Michael Kent from Slate Accounts on improving business performance with better bookkeeping and financial control

Show Notes

@michaelkent  is a #charteredaccountant and #founder and #ceo of @slateaccounts a bookkeeping and financial advisory firm. 

His focus is to look beyond the compliance (#BAS #GST and #annualreporting) to really drill in on the numbers, look at how the business is performing and how you can make it perform better. He's all about helping #businessowners and #CFOs get more intelligent, efficient, and reliable with their accounts.

After a diverse work career including running a water company in #hanoi  #consulting and starting an #ITcompany, he saw an opportunity  emerging in #coudsoftware and #cloudcomputing. He now has 25 staff (#bookkeepers and #accountants) servicing clients - 10 in #australia and 15 in #jaipur #india

 In our discussion we cover;

• servicing businesses remotely and the advantages that brought to him;
  • bringing a broader team, and a
  • broader range of skills to help businesses,
• his approach to understanding clients' businesses and having #empathy for their workweek, and trying to make finance really pain-free
  how he designs and delivers his 2 service offerings
• the critical need for #systems and #processes
• the opportunity for #bookkeepers to prompt owners with "how they should be thinking about running their business differently or changing things"
• the opportunity for business owners who have bookkeepers who they really like and appreciate, and who know their businesses, to invite them to potentially go on that journey
• the 2 lenses to think of when looking at your finance numbers.
• Historical - when doing that, it's really helpful to break down the numbers and understand where for example the income is coming from, then break that down and work out what products or services are profitable. There should be some trend analysis on spending, and definitely some ratio analysis. The big cost for most businesses are wages, rent, and stock, if it's a stock selling business, and if we're really understanding margins.
• Forward focused -  you definitely need to have an understanding of what's gone in the past, but I think it's best to start with an understanding of the #businessstrategy of the business
• Why the #financefunction should really understand #businessgoals  and what is this business trying to achieve?
• the importance of the #chartofaccounts as that's where it all starts
• the need to focus on #measurable and #achievable
• the need for businesses to understand where its big costs are, and focus on those - there is usually only about 3 or 4 (wages to revenue, cost of goods sold to revenue, occupancy costs revenue)
• #xero #myob #reckon
• why #cloud #accountingsoftware  and getting data from the banks is the #gamechanger
• the critical role of #Managementaccounts
• the reasons for his success in #outsourcing
  • took a very hands-on approach.
  • having a view that, "Well, our clients outsource their accounts' work to us, so we're not going to, then, in turn, outsource the work to someone else." We wanted to make sure we were doing the work for our clients
  • staying very close to those staff. Just because they're offshore, I think you should have the mindset that they're in the room with you.
  • recognising that they're very much a part of our team meetings that we have, essentially, workshops, off-sites with the

www.kerrcapital.com.au
 

A full transcript is included below.

Michael Kerr: Hi, it's Michael Kerr here, presenting Small Business Banter.

A healthy micro and small business sector means a successful economy and a more vibrant society. Small Business Banter is about helping regional business owners better prepare for current challenges, but also for the next stage of business success.

I'm Michael Kerr, founder of Kerr Capital, advisors to business owners.

Each week, I interview a fellow small business owner or an expert, and they share their stories, their lived experiences, the wins and the losses, and their best advice to help you, the listener, get the most you can from your own business.

Small Business Banter is brought to you from the studios of 104.7 Gippsland FM and is heard across Australia on the Community Radio Network. Thanks also to Kerr Capital, supporters of the show. 

Okay. Welcome into another edition of Small Business Banter radio. Really great to have in Michael Kent, who's the CFO and founder of Slate Accounts, bookkeeping and financial advisory firm.

Firstly, welcome Michael. 

Michael Kent: Thanks, Michael. Thanks for having me on the show, it's good to be here.

Michael Kerr: Yeah, looking forward to chatting to you about what you do and how you help business owners. You're based in Melbourne, your business has about 20 bookkeepers and accountants servicing clients, and you can talk a little bit more about that.

You didn't start as a bookkeeper, you started as a chartered accountant. You founded this business and you're really about helping business owners and CFOs to get more intelligent, efficient, and reliable with their accounts. I'll get you to introduce yourself shortly.

In terms of today's discussion, what we're really wanting to do is draw on your current experience in the business you run to help owners think about how they can improve their business performance from bookkeeping and the output, which is management accounts, and so forth, also, I guess, opening the door to bringing in your bookkeeper as one of your really trusted advisors. That's the broad theme, but anyway, welcome, Michael. Give us a couple of minutes on your background, please. 

Michael Kent: Thanks, Michael. Well, I didn't follow a traditional accounting route. From a young age, I reckon I had a great interest in business, generally. I ended up studying Accounting, but also Law as a general Business degree. 

Michael Kerr: A lot of people do that. Yeah. 

Michael Kent: Yeah. It was good, it was interesting. When I left uni, I didn't work for a law firm or accounting firm, I went into more entrepreneurial pursuits. I actually went to Hanoi for a couple years and worked for an advisory practice there and ended up running a water company there, and then came back and tried to get an IT start up going for a few years, then took a real job in corporate land, which was, terrifically, I learned heaps for that period of my career, working in really quite general commercial roles. I ended up in consulting, but always with a view to starting my own business at one point. I suppose, the idea around Slate Accounts, I saw Cloud software coming and changing things. I thought that could be a good opportunity there. It seemed like finance was going to be deshackled[?] from the best in the computer running in my OB[?], and that it would be possible to service businesses remotely. In doing so, you could bring a broader team and a broader range of skills to help businesses, and that was the idea. I think it worked. We now have 25 staff, 10 in Australia, and 15 of those are in an office we have in Jaipur, India, that works really well for us. We can get into it if you're interested [crosstalk].

Michael Kerr: Well, we'll certainly talk about your experience of outsourcing later.

Michael Kent: Yeah. We've been going since 2012. [crosstalk] We started off general bookkeeping, looking after anyone that came along. These days, we probably don't take on slightly smaller businesses that we may have in the past. With the staff that we have, we find it slightly better at working with slightly bigger businesses, 2 million in turnover, or plus.

In terms of how we think of our service, we think of it as 2 service offerings. One is Financial Control Services, where we run the nuts and bolts of a business' accounts function. We pay their staff, pay their bills, send invoices. We have another service offering called Financial Insight Services where we advise clients and really focus on using numbers to help them understand their business, [crosstalk] grow their business, and improve their performance, I suppose.

Michael Kerr: Yeah. I think that's the underappreciated or underutilized area of bookkeeping, that ability to look past the compliance that you need to do your best in GST returns and accounts, but also really drilling in on those numbers to look at how your business is performing and how you can make it perform better, potentially.

Michael Kent: Yeah. Potentially because of my background, we do compliance really well, but it's never really been a particular focus within our culture. We're really focused on systems and processes to make that work well and to make sure it's accurate, but our interest is really, we talk a lot about having an understanding of our clients' business and having an empathy for their work week, and trying to make finance really pain-free, but also bring value, I suppose.

Michael Kerr: Yeah. Do you see that there is maybe an association between bookkeeping and compliance, and not with the next level of driving your business to become more profitable?

Michael Kent: There is, but that's changing.

Michael Kerr: Right.

Michael Kent: I reckon it's possibly because the technology over the last 10 years has taken away most of the data entry, if not all. Ten years ago, there really wasn't a role that was essentially a data entry role, and that's a skill set. People who are good and interested in doing that will have a certain skill set, but that's been removed [crosstalk] with modern technology, so it means people who are really focused on that can now actually provide that service really well and efficiently for probably far more people, and that can be great. They can do it probably cheaper and better, but for a lot of people who may have been doing that work and new businesses that have come in to finance and bookkeeping, we have the space, data, and technology to really add value, so that's become a focus.

I find that classic stereotype of the bookkeeper, it is sort of passing. Typically, businesses that come to me are not looking for that. They know that the world's moved on, and even small, freelance bookkeepers out there, and there's thousands of them, are now pretty focused on things beyond data entry [crosstalk] and the classic stereotype.

Michael Kerr: Yeah, okay. The opportunity's here, the data gets exported out of your bank account, so it's a matter of shaping it and using it. Is that really up for the business owner to demand that or drive that, or you're just saying that bookkeeping, generally, is becoming more savvy and more of a trusted advisor in taking information to clients and saying, "Look, you should be thinking about running your business differently or changing things"?

Michael Kent: I reckon there'll be a full spectrum out there and plenty of businesses will have bookkeepers, who, perhaps, not bringing that mindset and not necessarily thinking to bring that value. In many cases. I think that there's an opportunity for business owners who have bookkeepers who they really like and appreciate, and who know their businesses, to invite them to potentially go on that journey, if they hadn't necessarily thought of it proactively.

Michael Kerr: What would be practical examples where there's an opportunity for either the owner or the bookkeeper to say, "Look, this information here is telling me my business is performing at this level, but I want to change it, or I need to change that." What would be examples of information that you could use to spark something different in the business?

Michael Kent: Well, there are 2 lenses to think of, looking at your finance numbers. One is looking at them historically. When doing that, it's really helpful to break down the numbers and understand where the income is coming from.

Michael Kerr: So, not yet. You often see revenue of $2 million, but it might be one client, it might be 50 clients, it might be 3 products or 3 services, or 50 products and services.

Michael Kent: Yup.

Michael Kerr: Is that the kind of stuff where you go? [crosstalk] Drill into this. It's not just one top line of revenue of $2 million. That works for compliance, right?

Michael Kent: Absolutely. On the base[?] statement. that's all they're interested in, [crosstalk] but it's really helpful to break that down and work out what products or services are profitable. It's really common for businesses to discover with a bit of analysis that, in fact, they're putting a lot of effort into a service or product that's not profitable. In analyzing historical numbers, it should definitely be around focusing on product or service profitability, or for service companies that might be around, for a project profitability. There should be some trend analysis on spending, and definitely some ratio analysis. The big cost for most businesses are wages, rent, and stock, if it's a stock selling business, and if we're really understanding margins.

Merely looking at a P&L on a balance sheet won't necessarily bring that out, depending on how they're structured, so encouraging a bookkeeper or a finance advisor to help a business owner pull that apart and understand those things is really valuable.

Michael Kerr: Yeah. [crosstalk] The historical piece is just outlined, and you were just about to go on, I think, to the second part of it.

Michael Kent: Yeah. Well, beyond that, we think that if you're going to get the most out of your finance function, it should really be forward focused. You definitely need to have an understanding of what's gone in the past, but I think it's best to start with an understanding of the strategy of the business. It doesn't need to be complex. It can be really simple. The finance function should really understand, what are the goals of this business? What's it trying to achieve? In many cases, that initial understanding of historically, what's going on, is the place to start, because that will tell you, "Well, we're doing great, but we do need to improve our margins," or, "We do need to drop our wage costs," or, "This is a sleeping service, but we could probably sell twice as much of this particular service line or product line," and that will inform the strategy. Once it's understood, "Okay, the next 12 months, we're going to try and do these 3 things," then working with the finance function or the bookkeeper to decide, "What could we measure and report on as we go through the year that would inform our progress against those goals?" That's the gold, deciding what we're trying to do, and how we're going to measure progress, and then getting that bookkeeper to go away and work out how they can get that measured and bring to the business owner a concise, succinct, simple report so they can get regular feedback on their progress towards those goals.

Michael Kerr: Yeah, okay. I want to come straight back to the quality of your chart of accounts because that's where it all starts.

On today's edition of Small Business Banter radio, we're chatting with Michael Kent, who's the founder and CEO of Slate Account. We'll shout out that website at the end, Michael.

I love the way you've described that there's the finance function or booklist court[?], bookkeeping, account keeping. You can get a lot more out of the information that's going into the the system, historical analysis of profitability, et cetera, tying it to where you want to go, I think, the next level, because otherwise, you just go along and you don't know whether you're getting to somewhere, you don't know where that somewhere is, in terms of something that's measurable and achievable, but I imagine that when you are working with a client, all of that information rolls up into a set of accounts, and they're typically listed from the expenses from A to Z, accounting fees at the top and wages at the bottom and [crosstalk].

I do a lot of work with management accounts and small business, and that layout isn't particularly helpful, so you've got to reformat that information, but also, I wonder how often there's a tendency just to shove expenses into categories, because you want to get your compliance done, but you're missing an opportunity to perhaps, really feed that information in the first place into categories, expenses that are much more relevant for doing this analysis talking about.

Michael Kent: Yep. It's very common to have an A to Z chart of accounts, and it really is a massive lost opportunity. It's important for a businesses to understand where its big costs are, and focus on those. Counter-intuitively, we often say when reviewing financial statements, don't look at a statement, actually. Our typical reports will be more chart-based, and in most businesses, the costs that really matter. There's only about 3 or 4, and we prefer to present those in a chart that shows the trend over time and show us a ratio of those things, typically to revenue that that's where the business is thinking, wages to revenue, cost of goods sold to revenue, occupancy costs revenue, if real estate's a big part of the business. We then normally present your classic profit-loss statement that lists the accounts by month, almost as an appendix, because the B items are normally, there's only 4 or 5 of them, and you want to see what's happening as a trend over time.

Michael Kerr: Yeah. If you're going to shift the performance of the business, you don't need to focus on 55 different expense accounts if it's 3 or 4, as you say, that always can [crosstalk] steer you to wages, rent, and so forth.

Michael Kent: That's right. Someone should have a look at them. A good bookkeeper will take a look and make sure we're not doing something crazy with our phone expenses or our staff entertainment, but it's really not a sensible focus for a management meeting.

Michael Kerr: Yeah. You talked about the shift to Cloud accounting. Now, we have zero miled[?], I reckon, into it, I think.

Michael Kent: Yup.

Michael Kerr: Is it more or less compulsory? Can you get around your compliance obligations just by continuing to use Excel always, or is the value coming out of an online subscription or a subscription to one of those service providers really worth it?

Michael Kent: Absolutely. Excel is just so much harder, more time consuming, and more complex. The thing about the new Cloud accounting software is the getting the data from the banks is the game changer. You fill in a form to give the bank permission to send this company the data, and then over time, you can teach the software to recognize things. If it's Telstra, it's a phone. If it's Caltex, it's fuel. If it says Stripe, that's income, and so on. Tallying it all up becomes very quick.

These days, running a bass[?], for example, it's all done with a couple of clicks, and now, you can lodge from directly inside the software. I just click a button and push it to the ATO. For smaller businesses, this software costs $25 a month, in some cases, less. [crosstalk]

Michael Kerr: Pretty strong, and indeed, it kind of gives you the opportunity and to start to do that analysis that you talked about, which is, "What am I trying to achieve? How am I going towards that?"

Look, I just wanted to rant through a couple of things in the last little while. Management accounts, for me, in the work I do, are the most critical piece of information. Now, when you're selling a business, what's happening last month, the last completed set of financial returns are usually 12 months old. What's happening? The quality of the management accounts, if I can call them that broadly, are so vital. I wanted to ask you, in terms of choosing a bookkeeper or assessing how your current bookkeeper's going, what's your thoughts on that?

Michael Kent: Thinking first about that financial control function of the bookkeeper, getting the transactions entered, and getting bills paid, I think getting that done well is all about accurate, on time or faster, reducing risk, but also about delighting the customers of those business processes, so making sure your suppliers think you're a great company to sell to, your customers feel really good about your brand, and often, it's that finance person, the bookkeeper, who's representing you to the extent that's finance-related. I would be having conversations with prospective bookkeepers about how they might manage that and do that really well.

Michael Kerr: Yeah.

Michael Kent: I think the balance sheet is where a lot of bookkeepers might become unstuck. If I was interviewing a bookkeeper and had to choose one, I'd really go through my balance sheet with them and make sure they could explain. The key test here is, how would we check each of these balances, and make sure they're speaking in plain English, in a way that the business owner can really understand. I think that would set up the relationship really well.

We find in recruiting our staff, the number one indicator for whether they're going to succeed at Slate Accounts is actually, "Please describe yourself, in 160 words or less, outside of work," because it's a very human task these days. It's not about data entry.

The other thing to think about is about resignation proofing the function. It can be a real pain if your finance person or your bookkeeper leaves.

Michael Kerr: Yeah.

Michael Kent: I'd be having a chat to a bookkeeper about what backup they have and how those risks could be managed. I think that's really important, too.

Michael Kerr: Yeah, okay. As a business owner yourself, you've got a significant business. More than half are offshore, and you can offshore a lot of things, bookkeeping being one of them, professional services also. What's your experience that you'd share? You have been doing it for quite a long time. In terms of just generally outsourcing for business owners, what's your thoughts on that?

Michael Kent: We did it a little bit differently. I employed my first staff member in India in 2017, but I always took a very hands-on approach. It is possible to get online and find staff offshore, and do it all remotely, but long before we did this, we had the view that, "Well, our clients outsource their accounts' work to us, so we're not going to, then, in turn, outsource the work to someone else." We wanted to make sure we were doing the work for our clients.

Michael Kerr: Yeah, and responsible for it.

Michael Kent: Sure. Until COVID hit, until November '19, I was going to India 4 times a year, every quarter. I interviewed and recruited the first 5 staff.
What's made it work? I mean, there's been a lot of change management. It had to happen across my Australian staff, and their roles have really evolved, and that's been great for them. It's a fun journey for everyone, but there's been a fair bit of work and care put into that. I think the key would be to stay very close to those staff. Just because they're offshore, I think you should have the mindset that they're in the room with you. Unfortunately, you just can't flip work over and expect it to come back. We're on calls and working on Skype and so forth with our staff all day, every day, and it works really well for us.

Michael Kerr: Yeah. Whilst it's offshore, they're employees the way you set it up. You want to see that quality delivered that you promised, so you can't just outsource and hope for the best.

Michael Kent: Yeah. For us, they're very much a part of our team meetings that we have, essentially, workshops, off-sites with them. That model works for us.

Michael Kerr: I've been involved in outsourcing, also. I think it's like any employee relationship. As you said at the very beginning, wages is a biggest cost for just about every business, and managing people is essential to getting the business right?

Michael, we're going to have to call it a wrap. I really appreciate your time and insight. I think it's a very progressive approach to bookkeeping and financial management. I think the message, very strongly, for me, that I'm hearing is that there is a role for your bookkeeper, outsourced, internal, as a trusted advisor, and really, to look beyond reducing tax, that annual cycle which has driven a lot of people in the past and a lot of accountants look past the compliance, and really look at it as a critically important part of the business to measure how you're tracking, and comparing that to where you're headed.

Thank you so much for your time today. Do you just want to shout out the website, and then we'll call it a wrap, Michael?

Michael Kent: Thanks, Michael. Yeah. We're at slateaccounts.com.au.

Michael Kerr: All right, excellent. You do, occasionally, write some excellent articles.

Michael Kent: Occasionally?

Michael Kerr: I mean, you only write them occasionally.

Michael Kent: I know. I'm going to work on it a little bit better there.

Michael Kerr: All right. Thanks [crosstalk], Michael, for your time today. Really appreciate it.

Michael Kent: Thanks, Michael. Good to see you.

Michael Kerr: That is all for today's episode of Small Business Banter. I continue to be inspired, bringing you small business experts and other small business owners, and hearing their stories.

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