January 2017 – McAdam Siemon

Why modern business means cloud-based business

Posted on January 23, 2017 by Carolina Jaramillo

“The cloud” is a phrase that means something very different these days, due to the increasing use of cloud computing. But what exactly is cloud computing? And is it a good option for small businesses?

First, a quick definition. Without getting lost in ‘geekspeak’, cloud computing simply means both the software apps you use and your data are stored on remote servers on the Internet, rather than ‘locally’ on your computer’s hard drive or your own server(s).

That idea—of the data not physically being in the same place as you—used to sound scary to many. What about security? What about the risk of losing your data? Surely it’s best to have your data on a computer you can see and touch on your own premises?

Well, that’s out-dated thinking these days.

Counter-intuitively, your data is likely to be more secure when stored in a cloud app, compared with storing it yourself on your own computer or server on your premises.

Why is that?

Security

Your own IT security is likely to be far less robust than that of a cloud app provider. If you access the Internet and use email, then you’re vulnerable even if you don’t use any cloud-based apps. Hackers can access the data on your computer or local network simply due to the fact that you have Internet access. It’s like a door. And they often know how to pick the lock.

Reputable cloud app providers, on the other hand, use solid security measures such as SSL certificates that support—sorry, some geekspeak coming up—256-bit SSL (Secure Sockets Layer) encryption. This is the same level of encryption used by online banks.

Let’s face it: This bank-grade security protocol is likely to be far more secure than your own computer and IT security protocols.

Theft

Another advantage of having your apps and data stored “in the cloud” is that if your computer, server, smartphone, tablet or other device you use is lost or stolen, your data is safe because it’s not on the device. It’s in the cloud, stored securely behind encrypted passwords.

And your data is far more valuable than hardware. Hardware is easily replaced. Data is not.

Disaster

This same “you can relax because your data is in the cloud” factor also applies to disasters such as flood and fire. A business using cloud-based computing could have its premises burn to the ground overnight and continue “business as usual” from another location as long as they had access to the Internet. (At least from a customer, financial, accounting, human resources/personnel and other business data perspective. Clearly it does not apply to physical operational aspects of a business.)

Hardware

Computer hard drives are like car engines. It’s not a question of if they will ever break down, but rather when they will break down. That’s why we all diligently do daily data backups, right? And we all take these backups off-site each day, don’t we? And we all do weekly tests where we restore the backups to ensure the backups are working as intended?

No? Really? That’s bad. Shame on you.

And yet it’s precisely what most small businesses fail to do.

That’s another great aspect of cloud computing. No more data backups to do. The cloud app providers back up your data automatically and they simultaneously store your data in multiple locations around the globe. This means that if one of their buildings was subject to, for example, a catastrophic earthquake, your data would be safe because it is also stored in different cities, on different continents.

But even if technology got to a point where computer hard drives never failed, there’s one thing they always do, eventually: fill up. They run out of space.

And that’s a major inconvenience with the old-school approach of storing data locally rather than in the cloud: You have to (or you have to pay IT providers to) move data across to new hard drives or servers, and reinstall the various apps and databases. It’s an expense and a disruption.

With cloud computing you can kiss that inconvenience goodbye.

Software

For many small businesses, when they fully adopt cloud computing they can reach the “no IT person required” stage. By that, we mean you won’t need an IT contractor to come on site to upgrade servers, maintain databases, fix software conflicts and so on, all of which is the norm when running old-school desktop apps and local servers.

Why is that?

With cloud-based apps there is no software to install. No software updates or “patches” to install. You just log in to each app and it’s always up to date. Nice.

The one exception

There is one exception here of course. If your business is in a region where you do not have reasonable Internet speed (e.g. 5 Mbps or more) with reliable connections, then cloud computing is not for you. Not yet.

Technology continues to evolve in this area, and it won’t be long until every business on the planet has Internet speeds that support cloud computing.

Here’s where cloud computing gets exciting…

While the security, risk and convenience aspects of cloud computing are worthwhile, they are not the most exciting and compelling benefits of cloud computing to a business owner.

Let’s look at some of the “wow” aspects of cloud computing.

Efficiency via Data Flows

Every business wants to be more efficient. It saves money. Saves time. And it allows you to provide even better service.

By adopting cloud computing and building an “app ecosystem” for your business you can eliminate a number of inefficiencies where data is being manually re-entered into multiple systems.

Your data can seamlessly flow from one app (area of your business) to the next without the added step of manual data entry. Manual data entry is not only an expense and an inefficiency that slows down your business processes, it introduces the opportunity for error.

Work to eliminate all manual data entry in your business. If you see anyone in your business manually entering data into an app, you should question why it’s being done. Look for ways that data could automatically flow into that system from another app where the data is already stored.

App Ecosystem Example

Imagine your business has fully embraced “the cloud”, and has connected various apps so data flows automatically from one app to the next.

Let’s say someone then searches Google for your type of business, product or service. They find your website. They see something on your site they would like to access, such as a PDF document with helpful information in it. They enter their email address and perhaps their first name in order to receive it.

They are now in your business’ marketing database and Contact Relationship Management (CRM) system. And they did the data entry.

Over the following few weeks this prospective customer or client receives email updates and e-newsletters from your business that gradually educate and build trust with the prospect simply by being helpful and sharing relevant hints and tips based on what they previously downloaded.

And this happens automatically thanks to your marketing automation app such as Infusionsoft.

The prospective customer then clicks on a link in an email and comes back to your business’ website. They’re ready to talk to someone, so they enter their information into the Contact Us web form. This time they enter their last name and their telephone number.

This data also flows straight into your business’ CRM.

Next, you’re speaking with them on the telephone and they like what they hear. They request a quote or proposal. You use a cloud-based proposal creation app (such as Proposify) that integrates with your CRM to automatically pull in the prospect’s information. You click a few boxes on screen to select the product and service options to include in the proposal.

You click a button and the proposal goes to your prospect via email.

They open the email, click on the link to the electronic proposal and view it online. They decide to go ahead so they click Accept, sign it digitally (on screen) and then enter their credit card details to purchase.

This automatically adds them as a customer to your cloud-based accounting app such as Xero It also enters their credit card details into your secure eCommerce payment processing platform linked to your marketing automation app. And then your payment processor (e.g. eWAY) processes the credit card transaction.

Xero automatically emails them an invoice marked as Paid, and the live bank feed will bring in the transaction ready to be reconciled (matched) to the invoice within 24 hours. So your bookkeeping and accounting is up to date, and yet no-one in your business had to enter—let alone re-enter—any data.

You have a new customer, the money is in your bank account, and you’re ready to deliver.

The purchase also triggered a fulfilment list and email instructions to your relevant team members, and added the job to your workflow (job tracking) system.

Your business is amazingly efficient. You move with velocity thanks to data flows. You amaze your prospects and customers with your service, and impress them with your tech savvy. You’re saving tens of thousands of dollars a year on old school IT and administration approaches that would require a additional staff and contractors.

You’re a modern, cloud-based business. And you’re loving it.

Where to start with ‘going to the cloud’

The process of going to the cloud starts with deciding on your cloud-based accounting and CRM systems. That’s because your financial and customer data are crucial, and will receive and send data to and from your other operational areas.

Your ideal accounting system and CRM platform will depend on your type of business and the apps you already use. Building your business’ app ecosystem is one of the most important areas for any business owner or entrepreneur to focus on.

That’s why we love advising businesses as they move to the cloud.

If you’d like to sit down with us and have a chat about your move to the cloud, get in touch to make a time.

Going to the cloud is no longer an option for a modern, competitive business.

Cash Machine: 7 Reasons to Stop Treating Your Business as an Automated Teller Machine

Posted on January 20, 2017 by Carolina Jaramillo

Think back to the days before you started your business, when you were working for a boss. Chances are you were rewarded for your hard work with a regular salary. It may not have always been the same amount, but it came through like clockwork. And for the next week, month or however often you got paid, you’d do your best to make it last.

But now you are the boss, and so you don’t need to be restricted to a set salary, do you? You can simply draw money out of the business whenever you need it, right?

Wrong.

7 good reasons to pay yourself a regular salary

As a business owner, here are seven reasons why you should pay yourself a regular salary instead of treating your business like an automated teller machine.

It’s what you’re used to.

When you first started working for someone else, you couldn’t ask the boss for more money whenever you ran out. All you could do was hold out until the next time you got paid. And having a regular income also made it easier to budget for your income and expenses, manage your money, and save up for a mortgage or investment.

So why change now?

Much of the money in the business’ bank account is already spoken for

It’s easy to think all the money sitting in your business’ bank account is yours. After all, it’s your business, isn’t it?

But that money actually belongs to the business—not you personally—and is needed to cover things such as:

Salaries and wages
Paying contractors and suppliers
Stock purchases
Equipment
Rent and utilities
Future tax payments

It doesn’t matter how profitable your business is. If the money isn’t there to pay the bills when they’re due, your business is as risk of becoming insolvent (i.e. you have more commitments and bills to pay than cash or available funding to pay them with).

Having sufficient cash flow is vital for any business. And it’s far easier to manage cash flow when you have predictable expenses you can plan around—including your salary.

You need money to grow your business

A growing business is a cash-hungry business. As it grows you may need to move it to a larger premises or invest in new staff or technology to grow your capacity. Even if you can keep a lid on your fixed expenses, your business may require an increase in variable inputs such as materials.

And all this ties up cash.

So whatever your growth plans, you’ll need enough money in reserve to fund them. And that’s on top of the money you need to keep the business running at its current level.

As you can see, knowing exactly what cash is flowing in and out of your business, and saving as much of your profits as you can to build up your cash reserves, is important for a growing business.

But if you keep ‘raiding the till’ whenever you’re short of cash, you’ll never know how much cash you have in reserve, or when you have enough funds to initiate the next stage in your growth plans.

You won’t be risking ‘lifestyle creep’

The lifestyle we lead is largely dictated by the amount of money we have readily available. So if your business does particularly well one week and the bank balance is up, you might be tempted to draw a little extra money and spend it on dinner at a fancy restaurant, a weekend away, a new ‘toy’ or some other indulgence.

It’s okay to spend money in these ways if it’s a bonus for achieving a certain result or milestone in your business. But these bonuses should still be within the planned and documented salary and remuneration package the business pays you.

If you’re not disciplined in this area, it doesn’t take long for these indulgences to become part of what you consider a ‘normal’ part of your lifestyle, and so you start drawing extra cash on a regular basis.

And that’s not good for the health of your business.

By living off a regular salary (and nothing more) instead, you’ll learn to live happily within your means, which is a key to building wealth.

You’re more likely to fly under the taxman’s radar

Governments’ tax departments are used to people being paid a regular salary. It’s generally how things work. And by giving yourself a regular salary, you’ll be seen as just another salary earner and be more likely to fly under the radar.

If, on the other hand, you start drawing large amounts from your business at irregular intervals, you may raise a few eyebrows with the governments’ tax auditors. And that’s never a good thing.

You could be creating a tax liability for your business

When wage and salary earners are paid, the employer must withhold and set aside a portion of their pay as tax, which is periodically paid to the government on the employees’ behalf.

When you withdraw money from your business, it’s not ‘free money’ (i.e. tax-free). These amounts need to be properly accounted for as:

wages/salaries
drawings or a loan from the business
dividends (a portion of your profit) depending on your business structure.

Your actions here could be building up a potential debt that will need to be paid at some point. And that debt could lead to severe cash flow problems down the track, especially when it comes time to sell the business.

You’re much better off accounting for, setting aside and paying taxes as they fall due. It will not only help your business, but also the quality of your sleep.

You’ll more easily qualify for mortgages and other loans from the banks

When it comes to assessing a person’s ability to service a potential loan, banks much prefer consistently earning wage and salary earners to sporadically earning self-employed business owners.

The bank wants to know you can comfortably service the loan each month, and by paying yourself a regular salary you’ll have the payslips and bank statements to show a steady cash flow history.

So the sooner you set this up in your business, the better.

A successful business is a great way to create creation and accumulate wealth. But don’t disadvantage yourself by presenting a poor case to the banks when applying for a mortgage or other type of loan.

How much should you pay yourself?

As you can see, there are many good reasons to pay yourself a regular salary instead of continually raiding the till. The question is, how much should you pay yourself?

That’s a question we can help you answer.

Obviously you need to pay yourself enough money to cover your basic living and lifestyle requirements. The last thing you want is to be stressing about your personal finances, especially when you’re trying to make business decisions.

But it’s not a good idea to pay yourself too much in salary—even if the business can easily afford the cash flow. Depending on your business structure, there are probably more tax-effective ways to receive income from your business, such as dividends.

Every business and person’s situation is different in this regard, so it’s important to get one-on-one advice in this area. Don’t view this article as personal advice to you—it’s not. We’re simply opening your eyes to the many benefits of paying yourself a consistent salary as a business owner.

To work out the right amount to pay yourself regularly, you’ll need to consider things such as:

What your business’ cash flow can comfortably pay you on a regular basis
What you feel you’re worth (e.g. if you were employed by someone else)
What will let you achieve your personal and family wealth creation goals, such as paying off your mortgage and building your investment portfolio
Tax considerations so you pay yourself the optimum amount to meet your needs without needlessly paying too much personal income tax
The business’ projected profitability for the financial year. (Your shareholding percentage and dividend policy on withdrawing profits or retaining and reinvesting profits in the business will determine your projected profit dividend.)

As you can see, it makes sense to get professional advice on calculating your salary as a business owner. We’ll help you work it out by taking into account your current business and personal situation. We’ll also set up payroll systems to automatically create and distribute the necessary tax-related paperwork each pay period.

You enjoy being your own boss.

Now it’s time to also enjoy being your own employee.