would love to hear your ideas.

The Importance of Financial Reports

In order to be aware of how well/bad your business is doing, as a business owner you need to be able to understand your financial reports and what they represent. It doesn’t do to just keep trading and hope for the best.

One of my former clients was a family run business. The wife handled the office administration while the husband ran the operations. She could never understand why their business always struggling financially. She knew that there was something fundamentally wrong with what they were doing but couldn’t pinpoint exactly what. Meanwhile, the husband disagreed as he was of the mentality that there was money coming in on a daily basis so the business was doing just fine.

Once we got their books in order, using their financial reports we were able to determine that while they were indeed getting the money in, the markup on their products was just enough to cover their running costs. So even though the business was turning over close to a million dollars, because they had such high overheads (rent, utilities etc), what was left at the end of the day after the bills were paid wasn’t much. Without the P&L, they would never have known what they were doing wrong.

So what reports are the most important for a business owner to know? There are 3 main financial reports that anyone running a business should know. They are:

  1. Profit and Loss – a report that tells you how your business is doing. It shows if the business made a profit or lost money in a given period of time.
  2. Balance Sheet – a report that’s a snapshot of a business’ assets and its debt at any point in time.
  3. Cashflow statement – a report showing the inflows and outflows of cash in a business.

The better one understands these reports, the better they can manage their business and identify any problems.

Next Post: How to understand the Profit and Loss report in more detail

How to find a good bookkeeper

As much as this post seems like self-promotion, it’s not. In more than one occasion, on taking on a new account, I’ve been confronted with books left in disarray by the previous bookkeeper. So I thought I’d help clarify the things that you should look for so that you get it right the first time.
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