Over the past 2 decades, I have worked with hundreds of family businesses. From sons and daughters to in-laws and cousins, the urge to employ those we’re related to is unbelievably strong. Because of this bond, we often overlook shortfalls and assign roles to relatives that aren’t right for the job.
Take Arnold, for example. A good intentioned but inexperienced relative, Arnold was appointed to the role of Marketing Director and Chief Financial Officer inside a third generation, family owned business. Arnold had no qualifications in either marketing or accounting, and his only real experience was that he had “once used MYOB” and “printed some marketing flyers.”
Skip forward a few months, and the company started to make less money. Move forward a year or so, and the company was in financial dire straights. Aside from making a catastrophic loss, it was being audited by the tax department and investigated by ASIC for breach of statutory regulations. The business had lost market share through poor marketing and lacklustre communications. Needless to say, Arnold was out of his depth.
I was asked to step in and get things back on track – and what I found, was a company on the brink of disaster. Riddled with accounting mistakes, legislative omissions and operational errors, the business had mistreated GST, misunderstood FBT and misallocated expenses. In fact, with Arnold at the helm, the company had whittled away a healthy profit of over $750,000 a year. Worse still, mum and dad had no idea.
Over a period of 4 months, I applied over 25 years of accounting and business management experience and set about turning this business around.
From making a projected loss of $250,000 to posting a profit of $150,000 in the first 12 months, I saved the business owners more than $400,000. Not bad for just 4 months work.
While many of you will probably laugh at the naiveté of this situation, it is unfortunately quite common. Empowering the wrong people will cost you money. No ifs, no butts. It will erode hard work and blindside attempts to reach financial goals and growth targets. In fact, Arnold could be in your business right now.
Professional accounting and expert financial management (or in this case, mismanagement), will make or break your business. But there’s good news – maximising income and achieving financial certainty are within arms reach. Just be careful whom you choose.
