EP06 - Natalie McDermott - FINAL
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Natalie McDermott: [00:00:00] So obviously there's a lot of focus around revenue, which revenue is obviously important, and we should always go into business trying to make sales 'cause otherwise we don't really have a business. But it's not the be all and end all. You could be making millions and millions and millions of dollars of revenue and it not be profitable.
So I actually think that the, you know, the number one metric that we should be tracking is profitability. But outside of profitability, we should also be understanding, like, how much am I spending on staffing? Like, what percentage of sales am I spending on sa- staffing? What percentage of my sales am I spending on marketing?
What's my actual gross profit margin?
Liz Nable: Welcome to a special six-part miniseries, What I Wish I Knew About Small Business Before I Started. This special six-part series inside Media Magnet is brought to you by AMP Bank Go, and I'm your host, Liz Nable. AMP Bank Go is backing Australia's small [00:01:00] businesses to get a fair go with tools and support that actually make day-to-day business life easier.
In this new series, we're stepping back from just media and PR to talk about the real lessons of running a small business in Australia right now, the money, the systems, the visibility, the learnings, and the mindset shifts we usually only discover the hard way. Let's dive into today's episode.
Ever since I opened the doors to my first business back in 2012, I've often asked myself this question, not coincidentally, usually during a slow month in the middle of the night, wide awake, stressing about the finances of my business, wondering how I'm gonna continue to make this work. Normally, in the early hours of a Monday morning when work anxiety is at its peak, your mind can venture to all sorts of illogical thoughts and self-loathing.
If you're a small business owner, you'll have a deep understanding of what I'm talking about. If you know, you know. Thoughts like, [00:02:00] "Why is this so hard for me? There's people all over my social media who look like they're smashing it. That guy who keeps popping up on my Instagram feed runs a similar business to me, and he looks like he's absolutely killing it.
Did he just open another location? How is that even possible? The market is so tough. Is he rich? Or maybe he's lying. Does he have investors, or is it just lucky timing for him in the market?" So today, no more doom scrolling or assuming or woe is me rhetoric from the mean girl in my head. We're going to ask those questions to someone who's going to give us a solid, black and white, no-nonsense answer, someone who is an expert in her field, a small business accountant and advisor, Natalie McDermott.
And spoiler alert, nope, it's not luck. There's no better person to ask these questions to and get no bullshit answers than a top small business accountant. Natalie is a partner at Kelly Partners who works with high-growth e-commerce and retail businesses, [00:03:00] and she has a front row seat to hundreds of business owners' bank accounts.
When I asked her what really separates the businesses that scale from the ones that stall, she didn't hesitate. It's rarely luck. It's usually not even the product. It's five specific things the most successful business owners do that everyone else doesn't, and one of them is so specific, so oddly precise, it genuinely stopped me in my tracks.
Natalie's unpacking all five in this episode, plus fessing up to the biggest money mistakes she sees business owners make, the tax traps catching people out right now as the ATO cracks down harder than ever this year, and why treating your business account like your personal wallet is the fastest way to blow it all up.
If you've ever looked at someone else's business and thought, "What do they know that I don't?" Then this episode is your answer. Let's get
Natalie McDermott: into it.
Liz Nable: Good afternoon, Natalie. Welcome to the show.
Natalie McDermott: Thank you very much for having me. I'm really excited [00:04:00] to have a chat with you.
Liz Nable: Well, I have searched high and low, believe it or not.
I've been a small business owner for a long time, and I've found it really difficult to get recommendations for a great small business accountant, and your name came my way from Hayley and Jade from By Sid. So you are very well-regarded. Congratulations. Oh, thank you.
Natalie McDermott: You must be very good at what you do.
Thank you. Maybe it's being good at what I do, or it's, you know, the accounting industry as a whole doesn't have the best reputation. It's probably why you t- it's taken so long to find someone to actually have a conversation with. But yeah, my experience is that they kind of, for the most part, just tick boxes and then wipe their hands clean and move on.
Liz Nable: Yeah. And, and that's the thing because we've had ... When we first started, we had a good accountant, and then our situation changed, and we moved accountants. So we've had some good ones, and we've had some box tickers. Yeah. And I really feel like probably also at the age that I'm at in my life too, I'm like, I have to
I need more than a box ticker. I need someone who's [00:05:00] gonna help me understand what is important in my business, 'cause I have a, a new business now, different kind of business, and someone who's gonna go, be like, "Hey, I know this isn't in my lane, but I just wanna say you need to go get financial advice." Or, "You
If you need this," or, "You need to do this better." So sounds like you're that person.
Natalie McDermott: Let's find out.
Liz Nable: So Natalie, tell us a little bit ... I never thought I'd get this excited about accounting, but I-
Natalie McDermott: It's exciting, isn't it?
Liz Nable: It, it's, it's exciting to be empowered as a small business owner to go, "Enough with sticking my head in the sand."
Like, I actually, uh, wake up with anxiety. A- and I'm speaking on behalf of a lot of small business owners, particularly right now. Mm-hmm. You just have to face this stuff head-on, and it's actually pretty ... And I'm not a numbers gal at all, but once you get on top of this, it can be exciting to go, "I'm actually, like, making progress in my business.
Like, I can see, like, the dial moving." Like, that's exciting.
Natalie McDermott: Agree completely. So I [00:06:00] experience that with a lot of my clients as well. Usually, when they come to us, they have up until that point very much just buried their head in the sand, and they come to us having flown completely blind up until that point, and they're just kind of enough's enough.
Like, they need to, as business owners, they're feeling like they've gotta have that responsibility to really understand their numbers and, you know, really start to make data-driven decisions rather than just, you know, taking a stab in the dark at everything that they're doing. And once we start working with them, our mission is to really help them understand what
firstly, get their data clean. So like, we need, we either need to do a, a big cleanup followed by maybe, like, an upfront project to get, like, a proper finance function in place. Once that finance function's in place, then we would recommend, you know, doing proper month-end close, doing monthly reporting, and actually speaking to your advisor or accountant on a monthly or quarterly basis, right?
[00:07:00] So once we get into that flow, get so much joy out of seeing my clients, like, kind of come to this realization of like, or, like, this aha moment, right? The penny drops. We've, you know, had a couple of good months of consecutive accurate data, and we're able to present that through proper reporting, and we're able to have proper conversations, and they're like, "Oh my God, I get it now."
And you see them get so excited by the fact that up until that point they've completely switched that part of their business off, and now that they have that visibility and they have, you know, someone that's helping them interpret the numbers and guiding them through what to do next, it's completely a game changer.
Liz Nable: Mm. It is. And it's easy to, it's easy to fall off that wagon, especially when things are hard like they are right now, but then it's sort of like, I guess, going to the gym. Like, once you've been to the gym for a few days in a row, you're like, "Bang, I'm back."
Natalie McDermott: I'm back.
Liz Nable: Yeah. That's it. Um, anyway, that's how I envisage it.
And I, [00:08:00] and I, I know that I am- I know that I resonate with a lot of people listening to this because I don't love the numbers. But once I get my head around them, I do start to go, "Okay, well, I'm not just going, 'Oh, today was a bad sales day.'" I know that that's okay because I've got my numbers down and I know what, you know, the, the month looks like or the quarter looks like or the year looks like.
Okay. So let's just rewind for a second.
Natalie McDermott: Mm-hmm.
Liz Nable: So how did you get to be specializing in small business accounting? Like, tell us a little bit about how you became a numbers nerd and, like- Mm-hmm ... you know, what brings you to be doing this, and I guess what you love about it, like what your purpose is.
Natalie McDermott: Yeah. So I didn't start out my uni journey studying accounting.
I went through a few different courses before I landed in accounting. Once I completed my degree, you kind of have to make a decision as an accountant whether you're gonna go work in commercial, which means that you go and work for, you know, a [00:09:00] corporation, and you work within their finance team, or you work in, like, business services.
So business services mean, generally means you work within a chartered accounting firm, and you service small business or, you know, there's obviously the Big Four that would service the larger big-name corporations. But typically, like at Kelly Partners, we're just working with small business owners. And so I was, oh, I'm gonna say a year off graduating, and I sent around a whole bunch of emails to a few local accounting firms, and I basically offered myself up for free Yeah
and said, "Do you need an intern?" And Danny, who's the senior partner in my firm, reached out or responded to my email and said, "Yes, absolutely. Let's go." He was very much in startup phase at that point in time, so any free work was very much welcomed, and that's where my journey started. So I landed in a chartered accounting firm, Kelly Partners, about 10 years ago, [00:10:00] and you know, we've been able to build that business incredibly well.
We now service, you know, 5 to 600 small business clients. I, in particular, have into the e-commerce space. I don't know if Hayley and Jade kind of explained that, but my, myself and my team, we work predominantly with e-commerce business owners, e-com and retail. But you know, earlier on in the days, I was working with a variety of industries, so like we were working with trades and real estate agents, and I've worked with a, with a wide variety of in- industries.
They're all like, you know, mom-and-dad-led businesses. They're all like real people trying to build something, trying to create personal wealth. They've got kids to look after. You know, like there's a lot at stake. There's a lot on the line, and I think to have the opportunity to be involved in some capacity to help them achieve those goals, help them get everything in order, help them build that wealth so that, you know, all the hard [00:11:00] work and the blood, sweat, and tears that they're putting into building these businesses isn't going to waste.
Mm-hmm. I feel like that is just such an amazing opportunity for someone to have and be involved in, and I think that's why I love it the most.
Liz Nable: Mm, mm. Yeah, look, it's a game changer to have the right person in your corner when it comes to money in a small business. Why is it so important to have- the right accountant when you go into business or you buy a business or you start a business?
Natalie McDermott: Yeah. So if you're going into business, I feel like you need to work with someone that, as I said before, it's not just like a tick of a box kind of exercise. It's like someone that actually understands you and what your goals are and what you, you know, whether you've got plans on exiting the business one day.
Mm-hmm. You know, who your kids are, who your spouse is, where do you wanna send them to school? Like, they ... You need to work with someone that actually cares about all the stuff outside of just filling out a tax return, right? Mm-hmm. [00:12:00] The way that we work with our clients is they come to us for everything, whether it's, you know, to come to us for us to help them directly or whether it's for us to introduce them to the best person to, you know, help with their specific query.
They're coming to us for everything, and I feel like that's pretty special. And I feel like, you know, starting out it's probably overkill to like, you know, find someone that fits that criteria. But I think if you're thinking long-term, if it's not from the very start, then it's someone that you should be looking to work with at some point down the line.
I think it's really important to kn- you know, work with someone that understands tax, understands different structures- Mm ... understands how what you do today and how that's gonna affect what you potentially want to achieve in the future. You know, there needs to be that level of foresight. It's really, really important.
Like, whatever you do in the early days can have a significant effect on, you know, the way things play out long-term from a tax [00:13:00] perspective, from a, you know, exit point of view. Like, all the things. So like, quite often- Where we find, you know, we need to kind of like help people get out of certain situations, it's because they didn't engage with someone who had the, you know, level of expertise required to set things up properly from the start.
Mm. And so it can make things pretty difficult once they kind of scale and get to a point where they need to make some pretty important decisions.
Liz Nable: Yeah. I think it's so true. In our first business, we, we made that ... We did set it up properly. We had a good accountant, but we didn't really think about what our exit strategy was until it was too late, and so I wish I'd done that differently, but learned a very important lesson there.
What are some of the common pitfalls from like a business setup and structure perspective? And this is really relevant now because the CGT changes and, and, and all this sort of stuff that's passed at the, at [00:14:00] the last federal budget, like sole trader versus company versus trust. What, what are the some of the biggest pitfalls, like mistakes you see business owners make-
Natalie McDermott: Mm
Liz Nable: in regard to that starting up, set up phase?
Natalie McDermott: I think some of the biggest things that we see is not being set up properly from the get-go. So a- and there's a time and a place for, you know, setting up under like a sole trader or partnership structure. Maybe you're testing the waters and you just wanna see how, how things are gonna go.
But I think as soon as you work out that, you know, it is gonna be a viable business and you are starting to turn over decent profits, at that point, I, I would recommend taking action because if you leave it too long and you get like five, six years down the track, it can be quite costly to restructure.
So if, you know, it's not- feasible for you to set up as, say, uh, under a company structure to start with, just from a cost perspective, then start with, you know, a [00:15:00] simple setup, either like a sole trader or, or a partnership. But then as soon as you know that it's gonna be viable, I would at that point switch over to a company.
Mm-hmm. So there's that. But I think, like, other things that, you know, I think are worth noting is, like, business owners that fail to separate their personal money from their business money, right? So you, you've started a company and you failed to, I guess, identify that that company is actually a separate legal entity to you, right?
So it is very much its own taxpayer and it's, you know, it's se- it's separate to you, right? But a lot of people go into business thinking like, "Oh, it's my company, therefore the profits that are generated are mine, and I can just pull them out willy-nilly." Mm. So I- we're always kind of trying to get business owners unstuck from that situation, because I, I don't wanna go into, like, the boring details of it, but if you take [00:16:00] out money from your company and it hasn't gone through, you know, a wage, or it hasn't gone through an appropriate way of taking out taxable income, then it falls under a Div 7A loan.
I don't know if you've kind of been exposed to that before, but ... And it's not to say that Div 7A is, like, the devil. There's obviously ways out of it, but it's just- It's just, you know, a bit of a shock to the business owner when they first- Mm ... become exposed to it or aware of it. And then, you know, to untangle that web, there's a little bit of work that needs to go into it.
There's a lot of ideas that the business owner has to wrap their heads around. Mm. It can be quite overwhelming and intense, right? So I think, like, going into business, if you're setting up a company, you have to understand that from the get-go, you should always consider it a separate legal- Yeah ... entity to you, and whatever's happening there has nothing to do with you personally.
It's taxed completely separately. [00:17:00]
Liz Nable: Yeah. I think that's so true. Like, a lot of first-time business owners, essentially what you're saying is, is that money that's coming in through your business bank account under your entity name, your legal trading name, is not really your money. Like, you can pay yourself a wage and do it the right way like that, but the rest of the funds in there is not yours to go shopping with.
And I think if you're a first-time business owner, and you probably, I don't know if you see this a lot, but people going, "Oh my God, I've got all this money coming in," 'cause you're, you're a business generating some sort of income, that it's like that's been paid to you, and it, it's, it's much more complicated than that.
And I, and I get why people get excited by that and don't understand that it's separate, but you don't wanna get yourself in a position where you're spending that money like it's yours. 100%.
Natalie McDermott: And you go into business, you start your company. From day one, it should be, "How much do I need to earn to sustain my lifestyle?"
Whatever that amount is, let's set you up on a salary.
Liz Nable: Mm.
Natalie McDermott: So you're earning a wage from your company, [00:18:00] much like you would if you were working for a third-party company, and you just take out money that way, right? Then you don't have to worry about any tax implications on that later on down the track.
Liz Nable: Yeah.
Natalie McDermott: So that's, like, the simplest kind of approach to it. Another really common thing that we see from the get-go is business owners not understanding that GST is not theirs to keep as well. So, and, and you know what? I just wanna make a comment i- in that I, like, I actually feel for a lot of business owners, right?
And I think our education system is so flawed in that- They don't include anything to do with tax or business or anything- No ... like that within the, the- their curriculums. And I just think that it's just, it's hugely, hugely flawed in that once you leave school, what do you do? You're going to work, right? Mm.
You're entering the workforce. Whether that's, you know, you're entering the workforce as an [00:19:00] employee, or you're entering the workforce and starting your own business, you, you need to understand the fundamentals. Yeah. You need to understand taxes. You need to understand what GST is. You need to understand that if you start a business, you need to set up an ABN, and you need to put taxes aside and, you know?
And, like, I just, I actually can't believe that it's not taught in school, because w- I've just seen so many people burned by it. Mm-hmm. You know, in the early days of Kelly Partners, as I said, I worked with a lot of, like, trades, right? And they go into business. They've been told to set up an ABN. Maybe they work for a big company as, as a contractor, and they've been told to set up an ABN.
So they set up an ABN, and that's it. They get money put into their bank account, and they have no idea that they're meant to put taxes aside. Mm. They've got no idea that they're meant to register for GST, and two, three years down the track they come to us and they're like, "The ATO's knocked on my door and I've got all this debt to pay."
Yeah. And it's, and it's just, like, it's just scary. [00:20:00]
Liz Nable: And it, it-
Natalie McDermott: Sorry.
Liz Nable: And it's not, it's not... I don't think it's uncommon to think like that because you don't... It's not because that person is dumb, it's just because the, like you say, it's not really ingrained in us from a young age. Like, apart from, like, the Dollarmite account program thing that was back-
in the '90s. I would say I'm relatively intelligent, but I just wasn't money savvy in that way when I first started my business 'cause I'd, I'd come from being an employee for such a long time, and it all being done for me. I genuinely learnt things the hard way, and my business partner, who is also my husband, was much more of a numbers person, and he was the one who was like, "That's not your money.
You don't understand. That revenue is not ours. You need... The revenue is, like, one number. The profit is something entirely dif-" Like, I, I did learn it along the way, but it, it, you know, like I said, I'm not, I'm not stupid, and I made all those mistakes. So I can only imagine if you are, you know, coming at this from, you know, a perspective of, you know, you've just finished school and you've started a trade, or English is a second language, or this is your first time [00:21:00] business and you're buying into a franchise, how would you know any of that?
Natalie McDermott: Yeah, you don't. You
Liz Nable: don't.
Natalie McDermott: And it's scary.
Liz Nable: Yeah, and-
Natalie McDermott: Yeah, sorry, go ahead.
Liz Nable: No, I was gonna say, and, and you get caught in this debt, and the ATO, you know, are cracking down now, and it's a scary place to be.
Natalie McDermott: And, like, and it, you know, people just get completely burnt by it, and it changes, you know ... And not to be dramatic, but it can really make a, a huge impact on the course of the rest of their lives.
I just think it's just completely crazy that it's not, at least the fundamentals aren't taught- Yeah ... at school.
Liz Nable: Yeah.
Natalie McDermott: So yeah, they're probably the biggest kind of mistakes that I see. Yeah. And, and it is just down to education, and it's down to not having the right accounting partner from the start.
Liz Nable: Yeah.
And thankfully that people are listening to this podcast now, and hopefully this is the start of this revelation of starting to understand the basics around their business and their numbers and those sorts of things. Because, like, no question is too silly or too stupid. I think we can agree that this is very, very common.
So if you are listening to this podcast and you're thinking, "Oh, [00:22:00] my God, that's me," you're not alone. There's a lot of small business owners who've made these mistakes and learned it's the hard way, which is why we have you on the show. So any other, while we're talking about basic tax mistakes, like tax traps, for either first-time business owners or someone who's scaled or whatever, are there any other sort of tax traps that you see small business owners make consistently or that we should be aware of?
Natalie McDermott: Yeah. The big obvious one is not paying your BASs, not paying your income taxes, using the ATO as a creditor essentially. As you said before, they're cracking down now more than ever, so it's not gonna fly anymore unfortunately. So I think the biggest tax trap is just that. It's like you're trapped by taxes.
Liz Nable: Yeah.
Natalie McDermott: So I think, like, it's so important for anyone in business to, to really sit down and, and identify what's mine or what's my company's versus [00:23:00] what's the tax man's, and really put the systems in place to, you know, be able to separate that out. Mm. It might just be s- setting up, you know, a couple of separate bank accounts to your normal trading account and setting aside those funds on a weekly basis or as money comes in or what have you.
But I think it's so important to get more disciplined around that just because they are really coming down so hard there.
Liz Nable: Mm. I know we've had, I've had a lot of tradies, not through my business, but come to the house over the years who've, who've found themselves, you know, owing money to the ATO and the ATO coming in and saying, you know, "We need to let your, your bank know that you're in this debt," and then they've been shut down, those sorts of things.
I mean, that's probably worst case scenario. Yeah. But just any little ... I guess, would you say for people when they're first starting out in business to err on the side of caution and be conservative with those funds so that while they're getting their head around who owes what and how much tax they need to pay and how much they can pay themselves, [00:24:00] just being conservative with that money that's there so that they don't get caught out and they've spent it all and then they realize down the track that they didn't put money aside for BAS or, you know, those sorts of things?
Natalie McDermott: Yeah, I think it goes without saying, like, you should always be trying to not spend money. You should you should only be spending money on things that are genuinely going to move the dial for your business, and you need to be really disciplined around that. And I think that, you know, you can be- become really effective at that if you are across your numbers a lot more, if you're doing budgets and you are reviewing your actuals versus budgets every month, and you actually, yeah, you've gotten some level of education around what your numbers are telling you.
Then that allows you to become more, more disciplined there and, yeah, just a lot more educated.
Liz Nable: Yeah. Making educated decisions.
Natalie McDermott: Basically,
Liz Nable: yeah. Rather than just crossing your fingers and going, "I think we've got ... I think we can buy that. I'm not sure, but I- Uh-huh ... I reckon we can afford it."
Natalie McDermott: 100%. And I think, like, maybe we move [00:25:00] on to, like, what does it mean to actually know your numbers?
I don't know if that was your next question.
Liz Nable: Yes, that was my next question. Okay. I was gonna say, tell us about the numbers and the basics of, like, what, what are the key numbers we should know? Because again, we're talking to small business owners, we're time poor, we're like, "Natalie, you're making my head spin with all this detail."
What are the basics around the basic numbers we should know? Tell us.
Natalie McDermott: Yeah. So obviously there's a lot of focus around revenue, which revenue is obviously important, and we should always go into business trying to make sales, 'cause otherwise we don't really have a business. But it's not the be-all and end-all.
You could be making millions and millions and millions of dollars of revenue and it not be profitable. So I actually think that the, you know, the number one metric that we should be tracking is profitability. But outside of profitability, we should also be understanding, like, how much am I spending on staffing?
[00:26:00] Like, what percentage of sales am I spending on sa- staffing? What percentage of my sales am I spending on marketing? What's my actual gross profit margin? So, like, as I said before, I work with a lot of e-commerce brands, so it's product-based businesses, right? GP is so important to understand. What's GP?
Gross- Gross margin. Gr- uh, gross profit. Gross. Yeah, gross profit margin. Gross profit. Got it. So that is what am I left over with from a sales perspective once I deduct my direct costs? So, like, once I deduct things like the cost of my product, the merchant fee that was charged upon, you know, that transaction occurring, outbound freight to my customers.
If I'm a surface, service-based business, then realistically my direct costs are my wages pretty much. So, like, what am I left with? What percentage of my sale, of each dollar that I make am I left with after I deduct all of my direct costs that go into making that [00:27:00] sale? Once you understand what that gross profit is, that, that would then dictate what you're able to spend on things like rent, marketing, and non-productive wages, so, like admin- kind of like more operational, administrative wages.
If you don't know what... Like I've, I've just seen so many people, so many businesses, you know, spend so much money on, on things like marketing and also- Mm ... you know, on things like staffing, without understanding what that's actually doing to their business or how it, you know, how it communicates with what they're making from a sales perspective.
So when we're looking at numbers, always looking at things as like a percentage of sales. So once we know, like say we're operating under 50% gross margin, which means that we're left with 50% of our sales after we take into consideration all of the direct costs that went into making that sale. With that 50%, how am I gonna spend that?
Maybe I'll spend 15% [00:28:00] on marketing, and maybe I'll spend 10% on staffing, and then maybe I'll spend 5% on other, as an example, right? That would leave me with 30%. Yeah, 30%, um, net profit. I, so but without knowing what we're actually left with, it's really difficult to get, you know, real c- really clear on what we can spend that money on.
So I think it's not just revenue, it's not just profit, right? It's just, it's, it's more around, like, what can we actually physically spend the money on and still have profit left over?
Liz Nable: Mm. What about is there benchmark figures, like percent of your revenue should be staffing costs, 30% of your... Like, tell me a bit about what that looks like.
Is there a rough figure or is it different for every industry?
Natalie McDermott: It's different for every industry, and like certainly different from for service-based businesses and product-based businesses. So [00:29:00] like, as an example, with product-based businesses, we usually s- recommend sitting at, say, around 15%, 10 to 15% on staffing.
Liz Nable: Of revenue?
Natalie McDermott: Of revenue.
Liz Nable: Yeah. Okay.
Natalie McDermott: Yeah, of revenue. And then, you know, and then for a product-based business we'd say, like, 15% on marketing. In reality, that's not what's happening, especially these days, because, you know, platforms like Meta and so on are just so competitive now and so expensive. But that's what you'd be aiming to spend if you want any chance of having any profit left over.
Liz Nable: Right.
Natalie McDermott: And service-based businesses are gonna spend more on staffing, 'cause obviously that's how they make their revenue, right? Mm. Mm. So probably, you know, 35 to 45% on staffing, and then everything else is kind of like just OPEX after that. Mm. So it just depends on what type of business [00:30:00] you're, you're running.
Liz Nable: Yeah. What about in times like, I don't know what you're seeing on the ground with your customers at the moment, and I know you, you mentioned you specialize in e-commerce businesses. Have you got any kind of intel on what people are cutting back on now, considering obviously the economy is, you know, we're in a tight spot right now, and we've got inflation and a whole lot of other external factors affecting small businesses quite, quite a lot.
Are people cutting back on certain things, and, and what are they?
Natalie McDermott: Yeah, for sure. A lot of business owners are obviously reaching out to all their suppliers to, and seeing if they can get better rates or at, at least extend payment terms. And then the next kind of thing that I'm seeing a lot of cust co- co- cost cutting around is, like, external consultants.
Liz Nable: Mm.
Natalie McDermott: Um, you know, subscriptions. Potentially, like, downsizing their team, downsizing their warehouse or office spacing. [00:31:00] A lot, you know, a lot will be looking at downsizing their team, 'cause I feel like staff- staffing is, outside of marketing, staffing is gonna be your biggest operating cost. So I feel like it's, it's usually consolidating, consolidation of the team that would go first.
There's a lot of like, yeah, hidden costs in things like subscriptions. Mm. So I see a lot kind of, like, going through their subscription account and just seeing where they can cull some costs there. But I think honestly the biggest lever to pull is a reduction in wage costs, and then a reduction if, if you're selling product, a reduction in your product cost as well.
Liz Nable: Mm, mm. Yeah, it's a real... I'm, I'm obviously a service-based business, but I see a lot of small businesses right now looking at every single line item and trying to work out where they can save money or cut back. So if someone's setting themselves up for the first time, or they've just started out, like, any sort of tips for getting off on the right foot financially from day one?[00:32:00]
Natalie McDermott: Yeah, I think make sure that you're structured properly. Make sure that you're, if you're setting up a company, set yourself up on a wage. Work out what it is that you need to earn to live, and then set yourself up on a wage. Make sure that you understand your tax obligations, the frequency, what the different, like, the frequency of lodgement and payment of things.
You know, when you have to register for GST, like, at what point, how much tax you should be putting aside. Superannuation as well, people, like, I mean, you have no choice but to take super seriously these days. They've just introduced payday super, which means that you actually have to pay super every time you run payroll.
But understanding that superannuation for not only yourself, but obviously your employees, needs to be taken very seriously. And then, and then really understanding that as a business owner, you do have a responsibility to understand what's going on in your business from a [00:33:00] financial perspective. You can't bury your head in the sand.
You h- uh, even if it's something that you despise and doesn't come naturally to you- Mm ... you have a responsibility to understand what's going on. So get a good accountant that is going to help educate you and, you know, get someone that's got a little bit of personality that can excite you a bit around understanding the numbers.
A lot of the time it's probably not even that they don't wanna look at their numbers, it's probably that they want, they don't wanna talk to their accountant.
Liz Nable: They don't want a lecture.
Natalie McDermott: Yeah. And, and also I think what's really important is, like, don't have such a massive ego. Like, take on feedback. If someone's trying to help you, listen to that help.
You know, consider it and try implementing it. Don't think that you know everything, right? Yeah, yeah. So I feel like, you know, not everyone, but you know, some people in business do have a bit of an ego. They think that everything that they're doing is the right way [00:34:00] of doing it, and- Yeah ... and that's not the case.
So I think if you've got external advisors, accountants that are, are telling you that, you know, you might be in trouble or, it's looking like you're going down, uh, you're gonna face a cashflow issue in the future, like, take that on board and actually put measures in place as early as possible to- Mm ... to tackle that.
So I think, like, they're the kind of things that you need in your back pocket when you are going into business.
Liz Nable: Yeah. Are there any non-financial KPIs you tell clients to watch that most business owners overlook? Like you said, like if they're going into a period of where cashflow looks tight, or is there anything non-fin- uh, non-financial, though, that you look for or you'd advise?
Natalie McDermott: Yeah, certainly in like product, 'cause again, I work so much in product-based businesses, but, you know, aging inventory is a really big one. You need to keep an eye on your like stock balances. If you're holding onto too much [00:35:00] stock, like that's obviously a huge cashflow issue there. Customer retention and, you know, like repeat purchase rates, refunds- Mm
you know, return rates If you're a service-based business, you should definitely be, like, looking at, you know, capacity in your team as the business scales, and making sure that everyone's, you know, working productively. Yeah, there's so many. Like, there's hon- Mm ... like, if I think about what we're tracking for our e-com clients, it's, like, customer acquisition costs, lifetime value of customer.
There are all these, like, non-financial- Mm ... kind of KPIs that are really, really important. Um-
Liz Nable: Mm-hmm.
Natalie McDermott: Yeah. There's a-
Liz Nable: What about if someone's business is doing well, and they're scaling, and they need extra sup- support? Like, when is the right time, or is there a right time for them to start to consider bringing on more than just, like, an accountant once a quarter?
Like, maybe like a bookkeeper, or like a s- you know, a, a few friends I've got whose [00:36:00] businesses are growing have, have kind of brought in fractional CEO, sorry, CFOs.
Natalie McDermott: Yep.
Liz Nable: So what's your thoughts on that and, and when does that become a consideration?
Natalie McDermott: Yeah, so I think that when you first start out, you know, having, like, a bookkeeper, and then maybe an external accountant help you through your kind of like basic stuff to start with is fine.
But once you get to a certain point where you're like, "Hang on," like, "This is actually going gangbusters, and I'm kind of feeling a little bit nervous about it," that's probably a really good sign that, like, you need- Mm ... extra help. You need to bring in someone that absolutely knows, you know, numbers and knows business inside out.
So I think, uh, you know, just having a bookkeeper is good to a certain point, but then once you hit scale and you're like, "I actually really need to get a handle on, on my numbers-" Mm ... "and I need to trust that what I'm looking at is correct," at that point you're like, "Okay, I need someone to [00:37:00] not only do bookkeeping," 'cause bookkeeping's really just data entry, right?
Mm-hmm. I need someone to come in and, like, do a proper month-end close. I need them to produce financials on a at least a monthly basis, and then I wanna be able to speak to someone either on a monthly or at least a quarterly basis to run through those numbers, help me make decisions, benchmark me against other clients that they might work with, which is, you know, quite often what we do.
It's like, "Hey," like, "if I compare you to, like, five other clients that are within your category, you're spending way too much on marketing," as an example. Mm.
Liz Nable: Right?
Natalie McDermott: Mm. So you really need to, I think at that point, sing out for help and prioritize it a little bit more.
Liz Nable: Mm.
Natalie McDermott: And then once you kind of like scale past that point, then that's probably when you need to look at hiring internally and actually, you know, building up a finance team [00:38:00] within your business.
Liz Nable: Mm, mm. Yeah, I feel like once you're at that point, it, it, it's difficult. What, what's the saying? Like, what get, what got you here won't get you there.
Natalie McDermott: Yeah.
Liz Nable: I,
Natalie McDermott: yeah. Exactly. Yeah. Um, yeah. It will, it'll always evolve. Like the busine- as the business evolves, your finance function also has to evolve.
Liz Nable: Yeah, totally.
Natalie McDermott: Um, and then one, also once you get to a point where, you know, you don't need your accountant to complete that finance function and you build out a team internally, at that point it's like, okay, like I'm, you know- almost at maturity, I should be speaking to my accountant about what it looks like for me to exit.
Mm. What do I need to put in place now to make sure that I'm achieving my long-term financial goals? Mm. I should be speaking to my accountant about, you know, expanding into other countries or restructuring because of X, Y, Z. You know, like, different kind of, like, complicated- Mm ... requirements come with that level of, of scale, right?
Mm-hmm. So I think [00:39:00] there's a transition between, like, very, very basic to going to my accountant to help me with, like, absolutely everything. Then I get to a point where I'm like, "Actually, I need a full team to do that," and then I'm just gonna speak to my accountant f- on a more, like, high-end advisory perspective.
Liz Nable: Mm, mm. Just before we wrap up, I'd be keen to know, and this is not a question I've put to you before today- Okay ... so hopefully I'm not putting you on the spot. What are you noticing on the ground right now? Obviously, tough economy, we've got inflation and pro- pro- productivity issues, et cetera. With the work that you do with small business owners, are you seeing, like, an influx of small business owners coming to you saying, "I've just gotta get out.
I wanna sell"? Or have you got, i- is the trend people doubling down? Are they kind of trying to, like, you know, streamline their business, like I said, like, get rid of costs to, like, go lean while they're trying to navigate this kind of difficult period? Or is it different across different industries? Like, can you see any trends sort of evolving, like, from what you do on the [00:40:00] ground?
Yeah.
Natalie McDermott: It's so different, because I've got clients that are absolutely killing it right now and, like, going through huge growth phases, and then I've got clients that, you know, once upon a time were doing really, really well and now- Mm ... are really struggling, so they are literally going through with a fine-tooth comb and seeing where they can save every single dollar.
And then we've got businesses that have just always been that way, right? Like, regardless of where they're at, regardless of what their sales volume looks like, what their profitability is, they're just always disciplined, and they're always looking at what costs to cut. Mm-hmm. So it's really, really difficult.
But to answer your question a bit more concisely, I think with what's going on in the economy right now, it definitely has increased the amount of businesses that are- really starting to, like, look at how they can cost cut and how they can kind of save their [00:41:00] businesses or at least, you know, expend- extend the, the life of their business a little bit longer.
I think a lot are in survival mode right now.
Liz Nable: Yeah. '
Natalie McDermott: Cause it's like- Yeah ... it's, it's tough. People aren't spending money.
Liz Nable: No.
Natalie McDermott: Although inflation tells us otherwise, but
Liz Nable: I know, right? Yeah. I know. I feel like
Natalie McDermott: I need- I mean, that's another- Yeah ... that's another conversation for another day, but
Liz Nable: Yeah, I
Natalie McDermott: know. But yeah, people are scared.
You know, like, it's affecting so many different parts of our economy as well, but- Mm ... for the most part, yeah, you'd... Like, a lot of, a lot of business owners are trying to cut costs to, to, just to weather the storm.
Liz Nable: Mm. Quick question Is there a difference between ... So you said you've got business owners who are killing it, and scaling it, and smashing it, whatever, and then you've got business owners who might have been doing well at one point or another, and now not doing so well.
Is there a difference between those two owners? Is one doing something amazing and the other one's struggling because it's their own fault, or is it, is it external [00:42:00] factors? I know you can't answer that, like- Mm ... categorically, but from what you see with the work you've done with small business, is there a certain kind of business owner that's doing things so well, they're the reason the business is taking off, or is it a bit of luck, or is it a bit of both?
Like, I've always sort of-
Natalie McDermott: Yeah ...
Liz Nable: looked at people who are smashing it going, are they really smart or disciplined, or they know something I don't know? Or like, what, what is that secret?
Natalie McDermott: Yeah. So sometimes it's luck. Like, sometimes it's, like, just really good product market fit as well. So you know, I've worked with brands that have literally scaled to $10 million in their first 12 months selling- Jesus
like selling women's fashion, which is such a saturated market- Mm ... right? And saturated category, I should say. But it's like, okay, like, that, that doesn't come from, like, having, you know, extreme amounts of discipline or, like, being extremely intelligent or anything like that. I feel like that's luck, right?
That's you've just [00:43:00] nailed the product on the head, and you've got it out to market really well. So that's, like, a really extreme case. But for the most part, where I do see, like, a direct correlation with successful businesses and the way that they are as the founders, like, usually they're, you know, super, super disciplined.
They're, they invest every single dollar back into their businesses. Some of them aren't even taking a wage. They, they're just so keen to grow their business- Mm ... so they're, yeah, they're, they're just throwing every single dollar that they've got back in. They, they usually have three or four kind of, like, rules that they stick by, and they're not ever swayed by that.
So, like- Mm ... they'll always kind of like stick to their guns, and I think, yeah, that comes down to, like, discipline. And they, they do take their taxes seriously. They understand that they have an obligation to pay tax, and they plan for that, and they plan for it- Mm ... ahead of time. Mm.
Liz Nable: So [00:44:00]
Natalie McDermott: they're never, like, in a situation where they owe the taxman a whole bunch of money or, you know, they're stuck with their suppliers.
Like, they're looking at their numbers really closely. They're maintaining, you know, cashflow forecasts. Obviously, this comes with the help of their accountant- Yes ... but, you know, like they're, they're really in the detail. So there, there is definitely a direct correlation with, with, you know, running a succ- successful business and, and- Mm
and, and being that, that way inclined as a business
Liz Nable: owner. Those three or four rules that they live by, can you tell us what they are?
Natalie McDermott: I mean, it's, like, super s- like, some of them are super specific. Like, I've got one client and, you know, she's just such a badass, and she runs a super successful beauty brand, and she's just
You know, like, as an example, like, her gift to purchase price point, like the price, sorry, that she pays her [00:45:00] suppliers for anything that she offers her customers as, like, a gift, gift with purchase product is, like, she won't do it if it's more than $5. Right. So, like, even if it's, like, $5.20 she's like, "Nope, not doing it."
You know? Like, she's picked her number and she's just stuck with it.
Liz Nable: Yeah.
Natalie McDermott: So that's, like, a super specific kind of example, but-
Liz Nable: But they're disciplined.
Natalie McDermott: That's what it comes down to. Yeah. Like, they're super disciplined, and they make data-backed decisions as well.
Liz Nable: Mm. Data-backed decisions and discipline.
Natalie McDermott: Yes.
Liz Nable: Yes.
Natalie McDermott: And, and saving for tax.
Liz Nable: Okay. So everybody round up. So everyone who's listened to the end, you have tax obligations, honor them, be disciplined. Even if it's, like you say, following simple rules, but really sticking to them and be disciplined, and it's not your money to spend. That cash is not yours to spend.
Yeah. And data-driven decisions.
Natalie McDermott: Yep. And also, I s- mentioned this before, but, like, separate [00:46:00] the business from yourself personally. Yeah. And that obviously means, like, the, the money as well. Yeah. And then build your finance function as the business grows.
Liz Nable: Yeah. Perfect. Amazing, Natalie. I feel like I have a lot of work to do on my finances.
I'm better than I was, but still a lot of work to do. But really insightful and interesting, and it's been awesome having you.
Natalie McDermott: Thank you so much. It's been really fun chatting with you.
Liz Nable: Thanks for listening to What I Wish I Knew About Small Business Before I Started, a special six-part miniseries from inside the Media Magnet Podcast, and brought to you by AMP Bank Go.
If this episode helped you, follow Media Magnet wherever you get your podcasts, and go back to catch the other episodes in this series. And if you know a small business owner who's learning everything the hard way right now, please share this episode with them. It might be exactly what they need today.
I'm Liz Nable, and I'll see you in the next [00:47:00] episode
