Latest / Contributing to Your Life / The Numbers Aren’t Telling You Everything | Ep. 10

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The Numbers Aren’t Telling You Everything | Ep. 10 · Contributing to Your Life

• 0:00
  SPEAKER_01: I'm the person who is receiving all the data.
• 0:03
  SPEAKER_01: I take a bit of pride to be able to tell you where your numbers are.
• 0:07
  SPEAKER_01: The client says, Well, yes, that's your day-to-day task.
• 0:09
  SPEAKER_01: That's what you have done.
• 0:10
  SPEAKER_01: But as a business owner, I need to know what has happened.
• 0:14
  SPEAKER_02: A business owner looks at his profit and loss, sees the best numbers he's ever had, and decides to reinvest, hire more staff, take on debt.
• 0:23
  SPEAKER_03: Six months later, nearly loses the company.
• 0:26
  SPEAKER_03: Not because the business was bad, but because he couldn't see the changes coming.
• 0:30
  SPEAKER_03: That's not a hypothetical.
• 0:31
  SPEAKER_02: That's a real client story from today's guest.
• 0:34
  SPEAKER_01: This is your plan and this is your margin.
• 0:37
  SPEAKER_01: Are you gonna be able to accept that?
• 0:39
  SPEAKER_01: With that numbers in front of people, then they were starting to make real plans because that will change the plan.
• 0:46
  SPEAKER_01: If you're not happy with the planned numbers, then you can take some actions before it happens.
• 0:51
  SPEAKER_03: Today we're sitting down with Gary Yang, internal accounting partner at KHI Partners, to unpack what's actually happening behind the scenes of your books.
• 0:58
  SPEAKER_02: The difference between cash and profit, why garbage in and garbage out applies to your entire business strategy.
• 1:05
  SPEAKER_02: And the exact mistakes that quietly wreck cash flow long before anyone notices.
• 1:11
  SPEAKER_01: I can try very hard to provide the clarity, the reality of the numbers as accurate as possible.
• 1:18
  SPEAKER_01: However, I cannot resolve every single problem.
• 1:20
  SPEAKER_03: If you've ever looked at your bank balance and thought, we're doing great, this episode is a reality check you need before your accountant gives it to you.
• 1:27
  SPEAKER_01: We are here to guide through, understand, and provide the service with the clarity.
• 1:32
  SPEAKER_01: We'll be there to support them in every shape or form, and uh that's the role.
• 1:37
  SPEAKER_00: Before we get into the episode, please be aware that the discussions in this podcast are for informational purposes only and should not be considered financial or legal advice.
• 1:46
  SPEAKER_00: It does not take into consideration your personal circumstances.
• 1:49
  SPEAKER_00: Consult a qualified professional first before making any investment decisions.
• 1:53
  SPEAKER_03: All right, welcome everyone to Contributing to Your Life.
• 1:56
  SPEAKER_03: Today we're joined by our internal accounting partner, Gary Yang.
• 1:59
  SPEAKER_03: Welcome to the show, Gary.
• 2:00
  SPEAKER_03: Thank you.
• 2:02
  SPEAKER_03: All right, so look, we uh we brought Gary in today because uh he works in the world of internal accounting, but um, I think people are more familiar with the term bookkeeping.
• 2:12
  SPEAKER_03: But that is uh, I think an industry um that is evolving very, very quickly uh with all the technology and everything these days.
• 2:20
  SPEAKER_03: Gary, so in your own words, can you tell us or explain to us what does an internal accountant do?
• 2:25
  SPEAKER_01: Yes, of course.
• 2:26
  SPEAKER_01: Thank you.
• 2:26
  SPEAKER_01: Um thank you for the opportunity, guys.
• 2:28
  SPEAKER_01: Um internal accounting uh is a uh term uh generated by uh I suppose KHI partners team in a way.
• 2:37
  SPEAKER_01: And internal accounting is exactly as it says, it's doing the accounting within the business, internal means within the business, um internal accounting means what is day-to-day, what is management accounting.
• 2:52
  SPEAKER_01: And um day-to-day management accounting, you are having so many accounting functions, accounting roles within the business.
• 3:00
  SPEAKER_01: Um it's it's everything virtually, uh, all the way up to the uh external compliance.
• 3:07
  SPEAKER_01: And of course, you do need to know all the rules around it as well.
• 3:11
  SPEAKER_01: And um so the better the prepared internal accounts, the better the information gonna be accurate, and the better the external accountants are able to prepare their uh financial set of accounts for the clients.
• 3:27
  SPEAKER_02: And so you work very closely with uh accountants, obviously.
• 3:31
  SPEAKER_02: How important is your role uh with you know helping businesses in terms of what they do day to day?
• 3:38
  SPEAKER_01: Yes, so the role uh with the internal accounting is helping the clients with their um if they do have accounts receivable, which means the invoicing part.
• 3:48
  SPEAKER_01: So a lot of uh clients focus on that part quite heavily because every business needs the money and cash flow and uh invoice uh to be sent out to the client in the right way and so they can get paid.
• 4:01
  SPEAKER_01: So that's a very uh basic but significant function.
• 4:05
  SPEAKER_01: At the same time, uh we a lot of businesses have payroll.
• 4:09
  SPEAKER_01: So uh the payroll would be if you have a team as a business and then you need them to be paid uh correctly, you need them to be paid uh at the right time each uh routinely.
• 4:20
  SPEAKER_01: So that's um the actual uh function we do uh uh significantly and uh and uh help the clients with.
• 4:29
  SPEAKER_01: Um the next one would be the accounts payable function, right?
• 4:32
  SPEAKER_01: So the accounts payable means what bill you have received, and what bill you have paid, what bill you have not paid.
• 4:40
  SPEAKER_01: So that's that's the function we also uh provide service with where uh people need the tracking, need the cash flow planning a little bit, need uh to understand when and how to pay those bills as well.
• 4:53
  SPEAKER_01: Yeah, so uh that's that's majority, majority of the work.
• 4:56
  SPEAKER_01: And then uh the day-to-day reconciliation, the fixed assets accounts, uh looking after the whole trial balance is also what do we do?
• 5:04
  SPEAKER_01: Yes.
• 5:05
  SPEAKER_02: And in your view, you know, people might say because it's a day-to-day thing, because there's so many transactions depending on the business size of you know what's happening in a business, although it is simple in a sense that you know transactions go in, transactions go out.
• 5:21
  SPEAKER_02: But in your view, you've probably seen these simple things go wrong when perhaps maybe the business owner hasn't allocated a certain you know payment to go in a certain category, although simple, can be very effective or ineffective for the business.
• 5:37
  SPEAKER_02: So, what have you seen with your clients in terms of that simple task done wrong and maybe some examples of where you've seen that go wrong uh and how you've helped them?
• 5:46
  SPEAKER_01: Absolutely.
• 5:46
  SPEAKER_01: Thank you.
• 5:47
  SPEAKER_01: Thank you for that question, right?
• 5:48
  SPEAKER_01: So um with the the actual word of AI these days, and then a lot of banks I have saw they advertising AI bookkeeping, and uh in addition to all the software you have out there, they're always saying, look, it's um a very simple, very straightforward, very automated.
• 6:09
  SPEAKER_01: Well, the reality is, right, bookkeeping it can be very straightforward, but it's often where the difficult transactions you do have within the bank accounts, within the system, where within the transactions people have made, those are the difficult points that need to be got right uh for the set of accounts to be correct.
• 6:27
  SPEAKER_01: Uh a few examples, yeah?
• 6:28
  SPEAKER_01: A few examples.
• 6:29
  SPEAKER_01: Like one example I will just dulk around a little bit or say, look, um there is one payment from one client, and uh it's one transaction in the bank account, and the transaction represents eight uh emails of remittance devices and represent two other phone calls information included to match the invoices within the system.
• 6:55
  SPEAKER_01: So you if you ask any AI, um, I don't know with the current word how AI can resolve that one transaction.
• 7:03
  SPEAKER_01: Right?
• 7:03
  SPEAKER_01: So you do have information complexity, you do have uh those transactions, number one, to deal with, which requires a lot of care, uh requires a lot of understanding how to allocate them.
• 7:15
  SPEAKER_01: Well, there is another way.
• 7:16
  SPEAKER_01: The client may find, oh, that's come from this client.
• 7:19
  SPEAKER_01: They just enter the transaction as they receive money.
• 7:23
  SPEAKER_01: Again, whether that's a term which we're not familiar with, uh uh if we're not using accounting software, that's just simply means if you do invoicing as well as receive money, you are simply duplicating the transactions, which means wrong financial accounts.
• 7:38
  SPEAKER_01: Yeah.
• 7:39
  SPEAKER_01: If we do have the time, uh the next transaction uh I would recommend is uh uh suggest is a uh transaction with uh some sort of uh investment.
• 7:49
  SPEAKER_01: Yeah, so some sort of investment, some sort of uh fixed asset, or uh overseas purchase.
• 7:56
  SPEAKER_01: So often uh at the node we may purchase something from overseas.
• 8:01
  SPEAKER_01: Uh it can be a cost of goods sold, it can be uh you just used directly for the business or job, or it can be a piece of fixed asset, for example.
• 8:13
  SPEAKER_01: If that allocation is not done carefully correctly, uh the impact will be you will have a very, very profitable PNL uh if it is uh a fixed asset, uh not considering depreciation, or you can have um if if a fixed asset and you put it into the cost of goods sold, then you will say your actual cost of your PL uh is not reflecting the profit margin you have.
• 8:41
  SPEAKER_02: Gary, are you able to somehow draw that out?
• 8:45
  SPEAKER_02: What you just said there, as simple as you can.
• 8:47
  SPEAKER_02: Yeah.
• 8:47
  SPEAKER_02: Because I think some people might listen, but what you said there I think is really key in terms of the allocation and how it can change the numbers.
• 9:00
  SPEAKER_02: And if you could just tell us what you're doing there, so in terms of the clients know.
• 9:04
  SPEAKER_02: So can you just break that down for us?
• 9:06
  SPEAKER_01: So COGS is the PL, which means it's in the uh PL, uh profit and loss, and it means that will reduce your profit, that will reduce uh uh the income tax as such, yeah.
• 9:21
  SPEAKER_01: However, whether it's right or wrong, it's not depending on the bookkeeper or the client.
• 9:26
  SPEAKER_01: It's depending on exactly what the client is purchasing for the business.
• 9:30
  SPEAKER_01: Fixed asset, but I'm just saying because sometimes when it's a large amount, when it's because a supplier company uh with a name search, they could be selling something will last long term, and they'll be uh selling something which is also uh gonna be just for a job.
• 9:48
  SPEAKER_01: Well, for a job, it could be a very large equipment of uh a large piece of equipment which is also for a job.
• 9:55
  SPEAKER_01: So even though it can be a fixed asset in nature, um but it's also a cost of goods old.
• 10:03
  SPEAKER_01: So the question really comes down to how was this uh uh spending uh happened and how was this spending uh is actually uh in the reality utilized.
• 10:14
  SPEAKER_01: So so it's not that clear a lot of the times where uh with this kind of spending expenditure uh and then the allocation.
• 10:22
  SPEAKER_01: So if the allocation is done incorrectly, you have very because the amount itself is actually significant.
• 10:29
  SPEAKER_01: And one of the very early examples uh client uh uh uh did happen.
• 10:34
  SPEAKER_01: I mean, someone will say, oh, that's a simple, silly one, rather.
• 10:38
  SPEAKER_01: Well, in reality, it did happen.
• 10:40
  SPEAKER_01: In reality, the client was almost lost uh uh because of the wrong allocation, because everything was put into fixed asset where it was actually all for the jobs.
• 10:51
  SPEAKER_01: What that simply means is the client has a very, very profitable uh PL because it all ended up in the balance sheet, it's all hidden.
• 10:59
  SPEAKER_01: People or suppose business owners definitely focus on the profit and loss a lot more than the balance sheet.
• 11:06
  SPEAKER_01: And um that's where um the inform they they they read that they read the report, they believe it, right?
• 11:12
  SPEAKER_01: So especially in the beginning and uh in the early days of the business, they say, wow, I have such a good profit.
• 11:19
  SPEAKER_01: That's amazing.
• 11:20
  SPEAKER_01: Well, unfortunately, in that case, uh it was the allocation uh in the wrong account resulted in the misleading information, rather.
• 11:30
  SPEAKER_03: All right, Gary, what I want to ask you about is I think a lot of businesses when they start out, they probably do a lot of their own bookkeeping, right?
• 11:36
  SPEAKER_03: And then at such time when they become really, really busy, things are getting more complex, they they probably engage a bookkeeper or internal accountant.
• 11:43
  SPEAKER_01: Yeah.
• 11:43
  SPEAKER_03: Um, and they probably don't want to know about any of this.
• 11:46
  SPEAKER_03: But why is it important to get it right?
• 11:48
  SPEAKER_01: 100%.
• 11:49
  SPEAKER_01: Um, so the reality is, right?
• 11:52
  SPEAKER_01: Um, the very, very the business owners are the best accounts person for the business.
• 12:00
  SPEAKER_01: Even though a lot of them will say very qu often, I'm not an accountant.
• 12:05
  SPEAKER_01: You know, so they will say that they will know that uh they will need guidance or discussion.
• 12:11
  SPEAKER_01: And so we are there to translate the actual accounting terms into the day-to-day language for them to uh follow, understand.
• 12:20
  SPEAKER_01: That's one piece of skill I realized is very significant.
• 12:24
  SPEAKER_01: Otherwise, they wouldn't even understand you.
• 12:26
  SPEAKER_01: Like the terms I was just using is becoming a little bit technical.
• 12:31
  SPEAKER_01: But when I'm sitting down with the client, I probably use a little bit different language altogether as well to suit their uh understanding as well.
• 12:40
  SPEAKER_01: So um very, very significant to have informed decision uh to uh inform information accuracy to make the business decisions uh for the clients.
• 12:51
  SPEAKER_03: I guess um a lot of business owners as well, they also think, oh, look, I've got a lot of money in the bank, I must be going well, right?
• 12:58
  SPEAKER_03: Um so they they may not know where things are due uh to pay.
• 13:02
  SPEAKER_03: Um, so things to the ATO.
• 13:04
  SPEAKER_03: Uh so do you actually get involved with that in helping the client plan their cash flow?
• 13:08
  SPEAKER_01: Yes, um, that's one of the um significant um understanding of a lot of clients and frustration for a lot of clients as well, where they do look at the day-to-day operations, they're solving a lot of problems, they're solving a lot of operational issues, um, but they do not know or do not have the uh financial uh day-to-day understanding when they're collecting the money uh from the clients, there is a portion of that called GST.
• 13:40
  SPEAKER_01: And they do not know when they pay the employees, there is a portion of the money has been deducted and withhold, it's called PYG withholding.
• 13:48
  SPEAKER_01: And they also do not know there is the income tax portion they need to allow for in the cash flow to pay to the ATO authority as well.
• 13:58
  SPEAKER_01: So those things, as we discussed, you got a GST, you got a PYG withholding, you got a POYG income tax instalment.
• 14:05
  SPEAKER_01: Those things are balance sheet items, guys.
• 14:08
  SPEAKER_01: So they do not know, they they some experienced clients.
• 14:14
  SPEAKER_01: What do they say?
• 14:14
  SPEAKER_01: Uh I just had a chat with another client yesterday.
• 14:17
  SPEAKER_01: It's a very uh uh successful client.
• 14:20
  SPEAKER_01: They receive their money from their clients like two months, very normal.
• 14:27
  SPEAKER_01: They issue the invoice, they wait for 30 days, they go 30 days on top of that.
• 14:32
  SPEAKER_01: So the cash flow is not that easy.
• 14:34
  SPEAKER_01: They are waiting a long term for their money to come in.
• 14:37
  SPEAKER_01: So it's finally when they have some uh money in the bank account and the phone call words about their best, which is still 25th of August.
• 14:45
  SPEAKER_01: Which means they say, Look, I'm just seeing some money, you're just calling me and just give me a big slam with my cat bank account.
• 14:54
  SPEAKER_01: Well, let's let's understand that that is a quarterly thing by now.
• 14:59
  SPEAKER_03: Yeah, and I think j particularly um you kind of talk about planning there.
• 15:03
  SPEAKER_03: I think July this year was talking quite a bit of planning, right, with payday super coming in.
• 15:08
  SPEAKER_03: So did you have to help a lot of clients plan for that or manage that?
• 15:11
  SPEAKER_01: 100%.
• 15:11
  SPEAKER_01: Yeah.
• 15:11
  SPEAKER_01: So the payday super is uh one of the latest changes within the payroll system, and uh some uh uh advisors definitely argue it's one of the most significant uh changes within the super rules because it it it has been in the news, it has been in the professional uh discussions, and then the reality is um if you were paying the super um uh within the actual uh three months quarterly, which is the uh minimum requirement prior, you will end up paying um four months super within the month of July.
• 15:49
  SPEAKER_01: So that's very significant hurt with the cash flow uh if we uh haven't been careful.
• 15:55
  SPEAKER_01: The interesting part of that, in addition to the payday super timing, yeah, there is also another significant piece which is called uh the government introduced a term called the the new term is bigger than ordinary time earnings.
• 16:10
  SPEAKER_01: Normally we would pay uh the supernation with ordinary time earnings OTE.
• 16:17
  SPEAKER_01: The new term they have introduced is called uh uh qualifying earnings.
• 16:23
  SPEAKER_01: It is actually another term introduced, another term is bigger than the ordinary time earnings.
• 16:30
  SPEAKER_01: For example, one of the significant changes, if people were getting overtime commission, because a lot of the times, sometimes commission can be earned through overtime.
• 16:41
  SPEAKER_01: If it's overtime commission, it doesn't need to be paying any super prior.
• 16:48
  SPEAKER_01: First of July, doesn't matter what it is, whether overtime or not, if you have a commission, if you have a bonus, there's super required on top of it.
• 16:58
  SPEAKER_03: Yeah, so they've expanded it to all what's perceived as regular income, right?
• 17:02
  SPEAKER_01: Correct.
• 17:03
  SPEAKER_03: Yeah, so is there anything excluded out of that?
• 17:05
  SPEAKER_03: Like what about annual bonuses and um things like that?
• 17:07
  SPEAKER_01: Oh, annual bonus already been part of the supernation provision.
• 17:10
  SPEAKER_01: Okay.
• 17:11
  SPEAKER_02: So I think what you said there is quite key is firstly the allocation of the transactions that are going through can have a significant impact.
• 17:20
  SPEAKER_02: For example, you noted their fixed asset or the cost of goods sold, one's a profit and loss, one's a balance sheet item.
• 17:27
  SPEAKER_02: Because the owner might come into their zero and see their profit and loss and go, wow, I'm so profitable, and then make decisions off that.
• 17:33
  SPEAKER_02: They go, okay, I'm gonna know I can now reinvest into my business or I can you know hire staff, but they're doing that based off the wrong information.
• 17:41
  SPEAKER_02: So I think your role is really key in the sense that it helps with the day-to-day management, but the the cash flow, which is sounds like to be the key thing.
• 17:50
  SPEAKER_02: So you've seen many businesses, Gary, in your time.
• 17:53
  SPEAKER_02: What are the common problems or challenges or mistakes that you see perhaps that business owners are making?
• 18:00
  SPEAKER_02: Because you would see it day to day.
• 18:02
  SPEAKER_02: Uh, and maybe you've seen some stories where it hasn't ended up well, and maybe some stories where you know they were heading down the wrong path and you assisted to help them get back on track.
• 18:11
  SPEAKER_01: Thank you.
• 18:11
  SPEAKER_01: Thank you for that.
• 18:12
  SPEAKER_01: Uh absolutely.
• 18:13
  SPEAKER_01: The cash flow is one of the major, major focus um uh with all businesses in a way, right?
• 18:21
  SPEAKER_01: So uh as I was discussing just now, there are a lot of balance sheet items which you can call that liabilities, is hidden in the balance sheet.
• 18:30
  SPEAKER_01: And when and how they fold you, um the business owners really need to train themselves or have someone uh constantly beside them to be letting them know, to be reminding them about the due dates, the actual uh requirement of the cash flow.
• 18:46
  SPEAKER_01: So they are on top of those.
• 18:47
  SPEAKER_01: Yeah.
• 18:48
  SPEAKER_01: So um that's one of the education everyone needs to potentially go through to understand.
• 18:53
  SPEAKER_01: Uh, just to focus on this bank balance in the bank account uh at times becomes not enough.
• 18:59
  SPEAKER_01: The um examples with the clients.
• 19:01
  SPEAKER_01: Uh, I do have a couple of situations where I do know uh one client who has a massive operation, say in the COVID days, and then they had um significant team uh brought in, and they keep on cruising and running, and then they uh did uh end up with not as good income uh after COVID.
• 19:22
  SPEAKER_01: So it's one of those uh um uh uh shops where uh it's online uh and uh people uh potentially had more available this uh cash uh during COVID and after COVID it had changed the situation with the interest rates and all of that.
• 19:37
  SPEAKER_01: And then what happened is the client actually, I suppose at the time it's actually not one-of-ware clients just yet, uh day to day, but uh what happened is they uh kept all the uh cost for the higher turnover, which means, and then they what they did, they actually even went out and borrowed money to keep the operations, thinking they need the team, thinking they need the higher turnover.
• 20:03
  SPEAKER_01: Where at times um it's actually very significantly required for the owner to understand it's the market change.
• 20:12
  SPEAKER_01: And then you have, as a business, you need to adapt and adjust your actual business workforce.
• 20:18
  SPEAKER_01: It's not uh, of course, a lot of people um may disagree with that potentially, but however, that's a very uh actual example we saw.
• 20:27
  SPEAKER_01: They ended up uh um having uh not able to afford that workforce, and then the whole workforce actually got uh uh rotated uh with a lot smaller team.
• 20:40
  SPEAKER_01: So that's one of the situations.
• 20:41
  SPEAKER_01: Again, what's the learning from that?
• 20:43
  SPEAKER_01: Well, if you had another advisor, if you had a more up-to-date PL, because this business had a very good turnover, you're talking about four, five, six million, and then they had the team, then they had uh the change, and then they had a stock situation as well.
• 20:59
  SPEAKER_01: So when you have a business with stock, when the stock is between one to two million, then the numbers is potentially sometimes in the air.
• 21:07
  SPEAKER_01: Because if you don't have a stock uh uh balance correct, if you do not have the actual month-on-month PL, if you have the purchases significantly uh jumping up and down as well, then the PL itself becomes potentially difficult to run uh to read and uh get accurate.
• 21:26
  SPEAKER_01: If he had an accurate PL along the way, he may realize that situation a little bit early on, potentially make some of these harsh decisions early on to save the business hundreds of thousands of dollars.
• 21:40
  SPEAKER_03: So and do you think a big part of that was also just misreading the market?
• 21:44
  SPEAKER_03: Because I imagine you mentioned that you went to borrow money.
• 21:46
  SPEAKER_03: Um, so was there forecasts completely out?
• 21:49
  SPEAKER_01: Absolutely, yes.
• 21:50
  SPEAKER_01: That's another uh uh understanding.
• 21:52
  SPEAKER_01: See, that's where the gets the real details of the uh the business, right?
• 21:57
  SPEAKER_01: So so and with the bit of planning, with Bit of uh uh budgeting as well, that is, um, and uh and not pin penciling down what it's gonna look like in the next a few years or next one or two years, even, right?
• 22:13
  SPEAKER_01: So again, um you know another interesting note together with the KHI partners, what I might add, what do we do?
• 22:21
  SPEAKER_01: We help the clients uh with the mentality of how do we actually constantly service the client more than 30 years.
• 22:28
  SPEAKER_01: Every single client we sit down, we uh uh highlight the integrity, we highlight the uh understanding long-term uh uh business and growth and planning.
• 22:39
  SPEAKER_01: Yeah.
• 22:40
  SPEAKER_01: That's another big parcel what we try to help with clients with.
• 22:44
  SPEAKER_01: And by just asking that question, what is your vision and how do you want your business to be within five years or within 10 years?
• 22:54
  SPEAKER_01: That simple question prompts a lot of ambitious clients to start really thinking the future, to start really thinking how they can get there.
• 23:03
  SPEAKER_01: And uh with those bigger pictures sorted out in everyone's mind within every finance team's uh uh uh uh understanding, then you can pencil down a bit more details as well.
• 23:15
  SPEAKER_01: So I suppose that's another note where the client who suffered a bit of significant reduction with the CIOs did not have that uh long-term planning in place either.
• 23:27
  SPEAKER_01: And that's uh uh the direction, that's where the actual um uh detailed of understanding how the business is running, where the business is going is not that clear.
• 23:38
  SPEAKER_01: So we we need that because business is a long-term uh um uh like uh investment and and uh perpetual uh actual entity in a way.
• 23:50
  SPEAKER_02: Yeah, I think you see some niche industries.
• 23:54
  SPEAKER_02: So, for example, you mentioned it before about invoicing.
• 23:57
  SPEAKER_02: So we've got say the construction, you know, businesses or you know, manufacturing things like that, where the invoices are 30, 60, 90 days, 120.
• 24:07
  SPEAKER_02: And so they might get their you know financials from their accountant at the end of the year, and it says, you know, they're really profitable.
• 24:14
  SPEAKER_02: What they don't see behind that is the cash flow, right?
• 24:16
  SPEAKER_02: And the cash flow between how to manage that because 30 days, 60 days, 90 days, you know, and the difference between cash and accrual.
• 24:24
  SPEAKER_02: Can you kind of identify and see what you've seen with industries like that and what they need to be aware of?
• 24:29
  SPEAKER_01: The uh cash flow for which industry that was?
• 24:32
  SPEAKER_02: Yeah, say construction or people that rely heavily on invoices compared to getting funds straight away.
• 24:39
  SPEAKER_01: The look, we do have quite a few clients within the construction industry, and um the construction industry could be doing a bit of smaller jobs, could be doing a large uh project, right?
• 24:52
  SPEAKER_01: So, what are you discussing there is something called uh the projects, yeah.
• 24:56
  SPEAKER_01: So the project can be say a million, two million, three million.
• 25:01
  SPEAKER_01: Uh it takes a bit of time uh to complete.
• 25:04
  SPEAKER_01: Uh and uh the invoicing is a very small part of it.
• 25:09
  SPEAKER_01: It's really the understanding of taking on their job.
• 25:13
  SPEAKER_01: Uh, we had many, many uh situations.
• 25:15
  SPEAKER_01: Uh I will use examples where uh a bit of learning, a bit of understanding, a bit of involvement with the client where how our role is more than just the bookkeeping uh all together.
• 25:28
  SPEAKER_01: One of the clients who had a very large job, say you're talking about uh 1.2 million and they need the material somewhere close to uh three, four hundred thousand.
• 25:38
  SPEAKER_01: They had one supplier.
• 25:41
  SPEAKER_01: I mean, within that uh uh job itself, if you have that significant amount of material you need, and you need to order the materials up front, right?
• 25:50
  SPEAKER_01: So that's often the scenario.
• 25:52
  SPEAKER_01: So the key note here is number one, the business owner needs to have that in writing with the uh one door, saying, look, guys, we need this material.
• 26:02
  SPEAKER_01: Uh we need to agree with the payment for the material, it needs to be prepaid, because otherwise uh the business will be utilizing their own uh cash uh to fund that.
• 26:13
  SPEAKER_01: So not only the wages, not only the subcontractors, not only the operating cost you have to cover, you also have to cover very significant large amount of material for that specific job.
• 26:25
  SPEAKER_01: So that's one very interesting uh note, potential clause and contract need to be in place uh as agreed.
• 26:32
  SPEAKER_01: Uh either it's a proper formal contracts or is there a proper discussion and eaten written agreement in place.
• 26:39
  SPEAKER_01: Another one is um it you often have the uh the actual uh timing for the invoice is uh the so-called uh progress claims.
• 26:48
  SPEAKER_01: Yeah, so um it's very important um when the client is taking on a project.
• 26:55
  SPEAKER_01: Again, simple conversation, simple questions.
• 26:58
  SPEAKER_01: Hey, thank you for sharing that uh uh significant large job.
• 27:02
  SPEAKER_01: Congratulations.
• 27:03
  SPEAKER_01: Um how the uh how did we uh plan for the invoicing?
• 27:07
  SPEAKER_01: Is that agreed at all uh in any way, shape, or form?
• 27:10
  SPEAKER_01: And what are the progress claims we uh we're talking about?
• 27:13
  SPEAKER_01: What are the timing we're talking about?
• 27:15
  SPEAKER_01: So, with that simple conversation, if it's a bit of earlier-ish kind of client at the end in the early days of their business operations, they may not be aware of that potential risk, right?
• 27:27
  SPEAKER_01: Again, for a lot of mature businesses, we do know they understand all of that.
• 27:32
  SPEAKER_01: We just had a very simple confirmation with that conversation.
• 27:35
  SPEAKER_01: Yeah.
• 27:36
  SPEAKER_02: I think that's key what you said there, Gary, that example.
• 27:38
  SPEAKER_02: You got 1.2 as a project, but upfront there's a 300 grand materials they need to pay.
• 27:45
  SPEAKER_02: So a client or a business owner doesn't understand, all they see is the 1.2 million, and they go, Well, you know, that's very exciting.
• 27:52
  SPEAKER_02: I'm gonna start to hire, but there's some serious upfront costs that they need to be aware of.
• 27:57
  SPEAKER_02: And I think that key question that you just asked, well, how are we planning for this?
• 28:01
  SPEAKER_02: Okay, can they pre-pay a little bit before uh we go into that project so they can help from the cash flow perspective?
• 28:07
  SPEAKER_02: So you do uh internal accounting, but uh, we also know you do kind of the internal CFO roles as well.
• 28:14
  SPEAKER_02: So, how does that differ uh between what you do day to day for your business owners, between that internal CFO role that you also do for many businesses?
• 28:23
  SPEAKER_01: Thank you, thank you.
• 28:24
  SPEAKER_01: Um look, absolutely, yeah.
• 28:27
  SPEAKER_01: With all the business operations I have been involved in the history of my career, um, the more and more we're starting to see and understand a lot of uh business activities and business decisions, business analysis as well.
• 28:42
  SPEAKER_01: In the sense, what are we talking about?
• 28:44
  SPEAKER_01: Look, a typical bookkeeper would be uh getting a bill of insurance, say uh$40,000,$50,000 from a broker, just pay it.
• 28:53
  SPEAKER_01: And then my question to the owner is who has reviewed this bill, uh if I may?
• 28:58
  SPEAKER_01: And uh who knows what insurance are we covering?
• 29:02
  SPEAKER_01: Who knows which car we actually are covering?
• 29:06
  SPEAKER_01: Is that even accurate as a car list?
• 29:09
  SPEAKER_01: So the bookkeeper would not know uh anything in terms of how the bill has been generated, where a um fraction CFO role potentially will be starting to get involved with the business operations, with the business decisions, with the financial planning, with the data understanding, uh especially with finance.
• 29:31
  SPEAKER_01: So that uh review how significant, how insignificant that is, it's still time.
• 29:38
  SPEAKER_01: And if a business is very, very busy planning their tenders and going to travel visiting clients, you know what, they may not have that time, or they need that person to be involved with that level.
• 29:49
  SPEAKER_01: Because in the very beginning, that would be themselves, uh most more often than not.
• 29:53
  SPEAKER_01: Yeah, so so they know what that's what we call with they know what they're spending, how they're spending it, and what decisions they have made with that uh broker in terms of the insurance.
• 30:03
  SPEAKER_01: Another one, the actual planning.
• 30:07
  SPEAKER_01: So we are actually undertaking a um budget uh for a client.
• 30:13
  SPEAKER_01: Yeah, uh, you can call that budget, you can call that planning.
• 30:17
  SPEAKER_01: So we've been doing the uh internal account for that client many years now, and then we often have a question from the client say, hey, thank you for letting me know the profit margin for this client uh actually has dropped.
• 30:32
  SPEAKER_01: Can you tell me why?
• 30:34
  SPEAKER_01: I say, look, I'm the person who is receiving all the data.
• 30:39
  SPEAKER_01: I mean, I take a bit of pride to be able to tell you where your numbers are in terms of we actually break down for each, every single client of the client's client uh the profitability.
• 30:50
  SPEAKER_01: We get the total of the income, we get the total of the cost from the subcontractor and from the uh the team.
• 30:57
  SPEAKER_01: Well, which I completely understand.
• 30:59
  SPEAKER_01: The client says, Well, yes, that's your day-to-day task, that's what you have done.
• 31:03
  SPEAKER_01: But as a business owner, I need to know what has happened, what is why they're dropping.
• 31:09
  SPEAKER_01: I say, look, if you want me to give you that information, that's fine.
• 31:13
  SPEAKER_01: However, I need to be starting to become the person making the numbers, not the one receiving the numbers anymore.
• 31:22
  SPEAKER_01: There is a very significant difference because by the time we got the numbers, every single decision, how much it cost and how much how you want to pay people, is already happened.
• 31:33
  SPEAKER_01: There's no control of that number from me at all.
• 31:37
  SPEAKER_01: If you really want me to know uh to tell you what is the difference between this year and next year and last year, well, yes, there is a way and there is a procedure from the accounting point of view, and there's also a significant actual involvement with how the decisions are made to be engaging the contractors, engaging the team members, engaging the rostering of the timesheet, engaging with the profit margin for the client.
• 32:04
  SPEAKER_01: That's the actual actual service we are uh starting to find more, I suppose, is uh useful for our clients.
• 32:15
  SPEAKER_01: So we are getting into those areas with many of my team members uh who is being, I suppose, working with me and developing that sense of understanding of business.
• 32:25
  SPEAKER_01: And uh we are starting to uh help the clients in that way.
• 32:29
  SPEAKER_01: So the simple help at the moment is look, we got a plan, we got a budget, we've got a detailed budget.
• 32:36
  SPEAKER_01: What's a detailed budget?
• 32:38
  SPEAKER_01: With this one, what do we have?
• 32:39
  SPEAKER_01: We have a client of the client turning over, say, uh uh another uh 900,000 for a year.
• 32:48
  SPEAKER_01: So it's a large client of the client, and they have 20 of those clients per se, and there is a significant cost for that uh 900,000 from the client's point of view.
• 32:57
  SPEAKER_01: So, what we are doing in the process of it right now, we're gonna be providing a very, very detailed budget.
• 33:03
  SPEAKER_01: So that's starting to give some sort of indicative accuracy in the sense: look, you got a$900,000, you're saying the budget, uh, the turnover, the margin dropped after we find out the actual results from one year.
• 33:19
  SPEAKER_01: Well, let's look forward a little bit.
• 33:22
  SPEAKER_01: This is what you have coming in.
• 33:24
  SPEAKER_01: This is what are going to incur from a contractor, and this is how much you're gonna be paying the hours for.
• 33:29
  SPEAKER_01: And in the actual fact, what I'm gonna do, I'm gonna be doing one, two, three, four lines for each, every single subcontractor.
• 33:37
  SPEAKER_01: What are they doing?
• 33:38
  SPEAKER_01: That they're replacing the team member.
• 33:39
  SPEAKER_01: Okay, they're doing uh ad hoc jobs, and uh we're doing periodical work, and then we're doing, and then we for the employees we're gonna be having a bit more details where, hey, uh the details of the employee is being paid ordinary hours, overtime hours, public holiday hours, how and what that job requires on a month-to-month basis.
• 34:02
  SPEAKER_01: So we know when we're planning how the cost is gonna look like, and then we can double check the actual reality, which is what we have the details about, we can very we can check that based on the budget.
• 34:17
  SPEAKER_01: Or interesting point potentially, after we plan that out, just say, as per our understanding, so we look we are looking into the future.
• 34:26
  SPEAKER_01: The key question will come down to this is your plan and this is your margin.
• 34:31
  SPEAKER_01: Are you gonna be able to accept that?
• 34:34
  SPEAKER_01: With that numbers in front of people, then they will start to make real plans because that will change the plan.
• 34:42
  SPEAKER_01: With the planned numbers in front of you, if you're not happy with the planned numbers, then you can take some actions before it happens.
• 34:51
  SPEAKER_01: So that's the value-adding actions we suppose we are starting to see uh necessary with the clients, and we are starting to provide that uh uh clarity for the clients.
• 35:01
  SPEAKER_03: Right.
• 35:01
  SPEAKER_03: So you're saying it's best to get you involved with the decision-making process, not just reporting after the facts, right?
• 35:06
  SPEAKER_03: Yeah, and um just just to touch on an earlier point there, because you mentioned you know invoicing long, long cash cycles where you know invoices are 60, 90, 120 days, very, very common in you know construction-related industries, right?
• 35:20
  SPEAKER_03: Um, so you know, you're helping clients look forward.
• 35:24
  SPEAKER_03: Uh, would part of that actually be helping them plan to take on, say, tenders they want to take on a very, very large tender?
• 35:31
  SPEAKER_03: And to your point, when they've got to carry so many uh costs up front and they don't get paid for three to four months later, um, what do you do when you identify there's gonna be a big cash hole?
• 35:41
  SPEAKER_01: Yes, very good question, right?
• 35:44
  SPEAKER_01: So uh look that's where look, I I really want to be careful with uh my role with the businesses as well.
• 35:52
  SPEAKER_01: Like um, I can try very hard to provide the clarity, the reality of the numbers as accuracy, as accurate as possible.
• 36:02
  SPEAKER_01: However, I cannot resolve every single problem.
• 36:05
  SPEAKER_01: However, when we identify those items, um one, as you mentioned, uh it can be a simple uh capital expenditure, for example, as a plan.
• 36:17
  SPEAKER_01: Yeah.
• 36:18
  SPEAKER_01: So we are here to provide that like trigger to say, look, have you planned this?
• 36:25
  SPEAKER_01: Are you clear enough about the future, about this uh uh business and project and the tendering uh process itself?
• 36:34
  SPEAKER_01: By having those conversations, by having that clearly identified, uh, we actually do have other uh partners with the NKHI partners.
• 36:42
  SPEAKER_01: Uh we have partners who can help with uh uh the uh planning, we can have partners who can uh help with um mortgage broking, for example.
• 36:52
  SPEAKER_01: Look, if they need uh uh finance requirements, you guys are mortgage brokers.
• 36:58
  SPEAKER_01: Uh very, very uh qualified and uh understanding and sophisticated uh um funding requirements uh for businesses.
• 37:07
  SPEAKER_01: If if they are clear with what they're trying to achieve, with a very clear gap identified, you know what?
• 37:13
  SPEAKER_01: That's when they will be calling in all the other partners in the field, in the KHR partners, or sometimes it could be outside of KHI partners to uh engage with the client to have that uh conversation and potentially problem solved.
• 37:29
  SPEAKER_02: And and your fractional CFO role, where do you see that's necessary?
• 37:35
  SPEAKER_02: Is there a certain revenue that you go, yeah, I think this is necessary, or certain activity in your experience, when is that?
• 37:42
  SPEAKER_02: So for people that are business owners that are listening, do they go, well, do I do this at 100,000 revenue or do I do this at when I'm on two million?
• 37:49
  SPEAKER_01: That's a very good question, right?
• 37:51
  SPEAKER_01: So uh I suppose as a business owner, I suppose 10, 15 years plus now as well, um, we do not choose and peak.
• 38:01
  SPEAKER_01: And uh when I say I do not choose and peak, we do have many, many smaller businesses.
• 38:07
  SPEAKER_01: And uh I'm still refer uh receiving referrals uh for say uh from Stephanie very regularly recently.
• 38:14
  SPEAKER_01: She has been passing on uh uh clients of her new engagement to let us look after the bookkeeping.
• 38:21
  SPEAKER_01: So, what that is, well, that's a conversation getting started.
• 38:26
  SPEAKER_01: Uh with the business experience we have, with the business understanding we have, well, the business owners often just need some sort of guidance.
• 38:34
  SPEAKER_01: They have their own resources they can use, they can pull from.
• 38:39
  SPEAKER_01: Like we, as an internal accounting uh partner, we're there to support them.
• 38:45
  SPEAKER_01: Uh, we're there to support all level of clients, uh, just a startup, just uh a purchase of a new franchise.
• 38:53
  SPEAKER_01: Uh however it is, uh we just, as we say, we are here to guide through, understand, and provide the service with clarity.
• 39:01
  SPEAKER_01: And if they are able to uh communicate with us clearly by asking the questions, answering the questions correctly, we'll be there to support them uh in uh every shape or form.
• 39:13
  SPEAKER_01: Uh uh and um that's that's the role uh we intend to play.
• 39:18
  SPEAKER_01: And yet we we're there for a very uh as little as a quarterly bias, we're there as uh sophistic as to be day-to-day uh with all the business operations.
• 39:28
  SPEAKER_03: Right.
• 39:28
  SPEAKER_03: So as a business owner, is it more so the sense where they're starting to get it a little bit too busy to be looking after all these things or starting to have questions that they don't know the answers to, right?
• 39:38
  SPEAKER_03: And they're finally they're spending more and more time away from their actual uh core business uh in things that perhaps they're not actually the best at.
• 39:46
  SPEAKER_01: Very, very good question, Frankie.
• 39:48
  SPEAKER_01: The actual um uh definition uh of understanding the accounts and nocy accounts uh from many, many, many business owners is I do say and agree uh the business owners are the best accounts person because they spend the money, they know how they're spending the money, why they're spending the money, they know exactly how to allocate the money.
• 40:12
  SPEAKER_01: They wouldn't make that mistake of either a cost good sort or balance sheet if they do it themselves.
• 40:17
  SPEAKER_01: However, there is a genuine, genuine understanding of how much time as business goes and grows, especially, um, the business owners could do.
• 40:31
  SPEAKER_01: Uh it's a very difficult thing to let go, just so we know.
• 40:35
  SPEAKER_01: We I do have the experience of one or two or three other clients who, again, did everything.
• 40:42
  SPEAKER_01: They know how to do the payroll, they know how to do the accounts payable, they know how to review the accounts payable, they know how to check their bills.
• 40:48
  SPEAKER_01: Of course they do.
• 40:49
  SPEAKER_01: So they do all of that because they believe they are the best person, which often the time it is the case.
• 40:55
  SPEAKER_01: However, there is a genuine proof uh of that.
• 40:58
  SPEAKER_01: Yes, they are the best person, but they are an entrepreneur.
• 41:02
  SPEAKER_01: They can do a lot of contribution to the business in a much, much better way.
• 41:08
  SPEAKER_01: Bookkeeping, well, again, depending on the early rate uh you're paying, is a very set earlier rate and uh it's a special task, it's a task you can definitely delegate an outsourced with where what I'm talking about, the impact of the business over four, five, six years.
• 41:29
  SPEAKER_01: The client we have, uh they were doing all the bookkeeping.
• 41:33
  SPEAKER_01: They gave it all to us.
• 41:34
  SPEAKER_01: They didn't give everything to me altogether, they gave me the actual um payroll first because payroll can be a bit technical at times and all of that, it's time most time consuming potentially as well.
• 41:46
  SPEAKER_01: But with the right procedure and timesheet system put into place that can be very well managed with a lot of evidence, with a lot of lease dispute as well, when you when you do have a large team.
• 41:59
  SPEAKER_01: Number two, um, they gave me the accounts payable over time as well.
• 42:04
  SPEAKER_01: What has happened with that business?
• 42:05
  SPEAKER_01: Well, that business itself started with a three, four million when we started, and they are doing well over 12 million currently because the owner has been able to focus more on the management, the tendering process, client relationship, and business development.
• 42:23
  SPEAKER_02: When we think about business owners, the biggest issue is that they become the bottleneck, you know, for growing their business.
• 42:29
  SPEAKER_02: So I think passing that financial burden as a sense to an internal accountant or a bookkeeper can really amplify the business.
• 42:38
  SPEAKER_02: Gary, I want to ask a controversial question.
• 42:40
  SPEAKER_02: Absolutely, go for it.
• 42:42
  SPEAKER_02: So AI.
• 42:44
  SPEAKER_02: AI, there's a lot of talk in terms of the bookkeeping, and then that field will be eliminated.
• 42:50
  SPEAKER_02: Now, for example, I put my transactions into Chat GBT and it categorized it in about two minutes.
• 42:56
  SPEAKER_02: So, from your perspective, how is bookkeeping eternal accounting protected from AI wiping out that industry?
• 43:06
  SPEAKER_01: Very, very good question, right?
• 43:07
  SPEAKER_01: Like as we discussed, uh even touched on very early on with the conversation.
• 43:12
  SPEAKER_01: Um, AI is a very, very uh significant tool, uh, and uh it's very, very useful, uh, including to us.
• 43:20
  SPEAKER_01: And uh we are using AI day to day already because we use zero.
• 43:26
  SPEAKER_01: Zero is already brought in a lot of AI uh in terms of uh its own functionality, right?
• 43:32
  SPEAKER_01: So there is something called uh uh just ask zero, there is uh JAX, and there is uh all of those beautiful charts and all of those uh uh information in there.
• 43:42
  SPEAKER_01: There is no doubt AI will do be able to do more as well as time goes on.
• 43:47
  SPEAKER_01: But what we have been doing as a business in a way we are embracing AI.
• 43:52
  SPEAKER_01: Uh, we are studying AI, we are studying how to utilize AI, we also understand um the Actual future of AI.
• 44:02
  SPEAKER_01: So the spreadsheet I was talking about with the budgeting, it's very, very complicated.
• 44:06
  SPEAKER_01: Yeah?
• 44:07
  SPEAKER_01: Because you're talking about each, every single client, you're talking about every single uh detail.
• 44:11
  SPEAKER_01: You know what?
• 44:12
  SPEAKER_01: I'm already thinking, I'm gonna utilize AI to achieve that.
• 44:16
  SPEAKER_01: So by utilizing the AI the right way, we are improving our efficiency.
• 44:22
  SPEAKER_01: The business operation, the business understanding, the actual uh people-to-people conversation is very, very significant still, as far as I understand it.
• 44:32
  SPEAKER_01: Forget about the example I used, like the AI wouldn't be able to resolve that one transaction with uh eight uh email uh uh remittance devices plus two other phone calls to resolve.
• 44:42
  SPEAKER_01: Yeah, so those things you still have a bug.
• 44:45
  SPEAKER_01: So what I'm trying to say is I already know the cache coding function within zero.
• 44:49
  SPEAKER_01: I can code uh uh 3,000 transactions in one go.
• 44:53
  SPEAKER_01: Well, how many people know about that?
• 44:54
  SPEAKER_01: Well, that's a little trick out of Gary's pocket.
• 44:57
  SPEAKER_01: It's cache coding.
• 44:58
  SPEAKER_01: Well, it's the only advisor available function within the zero system.
• 45:03
  SPEAKER_01: Well, at the same time, accuracy.
• 45:06
  SPEAKER_01: If you get the 3,000 transactions done all at once, what if you get them wrong?
• 45:11
  SPEAKER_01: That's true.
• 45:12
  SPEAKER_01: So you need some professionals to achieve those efficiencies.
• 45:16
  SPEAKER_01: Yeah.
• 45:17
  SPEAKER_01: So that's where the reality is.
• 45:18
  SPEAKER_01: Like you can do a lot of things with efficiency, you can embrace AI, and you still need that human touch in a way.
• 45:26
  SPEAKER_01: Like that's how we actually uh uh place our business and how do we support the business.
• 45:32
  SPEAKER_03: I think categorizing just one component, right?
• 45:35
  SPEAKER_03: Because there's also the interpretation and decision making going forward.
• 45:38
  SPEAKER_01: Absolutely.
• 45:39
  SPEAKER_01: And when uh I talk about informed information, I haven't uh touched on the uh chart of accounts, I haven't touched on the actual customization of the uh layouts and uh subcategory and uh and uh actual uh categorization and then subcategories and grouping and and actual uh managing those uh um functions within the system.
• 46:01
  SPEAKER_01: That hasn't been seen just yet, uh, as in AI can just generate it.
• 46:06
  SPEAKER_01: Well, after you generate it, proper potentially AI can follow.
• 46:09
  SPEAKER_01: Yeah?
• 46:10
  SPEAKER_01: That's reality as well.
• 46:12
  SPEAKER_01: But for that to be actually customized in the first place, uh it still needs a bit of professional uh to happen.
• 46:20
  SPEAKER_02: So I guess from my question, what you're saying is Gary will be AI.
• 46:25
  SPEAKER_01: Gary with AI is a plus.
• 46:28
  SPEAKER_01: That's a good answer.
• 46:31
  SPEAKER_02: Beautiful.
• 46:32
  SPEAKER_02: Very good.
• 46:32
  SPEAKER_02: Well, Gary, I think you've broken down what you know bookkeeping is, internal accounting is.
• 46:38
  SPEAKER_02: Uh, we touched obviously a little bit about AI and then how it can potentially help businesses.
• 46:43
  SPEAKER_02: So I think what I interpret from you know everything that you do every single day is data.
• 46:49
  SPEAKER_02: And the data helps us make decisions each day as a business owner.
• 46:54
  SPEAKER_02: Uh, what we like to say is, you know, garbage in, garbage out in terms of data.
• 46:58
  SPEAKER_02: And I think you're that gatekeeper to make sure that data is accurate so that the business owner can then make accurate decisions moving forward, which is key.
• 47:06
  SPEAKER_02: Uh, so we thank you for your day and thank you for all your experience and everything you provided.
• 47:12
  SPEAKER_02: Uh, and yeah, we appreciate all the knowledge that you've uh instilled on us today.
• 47:16
  SPEAKER_02: Thank you, Gary.
• 47:17
  SPEAKER_02: Thank you for that.
• 47:18
  SPEAKER_01: Thank you, thank you, guys, thank you for having me.