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Matt Jones: Hello site shedders Welcome back to part two of this series that I’m conducting with my co host Bill Petroski from Hall Chadwick chartered accountants. Bill welcome back.

Bill Petrovski: Thank you again and hi listeners.

Matt Jones: Bill we’re talking in this episode about structuring our finances. It stems in from the previous episode where we’re talking about spending your money wisely in which you gave us a bit of an insight as to how to go about spending money with the business but doing it in a way that actually won’t bury you.

We’ve all been in situations before (laugh) where I’ve certainly received terrible financial advice from both professionals and associates and it was definitely a good episode because it spoke about things that you can be doing especially in the lead up to the end of financial year. By the time the listeners are probably listening to this one it will probably be the new financial year.

However, I definitely go back and check that one out because this episode is going to tie into that. So, that was part one we were talking about spending your money wisely. So, Bill in this episode we’re talking about structuring your finances. Now, this is something that to be honest with you I have struggled with my entire business career.

I have never been one that really takes to the number side of things I’ve never really been I really am motivated by money and it’s probably been to my detriment. Programs like zero accounting have been life changing for me and business transforming and you know anything that has been able to give me a simple analytics over data over what’s happening with the organization has been a complete, complete, transformation to me.

So I’m really interested to see what your feedback here is on you know how to structure finances how to set goals how to had a map these things out because I can tell you now that when you go through tightfisted apprentice’s tradesperson there is absolutely nothing that they teach you about structuring finance about how to spend money wisely, how to be financially prepared…

Bill Petrovski: Did they not talk to you about cash flow and taxes?

Matt Jones: No, they say oh yes you’re good here is your ticket off you go now go make your money. So it’s not again not a not a good situation and I suppose I just want to say thanks for sharing your wisdom on behalf of this because I firmly believe that if you know people that are going through apprenticeships and especially people that are entering into a business they really need to equip themselves with knowledge around finances because it I mean it might sound cliche but it really is the backbone of any business. And if you’re not making money, you’re out of business.

Bill Petrovski: Yeah that’s right. I think the key thing there is as you pointed out is it’s knowledge. It’s knowing what you spend when you spend it and how you spend it. And whilst things like zero and all these new cool applications out there that make your life easier for a man keeping track of how you spend money what your revenue is and your cash position etc. that’s all great but ultimately if the reports or information coming out of those tools is not good.

You are in a position where you have knowledge of knowing how to spend your money and how to structure your finances so really knowing that you’re getting quality data out of your system or wherever that might be is first and foremost so with that you can make informed decisions about how you structure I guess you know tax payments or finance payments if you’re going through debt.

If you’re trying to grow the business what you’ve got up your sleeve capacity wise to direct towards growing the business. And you know that the old adage that they say cash is king. Well actually what I say is cash flow is king because if you know your cashflow each week each month and ongoing you know what you can spend and what you can’t spend and that because you got good information coming out of your system you use that to make good business decisions.

Matt Jones: Interesting. So I know when you know when you’re starting off in business like that there’s probably a lot of people out there listening to this that are in a similar boat. You know obviously you’re very conscious of spending money and you sort of you try and I suppose bootstrap as much of you as much as you can. Which is good and bad. I found that when I was in that situation I would cut back on things like you know trying to pay an accountant for example you know on how to help me manage this sort of stuff because I figured I could do it myself.

But I think that is really why there are certain things that I’ve seen you know through my years of running businesses that you just can’t afford to do yourself. And investing and getting the right help is so important especially in a startup phase you know because there’s so much bullshit out there and there are people saying that will tell you things and you’ve got to be realistic as well.

I think as a business owner you’ve got to be realistic as to where your time is best spent within your business and if you’re spending all your time trying to learn how to you know become an accountant or a bookkeeper you know it’s taking you away from doing what’s actually making you money which is not smart.

So although it might seem like you’re saving money it’s actually costing you dearly probably doing it wrong anyway. So there are ways that you can. I found any way you know there are people and companies that will help you I suppose get the right help and use the right products and use the right tools in a way that won’t break your back, your bank.

You just need to kind of have the balls to approach them and ask them you know if they’ve got a program or a plan or something that could facilitate you know perhaps a different style of investment you know instead of maybe paying you know, every quarter for your with your account or every year, you know is there a way you can pay it off weekly or something like that. That makes it a little bit more digestible. Have you got any advice in that regard?

Bill Petrovski: Yeah look I mean we use a whole bunch of software and applications but again I’m no expert on what’s out there and then that world changes so regularly.

Matt Jones: Yeah

Bill Petrovski: That you’ve got to get the right guy who’s a specialist in that space to come and talk to you about what’s important for your business and you know here are the options of what’s out there. You know there’s 50 different options but I think these 10 make sense and out of those 10 I’ll tell you why these 5 are probably the top choices and let’s decide on this one and this one. And you know I’m no expert at that but I know well enough that we’ve got to get the expert in whatever the case may be.

You know I’m going to try and fix my own lighting problems and I hope I’m going to get the expert in because that’s not my domain. And one, it is dangerous. Two, I don’t know what I’m doing there anyway. So I guess in all those things in business there’s experts in many fields and getting the right people in for the right job is what’s most important.

And getting it right at the beginning because you can try to belong there and I’ve seen it many times where people try and save lot especially initially when they’re starting out in business and they haven’t set things up right.

They haven’t done things correctly in their 12 months down the track and they go “oh okay we’ll now bring in the specialist and the specialist comes in and says we’ve been doing it wrong for 12 months and we got to spend triple amount of dollars to fix up what you’ve done wrong for the last 12 months.

Matt Jones: Yeah, it’s like trying to unlearn your golf swing.

Bill Petrovski: Yeah, that’s a whole different thing (joking tone).

Matt Jones: Bill, what about things like structuring deals and loans. You know we talk about finances I think it’s all relevant you know how do you you know it’s so important that you’re structuring those kind of things the right way because I mean that could be the difference of hundreds of thousands of dollars depending on what it is you’re talking about.

Commercial properties commercial deals and equipment finance all that kind of stuff. There’s so many options out there when it comes to, I mean I just know I’ve just been through that process myself of you know, buying a new car both with a business and had to figure out what type of finance I wanted to take on or I didn’t want to take finance on.

I figured out I had it because I needed to get finance because of the business and the credit history (laughs) and all this kind of stuff that I had no idea about. What are some of the things that you see commonly occurring or somebody that you see commonly occurring in regard to those things?

Bill Petrovski: Yeah, so it’s some larger purchases for example assets like vehicles equipment or even property; Really structuring really comes to, again just getting the right (inaudible). So talk to your finance broker they know the products that are out there and all the different rights and which banks or which finance he is going to you know have appetite to go and lend you money on a car or you or that equipment.

Versus going to you know walking into your bank to someone who is not your relationship manager who doesn’t really know your business and try and get something that’s going to be suitable for your business. So again, bring in the right person at the right time and really there are times when getting the right advice can be absolutely key because you are embarking on a transaction or a deal that’s going to be a long term impact on your business.

So again whether it’s property asset vehicles etc. those things are important to your business. You got to get it right at that time. You got to make sure you got the right person involved alongside you is on your team who is going to get you the best outcome.

And again, get back to what I was saying earlier you know what you need the information as well as them to say “I think my business and I agree that my business can afford to pay this off over five years or is it three years or I can save up enough money in the next six months to have a deposit for that property” right? And how do we then on a disciplined approach make sure that we do that and get everything ready so that we can structure that debt.

What’s the bank want to see in order to approve us in advance so that we can go in confidently to do that deal.

Matt Jones: It’s interesting isn’t it? I recently have been down this exact path for a while for the vehicle but I was lucky because the gentleman that I was dealing with ‘Sean’ was brilliant. And, we speak about it in one of the other podcast, but just to recap basically he was saying I need a broker and he was saying that the problem is in so many instances when you’re going to get a loan for a car, equipment, a home whatever it might be- If you haven’t got preapproval for that loan, if somebody goes to apply for it you don’t get it, it puts a massive cross on your credit history and if you get a couple of those then you effectively can’t get a loan or something to the effect. I’m paraphrasing, but is that pretty accurate?

Bill Petrovksi: Yeah definitely, definitely. it doesn’t, and especially in today’s lending landscape where banks find any reason why not to lend you money. You know, even having a default for 100 bucks on a phone bill that we’re missing that you know from three years ago; that default is going to impact on what you can borrow

Even though it is such a small amount and then that’s the kind of details that banks are going to these days or any financier saying well what happened with that 100 bucks. Why didn’t you pay it? Is there a reason why it went to legal and you got a default.

Well you know your excuse “I moved address and I wasn’t there when the bill went there” is not good enough. They’re just gonna look at that and go “well okay your systems not right. Why don’t you notify all your suppliers or your banks and all that that you moved the address or tell them your new P.O box.

So these are all things where again when you specifically guide for significant transactions such as borrowing money for an asset or property you’ve got to do all the due diligence yourself as if you’re a bank and

Matt Jones: Yeah.

Bill Petrovski: You don’t know all the steps they go through but obviously you broke it up so they can pre-print with you saying well these are all things they’re going to ask. Let’s make sure we take all those boxes such that when we go into the bank whoever that might be we know that we’ve got all the information there it’s there it’s accurate it’s readily available.

Now you look like a person or a business that the bank wants to lend money to because you pre-prepared, you’re organized, and you’ve got your shit together

Matt Jones: Isn’t it just like ridiculously irresponsible of some of these lenders of finance companies for them not to consider that or just totally disregard it. I mean I I was blown away and yeah admittedly it’s completely ignorant but I’ve never, (lauhgs), I’ve always admitted to be relatively ignorant when it comes to this kind of stuff. So I was just amazed that there was not more legislation or you know there’s no standard to abide by like you can go to someone you can apply for a credit card.

If you get knocked back bang that’s on your credit history. It’s like what can you apply for. Anyone can apply for a credit card you can do it online within three minutes and you know if you get rejected then that marks those on your credit history. How is that fair?.

Bill Petrovski: Yeah, yeah and that’s only going to become harder because all these things are reported by the banks. And I think there’s new legislation coming in from 1 July actually where the banks don’t only report bad credit.

So people with defaults. But they actually also have to restart reporting from 1 July I believe people with good credit. So I guess there is legislation coming in to right some of those wrongs maybe.

Matt Jones: Right.

Bill Petrovski:  But again you know the credit comes in many forms whether it’s whether it’s banktec, credit cards, you know borrowing from a mate. The other thing is I mean when you’re starting out you’re probably putting your own money in..

So you are a lender to the business or you’re providing your own capital or equity to the business so you know, you want your money back out you don’t want that money in there forever. So eventually you got to start saying well how do I draw out.my own money back to?

Because I could do something with it right? There’s an opportunity cost money. What I’ve chosen to do is start my business with it but eventually I want it back because I want to buy a home. I want to go and invest in property I want to buy share whatever it might be. You’ve got to factor your own money your own capital as well as outside debt from a bank

Matt Jones: I can imagine there’d be so many people listening to this right now and they’d be saying ‘Hang on? So I mean the money I put in the business at the beginning I could actually get back?” (laughs).

I mean I’m sure people would just be thinking surely it’s the same shit it’s my business is my money, good, off we go. But this is something that I had no idea about until I learned about things like director loans and all this kind of stuff like I’d never heard of it. But I mean people don’t get taught this stuff, well you do (laughing tone).

Bill Petrovski:  That’s why get it right at the beginning. At the beginning instead of 12 months down the track as you know by double and triple to get it fixed up and then the same thing goes for I guess a lot of our businesses out there.

You know someone is trying to do that dig themselves or someone is try to paint that house themselves. It looks shit

Matt Jones: Yeah

Bill Petrovski: And you can tell it’s been that yourself and it’s going to double to get it fixed up later on.

Matt Jones: Yeah

Bill Petrovski: So you know I guess again it just speaks to get the right person at the right time when you need that advice and structure your finances in the right way knowing what you’re trying to achieve in the future in the future months and years.

Split_Bill Petrovski – Tax part 2 2018-06-12 at 16.08 (Track 1).mp3: [00:15:45] So fundamentally Bill and we’re talking about structuring our finances and let’s talk about say a relatively new company just getting up and running and they have no idea really what they should be tracking or what they should be monitoring what they should be structuring planning. What are some of the fundamental things even at a base level that all businesses should really be considering. from the get go?.

Bill Petrovski:  I get so really knowing what your costs are on a week to week basis from the get go. You want to know. I don’t have a dollar of revenue yet but I want to know what I’m spending between now. Next week the week after and generally I like to call it 90 day cash flow.

So really knowing what does that look like in the next 90 days. So when they’re almost newbies business starting out on established business you should always know what money I have in reserve and if I didn’t receive a single dollar for the next 90 days, how long can I last that 90 days without getting another dollar in the door.

Matt Jones:  And so would you be considering in that regard everything. I mean I was taught earlier in the piece by air by a colleague of mine which was great you know had a how to really get a good overview as to what your expenses this is.

Back when I was plumbing run you get a good idea as to what your expenses are so that you can ascertain your hourly rate and really use all of those expenses phone bill or electricity vehicle petrol tools equipment all that kind of stuff like that. All will add to your hourly rate of what it should. I should clarify to you.

Two hour delay and it’s amazing when you actually do that exercise and you go ‘holy shit I’m on a 250 bucks an hour and that’s just to cover my car it’s to cover my wage and you know and like it’s crazy people think you hear all this crap in the media about oh this plumber is all laid off because he charge 100 bucks an hour and 500 bucks an hour but you freaking kidding me. You’re hungry right now you’re dead in two years.

Bill Petrovski: Losing money.

Matt Jones:  They’re completely.

Bill Petrovski: So, so, that’s I guess then you come down when you start to drilling down to the detail as you’ve said there you got your direct costs. So the direct costs of doing that particular job or that particular contract and they’re pretty pretty easy because you generally costs them out when you’re quoting. Then there’s your overhead so your overhead is the jobs sorry the costs that you have regardless of whether you’ve got a job working or not and you know you’ve got to pay my staff or pay my rent.

Got to pay the leases or the vehicles or whatever the case may be and the one that commonly gets forgotten is exactly as you said it is your time your time is an overhead here so if you’re not compensating yourself for your time and you look back at the end of the day at the end of the year and say well okay 12 months is gone and I’ve made 80 Rand. That’s great.

Actually, I could have made 80 grand working for someone who had no stress. None of these concerns I’d agree is not enough. It’s got to be that well that’s got to be triple that to make being in business worthwhile because unless I’m making double the amount of that or triple that amount I might as well just go get a job and work for someone.

So as a business I know you’re always going to think about what it costs what are those overheads you’ve got to cover that are fixed and either pay for them anyway and I think you have to earn money not only as a salary for your time but also profit and having all that information again upfront difficult when you’re starting out and it’s going to be a lot more to consider when you’re starting out with start up costs etc.

But for established businesses that’s something you should be looking at all the time. And like I said I was right about 90 that cash flow and do I have enough in the bank today to cover me for the next 90 days. If I don’t I’ve got an issue I’ve got a guy chaser there I’ve got to go win a new job. I’ve got to cut some costs out of my business or if I’ve got more than 90 days with the cash in my account, well that means I’ve got some money to spend and invest in my business.

So whether that’s a new asset and whether I get debt for that and pay it off over a year three or five years whether that’s new staff member whether that’s some advertising and marketing some online tools or some other tools I’ve got to make my business more efficient you know what you can spend and how you structure that finance.

Matt Jones:  Okay. Brilliant. All right I think that pretty much wraps episode up unless there’s anything else you wanted to add.

Bill Petrovski:  That’s basically it. I think that covers a fair bit.

Matt Jones: Love it. So we’re going to come back with a third and final episode listeners. We’re going be talking about being financially prepared where we’re going to talk a bit about compliance and things like that and then we’ll close it off.

So Bill thanks again for your time and for the listeners stay tuned for the following episode.

Bill Petrovski: Thanks, Matt. Thank you everyone