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[infinancialcontrol]

September Newsletter

Hi, and welcome to the September newsletter

This month we are covering issues that we have come in contact with recently, including corporate fraud – which I was recently an unsuspecting victim of, getting your pricing right, which a couple of businesses I spoke with recently had trouble doing and the importance of having accurate numbers to make good financial decisions.

I hope you find this information useful

 Corporate Fraud – be vigilant, it can easily happen to you (it happened to me)

Corporate fraud has always been a problem, but it seems hackers and thieves are becoming more inventive every day about how to convince people that their fraudulent requests are legitimate. These devious humans use any method they can (including our inclination to trust people we know!) to get hold of our hard-earned cash.

The truth is, even the most financially savvy among us can fall victim to corporate fraud. I know this because it happened to me. It’s frustrating and infuriating (not to mention embarrassing) for any business owner. And once the money has left your bank account, it’s extremely difficult to get it back. It’s best to focus your efforts on avoiding in the first place.

 Corporate fraud is one of the biggest issues both banks and business face and this example is one of the most common ways it is committed at the moment.

From within your business

First your fraudsters hack into your business network and infiltrate the mail system. Then they analyse your emails and track who sends and receives what, until they work out who pays the bills (usually the bookkeeper) and who makes authorisations for payment of invoices.(this is often the owner)

Once they have enough information, these thieves send a pretty authentic looking email with an invoice attached (that looks like it comes from whoever authorises payments) requesting the invoice be paid. The staff member sees no reason to doubt this email is authentic, it comes from their boss after all who is often the business owner. It looks just like lots of other emails they receive. So, they pay the invoice.

And the hackers have your money.

All you can do is hope this is discovered quickly and you can contact your bank and the recipient bank before the money is gone forever.

From within someone else’s business

Or, these devious types hack into your supplier’s system and send you an email advising they have changed bank accounts. They give you their new bank account number (which of course are the hacker’s account details) within a perfectly legitimate looking email from their business.

Next time you pay that supplier, you dutifully use the ‘new’ bank details, sending cash straight into the hands of the hackers. Next thing you know, your supplier is wondering where your payment is and you’re trying to tell them it’s all paid.

Once the money is gone, it’s super hard to get back. This is the scenario that happened to me. I’m still seething.

How to make life difficult for fraudsters

Always have two people involved in the payment process. One person reviews the goods or services purchased, and double checks payment details and authorisations are correct. The other person makes the payment. This means there’s more of a chance that anything unusual will be picked up.

Be alert to when things ‘just don’t feel right’. You know what normal is. So, you’ll also know when something feels off. It could be the language in an email, unusual spelling mistakes or a weird account number.

And anytime anyone sends you a message regarding changed bank details, call them directly (don’t use the number on the message, go back to an old invoice) to check it’s legitimate.

 You can’t stop fraudsters from trying to illegally access your money, but with a little vigilance and a strong payables function, you can at least double-check situations that send up red flags and be alert to unusual requests.

Staff at every level of every business should be made aware of and alerted to the warning signs.

 Don’t let the fraudsters win!

 What Price for Profitability?

Lately I’ve come across a few businesses who are struggling to get their pricing right. This has resulted in them selling for little or no margin and risking the health of their operation.

Without a healthy margin, you won’t be in business long.

When you’re calculating price, there are a range of methodologies you can use. And if you want to stay in business, you need to get your pricing right. Different industries have different challenges in calculating costs and working out the best price to charge customers.

Here’s a plan for you to start with:

1.       Begin by covering all your direct costs

Manufacturing

do your calculations carefully

 In a manufacturing environment, you must cover all your direct costs and also factor in some recovery of indirect costs.

You will need to estimate your production levels to determine the level of recovery

We recommend you have a professional doing these calculations. Back of the envelope estimates might get you into trouble

 Professional services 

staff are your biggest expense so get this part right

For any industry, when factoring in the cost of staff don’t forget to include on costs like super, Workcover and payroll tax which can add about 15% to your labour costs.

When calculating prices in professional services, it’s important to make allowances for utilisation and staff leave. Staff down time has to be covered in your pricing  

 Importers of stock 

Don’t forget your exposure to currency

Make sure you factor in the related price variations that come about as a result of currency movements.

 2.       Once you know your exact costs (and you know they’re right because they have been carefully calculated by a professional) you must decide the gross margin you want.

 In its simplest form: Decide how much money you need to make on each item. That’s your gross margin. Add your gross margin to your cost per item and you have a price per item to charge customers.

 Ok, it’s not quite that simple. You must also make sure you consider price points and competitor pricing. You don’t want to price yourself out of the market.

 Top tip: don’t get mixed up between mark up and gross margin.

 Gross margin is the difference between your selling price and your costs. If you know your cost per product or service and you know what you’d like your gross margin to be, then your selling price should be fairly easy to set. If your cost per item is $8 and you want a gross margin of $2, your selling price should be $10. Leaving you with a gross margin of 20%

 Mark up is the percentage above costs that you sell your product at. A product costing $8 and sold at $10 has a 25% mark up

 3.       Finally, work out how many items or services you must sell to break even.  

We know it’s not always easy and there are many components to think about when price setting. Ultimately you want to be sure you can retain a few dollars of profit for yourself. Pricing yourself too low and operating on tiny margins means this will never happen.

It’s wise to get advice from an expert if you can, especially if price setting is not an area you’re confident in. A business adviser or accountant (or virtual CFO) can help you develop a strong process for pricing your goods and services, that will stand you in good stead going forward.

Good luck

 Good Data leads to good decisions but dirty data can lead to disaster

Having access to accurate financial data is crucial for a business owner.

Having inaccurate or dirty data makes it difficult to make good decisions. You can’t make good decisions about what is selling, how much you are making, and how much does it cost to run your business if you don’t have accurate up to date numbers

You can’t show dodgy figures to a bank when you’re asking for a loan, and you need to present accurate numbers to the tax office at year end.

Inaccurate numbers create a world of pain for business owners.

When we get invited into a business we often find that financial accounts and reports are not right and business owners are making decisions based on inaccurate information. This occurs for a number of reasons:

o   Systems haven’t been set up correctly

o   Transactions are being posted to the wrong place

o   Some accounts haven’t been reconciled

o   The bookkeeper, despite trying their hardest to keep the books up to date and accurate, doesn’t have anyone to turn to with questions, meaning some of their decisions have not been ideal

These are the most common issues we come across, but there are many more. It all leads to “dirty data” or inaccurate data in the accounting system.

Oblivious to the problem, happily believing their numbers are accurate, business owners base decisions on them, often important ones. And making big decisions based on inaccurate financial data leads to bad decisions.

The impact? Wrong decisions invariably lead to lost time and lost money.

Read on and learn how a part time CFO can turn dirty data into good data and good decisions.

Systems are set up correctly from the start. (If necessary, existing systems can be set up to run accurately going forward.)

Systems and processes are set up, documented and taught to staff. This makes sure every transaction is recorded correctly and accounts can be regularly reconciled.

We guide and train your bookkeeper or graduate accountant to do things the right way, to ask questions (the right questions) and to double check anything they’re not sure of.

We don’t assume everything is right just because we’ve set it up. Mistakes can still happen. We check on the accounting system and reports monthly to ensure the data remains accurate. Checks and balances are put in place to make this easy and routine.

Knowing the data is accurate means reports are correct and can be confidently presented.

You can now be certain that any decisions you make are based on accurate information.

We’re not suggesting you retain a CFO for huge amounts of time. But investing some money in a virtual CFO for a good quality set up will save you not just money, but stress and anxiety because it helps you avoid mistakes and poor decisions further down the track. You can’t put a price on the value of reliable, accurate financial information, but you can clearly see the value of a virtual CFO as your company thrives and grows, backed up by solid numbers and informed decisions.