Monday, June 19, 2006

Baron Jacob Senior Manager of Ernst & Young

Sales forecasting, financing and controlling costs are critical aspects to making a new business start-up successful, which should be an integral part of business planning.

CPA Senior Manager of Ernst & Young, Baron Jacob, discussed the key elements in using accounting to kick-start a new and growing business in a workshop series hosted by the Cayman Angel Investors Network.

"One challenge facing small businesses is that the operators do not fully grasp how important proper accounting (books and records) is to the success of the business," said Mr Jacob.

"Being religious about keeping adequate accounting records, so that during the business cycle, the owners and stakeholders can figure out where the business is spending their money. Additionally, being successful isn't just about getting money in the door. A

successful business is also careful in keeping costs down and sometimes in a business turnaround situation, cutting non-critical costs.

"How do you identify where to limit unnecessary costs? The answer is different for each business.  For a new business the answer usually starts with 'not paying for something'," he said.

Mr Jacob explained that unless the entrepreneur can immediately determine where the business will benefit from incurring the cost of something avoiding that cash outlay will benefit the business. 

For example, a new ice cream shop in the middle of George Town may find it easy to justify purchasing five extra gallons of vanilla ice-cream on a Friday evening, if they have been asked to cater for a birthday party at 12:00 pm the following Saturday for 200 kids at one of the local schools.

However, a small business is essentially a cost centre at the beginning of its operations because it will invariably have a number of fixed costs during the start-up phase before the business begins to generate sufficient revenues. Examples of these fixed costs will often include rent of space for the business or payments for insurance.

Mr Jacob noted that other necessary costs would include purchase of supplies to ensure the business is able to meet the demands of customers.

"Many small entrepreneurs like other business owners are eager to quickly get the business to a break-even stage," he said.

"Proper accounting systems help entrepreneurs and other business owners identify when the business is at a break-even stage. Accounting can also help the entrepreneurs and stakeholders of a business chart the businesses financial success and help the business owners in rightsizing the business' financial forecasts for future business cycles."

Many software packages can meet most accounting needs of most start-up businesses. Mr Jacob said that Quicken is easy to learn because it is similar to a checkbook.

Programmes such as Peachtree, QuickBooks and Microsoft Business Solutions, can be used by auditors as they show history of the entries created.

Chairman of the Investment Bureau, William Peguero, stated he was very pleased with the positive response to the workshops.

"Having a full house for both sessions was a great way to start," said Mr Peguero.

"We will address all the questions that were presented to us by the participants, as this is the way to help the entrepreneurs of Cayman - guided by the needs of the people."

shurna@caymannetnews.com

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