Published: February 23rd, 2011 in Latest News
LONDON (Financial Times) The key factor in delivering good mentoring is to understand your own strengths and weaknesses. My particular blind spot is finance. It is not that I do not understand the essentials of double-entry book-keeping, taxation or cost analysis. It is more the case that when talk moves to these subjects, my eyes glaze over and my mind wanders off to topics of more personal interest, such as sales and team building. If people have challenges in the finance area, I always refer them to someone else: a genuine subject-matter expert. The only finance advice I do provide is to avoid debt wherever possible. While there are many people who are expert at taking on debt and leveraging their businesses, this is a dangerous game for the unwary or overconfident, who can over-extend themselves with disastrous effect. This might not even be their fault, but a by-product of the recession ? an external event caused by some very unpleasant people, many of whom seem to have exited with large personal fortunes. The best financial advice I give would-be entrepreneurs is to start by running a cash-positive service business. Even someone with negligible financial skills can determine that the business has had a good week if there is more money in the bank account at the end of it than at the beginning. As long as you continue this for 52 weeks in a year, you have mastered the first of the seven stages of finance. You may never progress past this stage, but remain a successful, self-employed sole trader with a good quality of life. There will be long hours and occasional crises to knock your confidence, but if you are passionate about customer satisfaction and able to build a small team, you will be able to weather the storms. You might even learn how to use a spreadsheet, which is the simple, second stage of finance. The third stage is to realise that rather than spending your valuable time collating receipts and issuing invoices, it is more cost-effective to hire a bookkeeper. This almost inevitably leads to stage four, which is to hire an accountant to file the paperwork that the government requires. Bookkeepers and accountants are by necessity reactive, dealing with history. As the company grows, it will be necessary to do forward planning, a role typically undertaken by a finance director. Many companies become stuck at this point, as they want to grow but cannot afford a full-time finance director. Fortunately, there are now companies that provide virtual finance directors, who will undertake this role for a day a month if that is all you require. This is stage five ? and the same company can also help you to stage six, which is when you finally hire a full-time finance director. Stage seven of finance is only necessary if you are planning a public listing, trade sale, management buyout or other significant transaction. This is probably a task beyond your local accountant, so my advice is to engage one of the top accounting firms to negotiate on your behalf. The best firms will also provide personal tax advice to ensure you do not give a disproportionate amount to the government to help pay off the national debt. My overall message is always to get the best financial advice you can afford from increasingly expert people as you grow your business. If you do, then you will be able to concentrate on those parts of the business that really excite you. For more infromation, please visit: https://www.ft.com/cms/s/0/bb6d5dc0-2d4a-11e0-9b0f-00144feab49a.html#ixzz1EaAOFQxd This article Copyright ¸Mike Southon 2011; All Rights Reserved Not to be reproduced without permission in writing Originally published in The Financial Times Mike Southon can be contacted at mike@mikesouthon.com, www.mikesouthon.com ¯
