Smart Business Growth with Nicky & Ness

Do you know about the Growth vs. Profit dilemma?

• Nicky & Ness • Season 2 • Episode 7

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In this episode, Nicky and Ness delve into the recent Australian Company Director's Sentiment Index, uncovering critical insights into the current challenges faced by businesses. From shifting economic concerns to the paradox of profitable businesses failing, they dissect key statistics and discuss actionable strategies for navigating the intricate landscape of business finances.

Episode Highlights:

Shifting Priorities: Explore the transition from labor shortages to cost of living pressures as the primary economic challenge for Australian businesses.

Understanding Business Failure: Uncover the surprising statistics behind business failures and the role profitability plays in success.

The Day-to-Day Whirlwind: Examine how getting caught in the daily operations can lead to strategic oversights and eventual business failures.

Profitability vs. Growth: Delve into the essential balance between revenue growth and profitability for long-term business sustainability.

Mastering Financial Reports: Learn about the three crucial financial reports every business owner should understand: profit and loss statement, balance sheet, and cash flow prediction.

Key Numbers for Success: Identify actionable insights, including managing trade debtors, liabilities, creditors, and intentional spending.

The Importance of Money Dates: Emphasise the significance of regular financial check-ins and setting aside time for strategic financial planning.

Finding the Story in Numbers: Discover how to uncover narratives within financial data and make informed decisions for business growth and success.

By dissecting critical financial metrics and sharing actionable strategies, Nicky and Ness provide invaluable insights for business owners striving for sustainable growth and profitability.

Learn more about Nicky and Ness https://businesstogether.com.au

Buy a copy of Healthy Hustle: The New Blueprint to Thrive in Business & Life www.healthyhustle.com.au

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Connect on LinkedIn
Nicky LinkedIn - https://www.linkedin.com/in/connectwithnicky/
Ness LinkedIn - https://www.linkedin.com/in/vanessamedling/

Give us a call
Nicky Miklos-Woodley 0403 191 404
Vanessa (Ness) Medling 0400 226 875

Or send us an email hello@businesstogether.com.au

Music by Jules Miklos-Woodley

Nicky:

Welcome to the Smart Business Growth Podcast with Nikki and Ness.

Ness:

We would like to acknowledge the traditional custodians of country, the Turrbal and Bunurong people of Brisbane and Melbourne respectively, where Nikki and I both work and live, both work and live. The most recent Australian Company Directors Sentiment Index of the first half of 2024 had some really interesting stats that came out of it, and I guess the one that really jumped out at me was this report was asking a whole bunch of company directors what the biggest issues are out there in the business world right now. So the cost of living pressures has surpassed labour shortages as the number one economic challenge facing Australian businesses right now, and that was really interesting to me because I remember hearing so much about this whole. Labour shortages is the biggest challenge. We can't get the right people and that seems to have settled. And interestingly, my daughter is applying for jobs at the moment and getting responses saying over 100 people have applied for this, you didn't get to the next round and I'm like wow, that's crazy. I thought there was labour shortages but seriously, this is impacting. You know, 41% of directors say that the current interest rates are negatively impacting their business and the economy. So in times like these, what it kind of reminds me of is some of the stats.

Ness:

We talk about Nikki, in relation to the success and failure of businesses Inline Partners in 2020, so it was pre-COVID, but they did a study and they said that 60% of Australian businesses fail in the first three years. So it was pre-COVID, but they did a study and they said that 60% of Australian businesses fail in the first three years. So I've heard varying numbers of that, varying percentages, but still around the four, anywhere between 50 to 60. And, based on their research, 50% of those businesses that failed were profitable. And that kind of shocked me because I went well, I kind of go, is that a good thing or a bad thing? Because if 50% are profitable, then why are they still failing? And then the flip of that is, if 50% aren't profitable, that's massive. So I know that you have shared some stats in the past around that 50% that isn't around profit. So you could run a business that's profitable and still fail. Why would that happen, Nick?

Nicky:

Yeah, it is. I haven't heard that specific stat either, that 50% were profitable, and it is kind of shocking because it's really easy to assume that it's because of cashflow profitability that the business is going to fail. But also what I know is that the research shows that main reasons, common reasons, for business failure is sometimes, of course, profit, but also it's a lack of training or lack of upskilling team members, which, when we think about it, makes sense because they have to deliver and keep the wheels in motion. So if they're not performing or up to the job, up to scratch, it's also about a lack of business strategy. So the top three reasons that I've heard and researched is that it's a lack of training and upskilling team members. It's a lack of strategy, so having a plan and executing a strategy in business that continues to innovate and be agile to the current needs and the market needs.

Nicky:

And then this is my favorite I laughed when I first read this, but not in a mean way. It's just so relevant and I know that a lot of people resonate with this. It's because business owners get stuck in the day-to-day. They get stuck in the day-to-day weeds of the business, which then makes sense. That the first couple of points I mentioned are not being met. So business owners get stuck in the day-to-day whirlwind, the busy trap. They're not looking at the areas of the business that need their attention. It's this spiral effect. Therefore, the strategy is overlooked, the investment in people time, training et cetera is overlooked.

Nicky:

So that's kind of the bigger picture around reasons that business fail, and it is really interesting to hear these recent statistics around what the biggest challenges in business are and how that has shifted. And I want to kind of flip it back to you because I'd love to go deeper into looking at. Well, okay, we know that there's these other reasons that businesses fail, but we also know that 50% of those businesses are because of profit. And so I wonder, ness, if we can take a little bit of a deep dive around this. I know I talk a lot about sales targets and revenue targets and I will always, of course they're important. We both agree they're so, so important, and I also agree they're the vanity numbers in the business. If we're only focusing on that, then well, that's just not a good look, that's not a good outcome. So let's go deeper on the profit piece and what's your initial thoughts there around? I'm just going to open floor it your initial thoughts around this whole. You know so many businesses are failing because of profit, lack of profit.

Ness:

Well, it's interesting, you know, because we talk about smart growth in business and some businesses that we work with, what we've seen is the growth has been quite rapid. So some businesses do look at this growth strategy for long-term survival and so they're focused on the future and wanting to grow quickly. So they start to. You know that increase in income means an increase in expenses because you're growing your team and all of those kinds of factors involved. So that is absolutely, hands down, something that's critical for the long-term.

Ness:

But I think what's missing is the realization that profit is critical for your existence. They go hand in hand. But you cannot have a long-term business success without having the existence of profit to continue to pay for things, because it's beyond looking at just what's in your bank balance, right beyond looking at just what's in your bank balance. Right, if you're a business owner who bases your success or your level of profit in the business just on how much money's in the bank, that's going to vary depending on the ups and downs of when you get paid. If you're not taking into consideration when all the expenses come out, you know that's just a lack of planning and preparation for that, and I think that that is absolutely the number one thing that we need to be looking at as a business owner is profitability in hand with our growth strategy.

Nicky:

Does that make sense? Yeah, yeah, a hundred percent, because the growth is all the things that I kind of mentioned before around. Where are we going? The revenue targets, all the like, so much of what we've already talked about on this podcast and continue to do, but the profit is almost like. It's almost like the reason behind it, I suppose, because if we have a profitable business, we can achieve and continue to do all those wonderful things that we've set out for, but we're kidding ourselves if we're not looking at profit and we're only focusing on growth, revenue growth, team growth, personal development growth All of those growths are amazing and the profit is the piece that allows that to continue to happen. Absolutely.

Nicky:

Do the Smart Growth Survey in under 60 seconds to get your hands on our Smart Growth Blueprint. In under 60 seconds to get your hands on our smart growth blueprint, you'll get immediate access to our four favorite strategies for sales, profit planning and team, and you'll identify which phase of smart growth your business is currently in, whether it's crisis, build growth or momentum mode, so that you can move your way to the next phase with ease. All you have to do is click the link in the show notes. I've heard you talk before around and you are our resident money coach expert. We're so lucky to be able to tap into your expertise and your knowledge, and I have heard you talk before around that directors of our listeners, our viewers, directors of their companies, and they actually and we actually have a legal responsibility when it comes to ensuring profit of our business. Can you share a little bit more about what you mean by that?

Ness:

Yeah, for sure, and this is backing up what you've just said in relation to why profit matters so much. So the number one responsibility that we have as a director of a company is to ensure that we remain solvent, and solvent means that we can pay our bills. But it's not just about paying our expenses. You know, like all our suppliers, it's the things that aren't sitting in your, you know, to pay list that can catch you out, because solvency is about having enough money to pay your suppliers and to make sure that you can pay your staff. So it's wages, superannuation, excess holiday leave or built-up holiday leave and so on, plus the government.

Ness:

So it'd be GST, it would be income tax payable. So these are all the things that we've got to have enough money set aside in order to be able to pay all of those expenses to be considered solvent. And so if we have a situation where we might have a really healthy bank account balance this month because we've just got a big payment in but we haven't looked into the future and worked out what's coming out, we could still be at some payment in, but we haven't looked into the future and worked out what's coming out. We could still be at some point in time, insolvent because we haven't got a system in place or we're not paying enough attention to the figures that matter the most in order for us to know what's going to happen today, tomorrow and into the future.

Nicky:

Yeah, what do you think stops people from going deeper with understanding these numbers?

Ness:

From what I see and hear, it's because we're not accountants we didn't start a business to. Unless we start an accounting practice, we are creating a business. That is all about our sweet spot. It's all about what we do really well and we're great at what we do, so we get that. In order to be able to continue on this growth trajectory, we need to bring staff in, so we need to become a leader and we need to be across so much in the business and everything.

Ness:

You alluded to some of the getting stuck in the whirlpool of the day to day, but really being able to come above that and look at figures from what is the trend telling me you don't need to be an accountant, but you do need to be able to look at trends around the figures. And there's three really important documents that you need to be across as a business owner, as a director, so that you can make informed decisions about where you're going and you can be on the ball when it comes to your profit within the business. So I think it's this fear that or not fear. I mean like, let's face it, we don't necessarily go into business because we love looking at figures. Case in point Nick.

Nicky:

Well, you're not a case in point.

Ness:

You are.

Nicky:

I love looking at sales figures.

Nicky:

That's true Just different types, but surface level but going deeper, okay. So it's kind of like this whole thing around we'll navigate towards what we enjoy. Some people will enjoy looking at the deeper figures and numbers. Other people won't.

Nicky:

And I wonder if there's sometimes when we don't see things. There can be this like avoidance of the unknown and sometimes it could be feels like it's worse than it actually is, or maybe it might be the other way around. So people don't really want to know what the numbers are showing. But I think that's not the case for everybody, but I think regardless, when you know these numbers, you know how to navigate your business. So we talked about it's so connected to. We talked about lack of strategy in business is also another big reason of business failure. When you know these key numbers and you're looking at these key areas, then you can create a strategy that will legitimately, genuinely set you up for long-term success as well as current day existence. Can you take us a little bit? What are the most important things that we as directors, business owners, ceos of our company, that we need to look at?

Ness:

at a minimum, we definitely need to be across three different reports within our accounting software. The profit and loss statement gives us a picture of the past. So it says you know, up until this point in time we made this much income, we had this much expense, and here's the gross profit amount. So that's really important because we need to make sure that the targets that you were talking about, that we set in our business, are getting hit and you know that we're reaching the goals that we have set. And a lot of businesses and owners and directors will understand a profit and loss statement. It's pretty clear.

Ness:

Where it starts to get a little bit more complicated, from my personal experience and the experience I have with our clients is we've got to look at the current as well. So the balance sheet is the current and the current is looking at well as of a point in time. So today, for example, or the end of last month, what are our current assets, what are our current liabilities and therefore, once we look at that, what's the equity that we own in the business. And these figures can feel. When you're looking at a report like this for the first time, I don't really know God. I remember being at uni doing economics and I did a whole presentation on the I line and I had no idea what that line was. I was like I hope nobody asks me whether it's into income or investment.

Ness:

I had no idea, but the I line goes up in this direction. So I felt like that. The first time I looked at a balance sheet I was like I don't know what I'm looking at. But this is where we tap into the expertise At this level. You've got an accountant and sometimes you'll be seeing them on a quarterly basis or half yearly or at least annually, and they'll be going through the figures with you. So it's not that you don't have access to somebody in your world that already understands that. So perhaps asking more questions and getting more guidance from them about how to interpret it is, if you don't understand it yourself, is the best way to go, and that's great.

Ness:

So you've got your past and your current, but you must have future. Future is cashflow planning, cashflow projection. So there's software that does that for you. You can do Excel spreadsheets. You know the bigger your business grows, the more automated it needs to become. But there must be the ability to look into the future and see what expenses are coming up and to see what income's coming in. So when we look at the three of those reports together, we start to see a trend, and that's as standing above the business and looking at where it's going, where it's been, where are we now? That's where the big decisions around strategy can come into play, because you're painting a picture. This is where we've been, so therefore, how's that going to predict the future? Or what do we need to shift and change in order to become more profitable, to make sure that we're solvent? All of those things? So I think it's essential that those three reports statements something that every director or every business owner is across.

Nicky:

Yep. And then also that links to when you can have a deep understanding of these numbers you can set. I have to go there, I'm sorry. You can set revenue targets that are genuinely there.

Nicky:

I'm sorry, ness you can set revenue targets that are genuinely going to set your business up for success, because a lot of the times people will just pick a number or they don't take into consideration these sorts of things. Like we can look at the past year, the past quarter, we can set run rates, we can set targets for the future, but really taking a look at the deeper understanding of what is driving those overarching numbers is so important, because you don't want to get to the end of a financial year or a year or a quarter and be like, yeah, we hit our targets. This is great Shit. The business isn't profitable.

Nicky:

We don't have enough money to be able to pay for all these different things. So it really is so, so important to have a look at.

Ness:

Absolutely, and I think you know, as we sort of drill down a little bit further again, we're not accountants, but there's some really key numbers you need to be across in your business that impact profit. So one of them is the trade debtors, which is effectively people who owe you money. You want that figure to be down low, like the number of days you're waiting to be paid really needs to be down low, because when that sort of pushes out, your expectation is that you're going to get that payment in this month and if they're like 60 days instead of 30 days, you're getting it further down the track, which means you haven't got cashflow and that can impact other areas of your business. So, looking at things like an automated system that does reminders, or even to the point, if you're in a business that actually has people who don't pay, looking to have external people help you with debt collection there's just lots of different ways that's going to help that, but bringing that figure back is cash in the bank and that is really really important. I think you need to be looking at and understanding what the figures are for your liabilities around everything I talked about to do with solvency.

Ness:

So how much GST have I got that set aside. What's my income tax for the quarter that I'm paying? Is that set aside? Superannuation, which I think it's monthly now or coming into the future to be paid monthly Holiday pay, wages, all of that, especially if you've got people who've been there long-term. Then they start building up long service leave. Sick leave has got to be included in there, all the different access to leave that people accrue. You've got to have enough to cover that. So you need to know that that's there, ideally separated out into a separate bank account.

Ness:

And then I think the other thing is you want to keep your creditors, so the people we owe money to you want to keep that down as well, because you don't want to be in a situation where you're a late payer and that person decides that actually it's not worth doing business with you.

Ness:

I don't want to keep supplying you because you're hard to deal with and you're taking up my time and you're costing me money because I have to continuously chase you for the payment. So I would say those three sort of areas that you can find within those reports are going to help you to make some tweaks and changes, and probably the other one that I would suggest is intentional spending. So when you are looking through that profit and loss statement, looking at your expenses, is there something? Are there categories in there? Are there things that you have just set and forget that you are paying subscriptions for that you don't need? Could you do a review to see that maybe you've been working one supplier for a long period of time? What's out in the market? So just really intentional around your spending and that can be an area that you can really tighten up and make sure that there's more profit, there's more money in your pocket or to your shareholders than there is, you know, sitting there going out to expenses that don't haven't been reviewed or aren't meaningful or adding value.

Nicky:

Does that make sense Totally? I mean investing it back in people as well, like there's so many better things we could be spending that money on. I love this. So you've essentially shared three key reports, three key areas we need to look at. I really, really love the idea of look at the past, the current and the future, so it gives a very holistic view and then also what specific numbers to drill down in those different areas trade, debtors, liabilities, creditors and intentional spending. I love it. I might take that into my personal life as well. I need a little bit of that. So, ness, as you know, I feel like this is an interview. What's an actionable action? What do we want our audience to take away? Because there's a bit in that. There's some obvious actions. What do we want?

Ness:

them to do. Well, this is my soapbox. A money date is so important. Get into a habit of I do it twice a month in our business, but others might choose once a month but a minimum monthly money date where you look at these figures, where you're looking at your profit and loss, your balance sheet, your cash flow at that point in time and staying on top of it, keeping across it, asking your accountant, whatever you need to ask in order to be able to make some decisions. But that money date's got to be in your calendar and it's got to be a priority meeting in order for you to take the time to look at your finances in your business and by doing that, you're setting yourself up to be profitable, to be successful and to be able to fund that longer term growth.

Nicky:

And I think an important point there as well is that you can do it yourself and it's not that hard to just pull a couple of. Even I could do it. You pull a couple of reports, but you can also lean on your accountant. So if you're clear on what to ask for which there's been some clarity today then you know in that monthly meeting or they can pull those reports for you as well, and you know what numbers to look for. So don't let whatever you're doing now, if you're not doing this consistently, be an excuse. Like you, I could do it yourself. You can get help, you can get support and you can always reach out to Ness if you've got any other questions as well. You know about this piece because it's fundamental. It is so important to the success of our businesses. I thought you were going to say it is fun, which I agree with.

Nicky:

Yes, it's fundamentally fun. No, I do like looking at the numbers. I do like looking at these numbers. So you know, cause we've got to know. We can't bury our head in the sand, and the thing that I always like to look at as well is what's the story? Find the story in it. There you go, find the story. For those of you who don't think numbers are fun, you can make it fun.

Ness:

You are living testament to that, Nikki.

Nicky:

Living testament to that. Thank you so much to everybody again for joining us this week. We shall see you next week and hope well, we shall see or you'll hear from us next week, and we hope you have a wonderful day.

Ness:

Absolutely See you later. Thanks for listening to today's ep. If Absolutely See you later. Thanks for listening to today's ep. If you loved what you heard, connect with us over on LinkedIn and let's continue the conversation over there. Nikki and I are obsessed with helping businesses install smart business growth strategies and leveraging people leadership for peak performance. We bring two business minds and two perspectives into your business, and our number one goal is to make sure that your business is thriving, your team are thriving and you are thriving. We offer a 30-day business diagnostic, taking you from chaos to clarity in just 30 days. Are you curious to find out more? Send us an email or go old school and give us a call. Until next time, happy listening and here's to thriving in business and in life.