3 Tips to use WeWork's sexy Accounting.
WeWork has announced it's chasing a $35 billion valuation, and it's on the back of releasing some really interesting financial information. WeWork uses a really interesting accounting concept called earnings before interest, tax, depreciation and amortization, EBITDA, it's quite common. But add back something called Community Costs to its underlying profit.
How? Well, they had back these Community Costs that are worth $233 million. So, can you do this for your business? Well, WeWork's using his sexy type of accounting called management accounting.
Tip 1 Know your costs.
To do this, you need to know your costs. Nothing beats having great record keeping, but also having policies at the end of every month to know what to do with each cost. It should be noted that usually this type of reporting is done for internal purposes to help your management and the latest make better decisions. It probably isn't going to fly for your tax return.
Tip 2 Know your Breakeven.
The next tip is to know your break-even. WeWork are all over their numbers. They know what occupancy levels they need in each site in order to make a profit. Break-even is made up of three elements; direct costs, variable costs, and one-off costs that don't really hit your profit and loss, but rather your balance sheet.
Tip 3 Communicate your numbers.
Finally, communicate your numbers to your team. Everyone needs to be on the same page to know what results they're working towards. The best cultures always have specific targets where everyone's travelling in the same direction.
3 Ways to get better governance and set up an advisory board
Last year the world was in uproar when it was announced that Volkswagen had fudged the numbers on their CO2 emissions. It's pretty obvious to not lie about caring for the environment, but last week, the Audi CEO was arrested on charges of fraud, which relate to poor governance.
Governance is a really interesting topic in small, medium and growing businesses because we're doing so much to grow, we sometimes don't take a step back and say, "Well, are we growing the right way and doing the right thing?"
A failure of governance is when enough people in senior positions know what's happening, but do nothing to stop it. There's lots of examples of it in the royal commission into banks at the moment.
Tip 1 Set up a governance structure
To make sure failure of governance doesn't happen in your business, start off by having a governance structure and putting together an advisory board or even a formal board. Your board might be made up of your lawyer, your financial mentor, somebody who knows your industry inside out, and somebody who's done everything that you want to achieve in your business as well.
Tip 2 Set up a meeting structure
Once assembled, your board will have monthly or quarterly meetings and they'll assess how you're tracking against your goals and the approved strategy. If one of your goals was internal processes to make sure nobody lies about carbon emissions, it'll come up at that meeting.
Having great monthly insight reports are really critical to having a robust discussion so that your board members can see what's really happening inside your business.
Tip 3 Test and debate your strategy
And finally, the role of your board is to test, debate and make sure you're implementing an approved strategy. This is where people who have done it before can really help you get value out of the time you're spending with your board.
3 EOFY Tips
Finally, it's ended financial year. Usually marked off by the period of time where you need to report your profit to the tax office. But there's a lot you can do to make sure that your business is ready to take on the next 12 month period.
Tip 1 Beware of marketing messages
To start with, be really aware of the marketing messages that are out there. There's plenty of people advertising to borrow money ... To start with, be aware of the marketing messages that are out there about borrowing money from non-bank lenders to take advantage of the $20,000 instant asset right off. This right off allows you to get a tax deduction for things that you're buying for your business, but you get 100% of the deduction this year rather than over time.
It's worth noting that this only applies to things that you would have got a tax deduction for anyway. It's not $20,000 being put into your pocket by the government to spend on things that you need to run your business. If you are borrowing from a non-bank lender, do your numbers. Sometimes you'll find that the cost of interest of borrowing the money is more than the benefit you get from the tax deduction. Putting you in a worse position, and costing you more cash. Always pays to do your numbers when it comes to buying assets and borrowing money.
Tip 2 Get your bookkeeping done and look back
End of financial years is a chance to look back at the year that was. How did you go against your goals? To do that, you need to have great financial records. Make sure your numbers are done, up to date, and ready to go for your tax accountants to lodge your tax return, but also to sit down with your financial mentor and track where things could have been improved.
Tip 3 Get a budget and look forward
It's also a great opportunity to look forward to set a budget for next year, and to work out what strategies that you've got in your head you're actually going to bring to reality.
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