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Planning for inflation requires organised numbers from a well-reconciled accounting system, says forecast specialist.
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Clean data vital for business stress tests
13 June 2022
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11 minute read
Clear and concise data is vital when helping plan your client’s future, said a Future Advisory director and member of Xero’s partner advisory council.
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“Clean data is super important. It doesn’t need to be a fancy, expensive forecasting system,” Jason Robinson said.
“You can make do with a set of numbers that comes out of a well reconciled accounting system.”
He said that the most successful clients organised and sorted their numbers daily, as it kept them on top of their business’ financial health.
“Our most successful clients, their files are reconciled every single day,” Mr Robinson said.
“All their figures are locked and loaded and they can click the profit and loss button and see exactly how they’re going any day of the month.”
When starting his own business he found it helpful to reconcile his Xero file each morning so he knew how it was operating each day.
“One of the things I would always do is I’d coincide my morning coffee with spending five minutes reconciling my Xero file, and there was that connection,” Mr Robinson said.
“I’d then get the green tick, so I knew money in, money out, and I had a really good understanding of how my business was operating, who owed me money, and who I owed money to.”
He said having reconciled and organised financial figures allowed for more accurate forecasting.
Mr Robinson said accountants needed to be speaking to their clients more about forecasting, particularly in the new financial year.
“Offering forecasting services and engaging with the clients as to why it’s so important is going to be the next best step up into that advisory space, and it’s going to have the biggest impact on the small business community,” he said.
“If you don’t have a forecast for your business for next year, I think you’re flying blind.
“Anytime that we’re talking about forecasting and thinking to the future it makes me think of the number one reason that businesses report that they fail is cash flow.”
Mr Robinson said that ensuring a business’s cash flow when there were inflation, supply chain issues and labour shortages was one way to secure its success.
“If you don’t stop and think about how your business will be operating for the year ahead and actually take stock and measure your inflows and your outflows, you’re probably going to become one of those statistics of those businesses that fail and talk about cash flow as being the reason,” Mr Robinson said.
Accountants should focus on expanding their clients’ financial education to enable them to track data better and provide accountants with clearer numbers.
“There are so many clients we come across and we sit down with and ask them about their profit-loss and balance sheet, and they don’t have an understanding of how the two tie together, or what items go through a profit-loss and what items end up on a balance sheet,” Mr Robinson said.
Mr Robinson said that once data was organised it could be used to run a stress test on the business.
“The stress test is for things like this year you spent this much on petrol and materials, what if next year petrol goes up 20 per cent and materials go up 20 per cent, will your business survive?” Mr Robinson said.
“It’s modelling those scenarios into a neat, clean, easy way to look at it.”
Mr Robinson said that having clients reflect on their financial history was also important.
“We did tax planning yesterday and showed a client they’d spent $80,000 on fuel last year and they’d spent $120,000 on fuel so far this year,” Mr Robinson said.
“They were shocked.”
He said the end of the financial year was the best time to review outgoings and stress-test the business to cope with inflation and other factors such as rising fuel costs.
“My number one tip would be to get a forecast for the 2022-23 year, run your numbers on a monthly basis so you can see where you’ve got big outflows,” said Mr Robinson.
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