What needs to be taught in school to become a small business owner?

All too often Elizabeth Pitu hears people say that accounting and other subjects at school did little to prepare them for the practicalities of running their own business.

A teacher of accounting for 26 years, Elizabeth has always suspected the subject matter was a little too academic and theoretical. Now, with exposure to small business owners, she’s convinced the school curriculum for accounting in New Zealand (and she suspects other countries too) needs a rethink.

“In my experience accounting at school is not as real or practical as it should be in terms of running a small business,” she says. “Understanding the concept is quite different to doing things like working out what to cost your work at, making sure you get a market price and allowing for the advertising you might need to do. Most business owners end up learning the hard way.”

In the hope of convincing policy makers to consider changes to the way accounting is taught in schools, Elizabeth has embarked on a research project through Waikato University titled ‘Financial Skills for Small Business Owners’.

This involves interviewing small business owners about what financial skills they think would have been useful to learn in school. Here are the most common gaps Elizabeth has identified so far:

• How to price products/services/concepts
• Coding bank statements
• Using accounting technology beyond entry level
• Better ways to manage debtors
• How to forecast cashflow
• Doing a GST/VAT/Sales Tax return
• Allowing for the vagaries of tax and other deductions when paying wages
• The need to put money aside to pay taxes

Elizabeth says being able to access technology such as Xero that’s easy to understand and use, has been acknowledged by several research participants as key to their achieving business success.

We’d love to hear what you think would be useful for prospective business owners to learn in school in the comments section below. Or you can let Elizabeth know on her Facebook page.

Budgets and checks

It’s release day at Xero and we’re shipping some big features.

Budgets

When it comes to budgeting, Microsoft Excel is the best tool in the world. You can create all kinds of customised reports and graphs, run ad-hoc queries, and even do some fairly complex forecasting. Now you can export your  actuals from Xero, do some heavy lifting in Excel, then import the results as your budget line.

We looked at developing smart budgeting tools ourselves. However, Excel really is best-of-breed, so it made more sense to connect the two.

We teamed up with Deloitte to test this feature with Microsoft Office 365. Check out the video to see how the data round trips from Xero, to Excel, and back again.

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Growing your business – the equity story

If you own your own business you’ll know that it burns cash daily and you need to know how to fund this. But you should also be thinking about the equity side of your business too.

Highly successful entrepreneurs live more in their balance sheet than their Profit and Loss. The P&L is a short-term view of the operating status of the business. The balance sheet tells you where the future is and how to resource the business for growth. Pre-empting where your cashflow will be 6 to 12 months out is critical. All too often entrepreneurs grow their business, run out of cash and end up raising funds under desperate circumstances, which can be expensive.

I caught up with a friend recently who is helping investors from offshore find solid businesses to support. The businesses will not only receive $10m but the investors will use their skills and networks to open up opportunities in foreign markets. Strategic investors such as these can be a huge help to a business. While a cash injection is one thing, having doors opened for you can’t be underestimated.

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Validating your business idea so you can grow

You’ve got an existing business and you want to make it fly. But you really need to validate your idea before you can scale up.

I’ve been involved in a number of rapid growth and new business start-ups including Xero and more recently an online system for managing foreign exchange and interest rate risk called Hedgebook. I’ve learnt a huge amount through the process. Here’s the top five things I recommend you do if your aim is to hit the accelerator.

1. Dragons’ Den it:  Get 30 minutes with the most wildly successful entrepreneur you know. Tell them about what your plan for growth is and get their feedback. It’s likely they will rip it apart and this will help you know whether to pursue or not.
2. Know your customers:  Speak to your existing customers about your aspirations. Remember ideas are cheap and execution is expensive. Don’t be afraid to let people see what you are doing. You need the direct feedback from those who use your product.
3. Know your markets: You need to understand your growth markets, especially if these are off-shore. Visit them.  Nothing beats being in-market, meeting with the people who could help with your business and getting their understanding. Hedgebook has been looking to expand beyond New Zealand and recently invested in a four day trip to Australia where we attended 23 meetings!  This was well worth it because the net result was a very clear first phase go-to-market plan.
4. Get some funding: Getting someone else to help fund your idea is an excellent endorsement. It shows what you’re doing makes commercial sense. In almost every market there is a government funded inward investment organisation. You need to meet the people behind this, see what they think about what you have to offer and find out what research they can do for you. Most of these organisations will have a fairly solid review and selection process. Going through this process will help make sure you have done everything you need to.
5. Write a market research paper: Before Xero entered the UK market I spent six weeks doing research. Then I presented my findings and recommendations to the board as part of the approval process. This was an excellent exercise that validated our go-to-market plan and provided a time-frame (in this case six months) for reporting back.

We’d love to hear your experiences in scaling up a business and if you have any gems to share.