RANK 36: Financial Clarity Unleashed: The Blueprint to Financial Freedom

Get ready for an insightful episode of the Leaky Bucket podcast! 

Join me as I unravel the secret to financial clarity for business owners. Discover how to gain a clear understanding of your business's financial performance without the need for an accounting degree. 

• Financial clarity is crucial for business owners to make informed decisions and take responsibility for their business's financial performance.
• It involves understanding financial reports, concepts, and strategies without becoming an accountant.
• Building a culture of financial clarity requires open communication, sharing information, and simplifying complex financial data.
• Enforcing financial clarity involves client meetings, video reports, and proactive engagement to ensure understanding and informed decision-making.

I also shared practical tips on fostering a culture of knowledge, leveraging user-friendly graphs, and conducting regular meetings for enhanced understanding. 

Stay tuned to unlock the power of financial clarity and take your business to new heights!

Hello. Welcome to the leaky bucket to podcast. I'm your host in Morgan, and I'm here to make accounting fun and practical. With over 15 years of experience as an accountant and a business owner, I'm excited to share tips and tricks that will help you improve your financial controls and gain the clarity that you need to succeed. 

So let's plug these financial leaks and take your business to the next level. Stay tuned for some great insights

Thanks so much for taking the time to join us for this episode today. We will continue to bring you great tips and tricks in future episodes. But if you can't wait until then, then you can always head over to our Facebook group and join the conversation with fellow business owners and entrepreneurs.  

Accounting Tips and Tricks Facebook Group - https://www.facebook.com/groups/accounting.tips.and.tricks

Until Next Time...

Transcript

Thank you for joining us on a Leaky Market podcast. I'm gonna be asking Ian some questions about financial clarity today. 

Brilliant lift. Thank you. Let's get started. 

So an important aspect of what we try and improve for our clients at MBS is financial clarity.

But it's quite an, a loose term when you think about it. Like what does it actually mean? 

So we've got a couple of, a couple of things we really mean by it. It's, it's realistically making sure the business owner's fully aware of what's going on, um, but it's also making sure that they are, they're educated, I think.

When, when you're starting up a business, the, the main point of what you need to prove is do you have a concept that works and can you sell? And before you know it, actually you've built a business that you are selling in, um, and that you are, you are the technician of, and you are able to perform some of the work and get that done.

And the finance is almost a little bit of an afterthought. And then all of a sudden now you're starting to go, oh, we need to get to the next level. We need to be able to, um, need to be able to maybe go and get a loan or we need to be able to get some investors or something. And then suddenly all these terms start getting thrown around or even just going to meet with the accountants.

Yeah. And they start throwing around all these various different terms. And then it's almost embarrassing to go, hang on, I'm running a multi 6-figure business. And I dunno what anything any of it means. Yeah. And then it's too embarrassing to ask because actually you got, maybe you've got one through one or two sets of accounts with the accountant and you just sort of went, yeah, yeah, whatever.

And just signed it off. Yeah. And now it's almost like, oh, what? What do I do now? Because actually when he's talking about sales or gross profit and net profit and this tax, it's almost like, actually, actually I'm glazing over. Yeah. So for us, financial clarity is how do you get that business owner to the point that the financial performance of their business makes sense to them.

Okay. So is it knowledge? Almost 

It's knowledge, but it's not teaching 'em to be an accountant. 

Okay.

Because that's boring. Yeah. It's 

like the, what's the word? Jargon. Yeah. 

It's, it's understanding all the jargon. It is understanding like, um, Most people who have come to running a business have come straight from being employed.

Mm-hmm. 

And even just a basic, there's a basic strategy, which is pay yourself a low salary and then pay the remainder in dividends because it saves thousands in tax per year. But most directors would refer to themselves as still being paid a salary. 

Yeah. 

Cause I don't really understand. Um, and it's almost like. I don't need to understand, just, just tell me what the situation is or just, yeah, just tell me what Yeah. Yeah. But actually there is a level where then becomes a point of going, actually you don't need to understand, how we do it, but you do need to understand why, why and therefore you are, you are involved in that 

decision.

So it's not, um, It's not a complete, then done for you type approach where you just go, ah, just get rid of it all and then you end up with bad situations. So actually it's a great example of that, which was, um, Jimmy Car and got involved in illegal tax avoidance or tax evasion effectively. Mm-hmm. 

But he relied on accountants.

Yeah. They said it was okay. They said it was the right thing to do. 

Yeah. 

He's the one who pays the consequences. And ultimately, once it was under threat, they basically all just disappeared and went, no, our problem closed. The company's down, disappeared. Now you deal with it. He did that because of trust.

Mm-hmm. 

But also because it, it sounded good. 

Yeah. 



Like why not pay very little tax, um, and everybody else is doing it. But actually you do need to understand why. So that actually when it's questioned, then at least you've got some ownership and that money, you can't just go, well, I don't know. I, I just did what they told me because 

Yeah, 

he's the one who pays the consequences.

Yeah. They've had their money. They're, they're done. They've, they've done a runner, if you like. He's the one who's faced with having to pay tax back, having to pay penalties, charges now, okay, that's a very extreme example, but similar could happen if you pretend, you know what? You know what the difference is between gross profit and net profit.

Like if you don't, that could be tens of thousands of pounds difference, even hundreds of thousands of pounds in some circumstances. And it's okay not to know as long as then you're doing something about knowing. Yeah, so it's, yeah, it's about knowledge and understanding and getting an education, um, but not learning how to be an accountant.

Yeah. Is that one of the main misconceptions? Do you think people think they need to know how to do what? Yeah, we are doing here rather. You just need to know why 

we are doing it. Yeah. I think it's that thing to just go, look, take some ownership. This is your business and your performance. Have some ownership to go.

I need to be ultimately responsible. If we, if we were due to make a hundred thousand pound, we only made 80. I need to know why and be responsible for that. Not to just go, oh, it's just the accountants like, so it's easy for people to do that. Yeah. I think it's, if you don't understand, I think it's really easy.

Like if you've got a team, everybody's looking to you that you've got the answers. Yeah. If you are that leader. Mm-hmm. And if you don't have that right culture, where it's okay to say, I don't know. Then you end up with a situation of going, well, I just have to pretend. Yeah. And it's easier to blame somebody else in some circumstances than to go, do you know what?

I have no idea. So our job is to make it okay that you don't know. Yeah. And.

If it's, it's the old, is it the Chinese proverb? Like what was the, what was the best, what was the best time to plant a tree was a hundred years ago? The second best time to plant a tree is today. And if you didn't start that financial education when you started your business, you don't understand. That's okay.

You can't go back and change history. But the time to take ownership of it is today and to go, do you know what? Actually, I don't understand. And it's our job to make it okay for them to go and ask these questions and go, yeah, that doesn't make sense. I, I want some for the help. Yeah. 

What are the characteristics of business with strong financial clarity?

Like, do you question? 

Yeah. Like the 

culture 

of business, like, does that come into play? Yeah, like I guess having to admit that you don't know what you're doing is pretty hard when you are the director of a business. Yeah, I can imagine. 

Anyway, yeah, I think the, it comes back to the fundamentals that we talked about in a previous episode about financial control.

The financial control has to be that foundation point because if you want to, if you want to get financial clarity, that understanding of where your business is really at and the performance wise, It needs to come from reports and you need to be able to interpret and understand those reports and see if they tell the story of what's actually been happening within your business.

As your business gets larger and you've got more and more people, and unless you want a micromanagement type culture, you're not gonna know the real story. You're gonna have to lean on other people and go, this is what's happening in our business. Does this make sense? So if sales are going up and profits going down, something must be happening with costs in the middle.

So who do you need to speak to to understand, like you need to identify where those costs specifically are going up and then go and speak to the appropriate people. Now, if that's the marketing costs are suddenly three or four times what they were previously, then if you are not, if you have a marketing department, you need to go and speak to them and go, why?

How does this tie back to, to what our plans? Is this what we're expecting? Maybe it's an investment and go, actually the sales are coming in the future, but you need to be able to lean on the team. Um, and you need to be able to share a degree of the financial information. Now, not necessarily profits and personal earnings because they're, they're still personal.

That's almost like sharing salaries with between team members, but. The overall headline of the business to go, look, this is where we're heading. This is the, this is the revenues we wanna try and hit. And these are maybe the costs that we wanna keep under control. Everyone needs to feel part of that journey.

Um, a team's such a massive thing, like if, if you are, if you are reliant on one person as a leader to be, to be that sort of spearhead of the, the team. What happens when that one person then isn't performing? Mm. You need, yeah. You do need moments where there's individual brilliance that can bring things forward, but as a team, you are only collectively as strong as your weakest member.

so how do you bring everybody up to, the standards that you expect? Um, So a little bit of financial clarity, but the financial clarity element is then being able to look back to the reports and go, okay, we aimed that by this month we would hit these sales and we'd have this profitability. Is that what we can see?

Um, and from my perspective, it's easier if you take the numbers out because for most people, numbers are scary. If you go and see, I don't know if even if we did three months worth reporting, you're probably gonna have the best part of. A hundred numbers on a page and it's scary for a lot of people. Um, but if you simply just turn that into some graphs mm-hmm.

We raw actively graphs at school. Yeah. And they're obvious. Um, so you can quickly see and go, I can see sales going up, but I can also see costs going up and they're going up quicker. Right. Okay. We need to look at costs. Now we can go and look at the numbers. Can you go, well, which costs are the ones we need to look at?

And again, you could then turn the costs into graphs as well. So how do you just make it user friendly? Yeah. 

Slightly simplified maybe. 

Yeah. Cuz again, you're not, you're not trying to teach somebody to be an accountant. No. You're trying to teach them to understand their own business performance. Yeah. And if you go straight in, Obviously we're, we're mostly a group of accountants and everybody loves numbers and can understand them and interpret them, but you've gotta get out of that and go, but most people aren't like that.

Mm-hmm. So don't present a load of numbers. Um, don't sit and go through what set of accounts these days run through? About 16 pages. Mostly full of numbers. Yeah. Oh my goodness. And that's gonna be most people's reaction. It's like, yeah, boring. Get on with it, get through it. But actually we can turn those into four or five pages of graphs.

That have, we can tell a story. Yeah. Yeah. And actually we can then compare with say the last four years and go, this is what we can see the journey that you've been on. Does that make sense? Yeah. And then as the business owner goes, well, hang on. No, no, no. That, that isn't what happened. Okay. Tell me more.

Yeah, because now we're looking at our, their financial irregularities, or actually, is it just our interpretation of what was going on didn't quite match, but does their story still work? That's, that's the level can we now be having the conversations? Whereas if you don't know, the tendency is just, I don't want to, I don't wanna admit, I don't know.

So I'll just say it's okay. Yeah. Cause I don't really understand. Yeah. And the value isn't in the report. The value is in analyzing the report and then working out how you're gonna change and improve things going forward. And how do you enforce that? 

How, what steps do you actually take? Like with our clients?

Yeah. 

Um, Actually, I've got a good one this week, which was a client who just wanted just to send us the set of accounts. We just want 'em signed off, and sorted. And I was no, we need to go through a meeting process and go through them because I need to make sure you understand. 

You understand it.

Yeah. 

Yeah. Because if you don't understand, WE ARE not doing our job, That's painful because actually their thing is Yeah, but we want, we need to get this mortgage. Yeah. But you are about to make a big decision. Do you really understand the business financial performance and how that could be affected going forward?

Because if that business is potentially in decline, are you about to go and sign a mortgage that you then can't afford to pay? Yeah. So had you make in informed and educated decisions as opposed to, as opposed to what it feels Right. Cause I can afford it now. so yeah, by enforcing meetings. By, doing videos for our, monthly health checks, which are our management reports, doing videos, having a wave that actually we can monitor who watches those videos, um, and then we can see who's, engaging.

and then actually that's the opportunity then to pick up the phone if somebody's not watching. It's an opportunity to pick up the phone and go, what's going on? Why? And, I think it's probably a fundamental shift in our business that over the last five years or so, we've come from about 600 clients to about 150.

Mm-hmm. And the reason being is it needs that extra time for the relationship because if you've got 600 clients when, and, and we've got the same size team. What happens when those reports aren't quite on track and something's off? Like there isn't the time to pick up the phone and have the conversation.

Yeah. That's where the real value is. It's not, it's not really in the report, the repo, the, the values in having the conversation to go, this isn't your normal performance. What's going on? Tell me about it, and what are some of the potential 

barriers? Have you, have you got any examples of. And barriers that you've faced with people?

Yeah. Um, loads. Um, I, I, again, I think it probably comes back to embarrassment. Mm-hmm. Yeah. Um, and we're all guilty of that. Yeah. I think not being honest 

when you don't understand something is 

Yeah. And there's an expectation. I think it's a business owner, particularly if you've got to a level where you are employing people.

The expectation is you've got your shit together. Yeah. You should know what you're, yeah. You're doing and, but actually every business owner is about to take themselves completely outside their comfort zone and go to a level that they've never been to before. So actually everybody else is exactly the same.

Everybody that's running a business that's trying to grow is going to a painful point that they've never been to before, and they don't a hundred percent know what they're doing. They've just on the balance of probabilities have decided that it's better to go there than to not try. And that's the biggest barrier is that they think they have to pretend it's okay.

Mm-hmm. So how do we make them comfortable to go? It's okay to not be okay. Yeah. But let's have a conversation because actually most of those barriers, um, So I was gonna say they're in your head, but that makes them sound like they're not real. They're not real. Yeah. But they are real. It's minimizing them, that sounds like, yeah.

Yeah. How do you, how do you recognize that they're there? How do you become conscious of their awareness? And then how do you realize that other people have been there and they've done this? Yeah. And that it, it's only scary because it's happening to you, but actually if somebody else came to you with exactly the same problem, you could probably tell them what to do.

Like the mastermind groups that we go to, the amount of people who come together and we have. Um, conversations often about, about staff and challenges and things like that, and somebody bust sit there and go, oh, you should fight them. Mm-hmm. They go, great. And then they'll literally explain almost the identical situation and they haven't fired their member of stuff.

And then you go, why haven't you done that? Yeah. You're not taking your own advice. Yeah. And it's, um, I'm emotionally connected. Yeah. I like them. I care about them. I want 'em to do well. I don't want 'em to be that they have no income. Yeah. Unemployed. Yeah. Yeah. Um, so. It's, it's the very own mindset, the business owner and society's expectations.

Yeah. You, you've got everything together. The pressure. Yeah. You are being successful. Um, it's that thing, isn't it? That actually, even if you are not okay, if you meet somebody and they say, how you doing your general thing be, I'm okay. Thanks. Even though actually inside you're probably going, am I. Hmm. But it's not, it's not deemed society like acceptable in society to go, actually, no.

I'm, I'm struggling at the moment. Yeah. Yeah. So financial clarity wise, I think it is that acceptance. You've gotta accept that. Actually, I, I don't know, but it's okay that I don't know cuz I'm not an accountant, I'm not trained. I was trained to be architect builder. No hairdresser, whatever. Yeah.

That's my skill. That's my core competency, but the very fact I'm a business owner, I need to understand financial performance, even if I don't understand how to do it. How to do it. Yeah. What are the 

outcomes? What are some of the benefits? I know you already said that the benefit in itself is having the understanding, but what is the benefit for the actual business of having that 

understanding?

It's. So the, the best way of measuring business performance is looking at trends. Yeah. Um, it's all very well going. Ah, this month was amazing compared to last month, but if last month was awful, you could just be less awful this month. And it just looks good. Yeah. You need to be able to analyze, look at trends in information over a period of time, but relate that back to the story so.

If you know, for example, using an example we had earlier that you're investing in marketing and you're expecting to see that a result in sales. But in term, what you've had to do is invest in marketing, maybe bring on some more staff members actually for a period of time, you know that business points is gonna look worse.

How long have you predicted that to be? Where's the cutoff cutoff point that you go, actually this isn't working, and we can't continue doing that down that path because there isn't an endless flow of money for most people. Yeah. So if you're gonna invest. Now the financial clarity is okay, but what now?

There's, here's the information that's almost the, it's almost almost the readouts of like a cockpit or the dashboard of a car or something like that. That is, it's like, here's all these warning signs and all this information. Which ones are the most important that you're gonna read at this moment in time to tell you if you're on the right track.

And that's where the financial clarity comes in, which comes back to financial control. Mm-hmm. If you don't have financial control in place, you can't get the financial clarity. Yeah. And therefore you're in danger that what you'll continuing to do is make bad decisions and you just don't know. And making a bad decision and not knowing is the worst possible situation.

You'd rather, if you've made a bad decision, it's not working. It's better to know today cuz you can make a new decision. Yeah. Definitely. So that's, that's the outcome, is the clarity to be able to make a better decision. Yeah. 

Well, thank you very much for answering my questions. Do you have anything else 

you want to add?

No, I think, um, maybe, I suppose in terms of, um, they're equally as important, but they can't be done on their own. It has to go in turn. If you don't have financial control, you can't get financial clarity. So lots of people come to us going, yeah, lots of people come to Whis go, ah, I've, I've been told I need management accounts and I need cashflow forecasting, and I all great.

Can I see your bookkeeping? Oh yeah, that was done last year when we did the set of accounts. I go, ah, okay, so we don't have even nine months worth of data. You can't get a set of management accounts, you can't get any cash flow forecasts. It's impossible because we don't, we need that historic data to start building to help predict the future.

So if you don't get financial control, you can't get financial clarity. I know you 

said they're equal importance, but what you've just said suggests to me that financial control is actually the basis 

of Yeah, definitely. Financial control is the basis, but financial control, um, will give you peace of mind.

If there's a challenging point, you can then do something and react, but financial controller itself is not going to help you improve and get to another level. Yeah. So the financial control is like, that's the basis and that's almost, that's your foundations of a house. Yeah. That you put all the foundations in place.

That's what's gonna make it stand up and be okay. Now the actual financial clarity is Yeah, but it's okay having foundations and walls. But we need a kitchen. Like we need a bedroom. Cause we need somewhere to sleep. Yeah. Actually we need a roof over our head as well. Cause we don't wanna get wet. Yeah. But all of that doesn't work without the foundations cause it'll just fall down.

Yeah. But if you don't put those other bits in. 

Yeah. So it's like they're good on their own, but then they, you can't get any better. Yeah. If you 

don't put them together. Yeah. A set of walls when the roof is not house. Mm-hmm. Yeah. Well, thank you very much. Thank you. 

Cheers.