One tiny overlooked detail can destroy your growing business. It’s a detail that Warrick Kernes learnt in the nick of time.
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Warrick Kernes is the owner of Action Gear, a business he founded in 2010.
Overall, business was good and Kernes was making some important business decisions based on what his financial statements projected – he was hiring, investing in infrastructure, he bought himself a new car.
And then he discovered the tiny detail that could be his undoing, but instead turned into an opportunity to up his financial acumen and grow the business by 50% in the two years since.
What tiny detail could do so much damage?
Action Gear is an online retailer of boys toys and gadgets. “At the time there wasn’t much market competition, so business took off and we were turning over R600 000 a month,” explains Kernes.
“The problem was that finance wasn’t my strong point and because we were doing well I didn’t pay attention to the details of the financial statement – I’d abdicate responsibility to by accountant.”
Then, Kernes had the opportunity to enter a two-year accelerator programme through Raizcorp and work closely with business coaches.
“During the programme I discovered that my accounting system was set up incorrectly. It allowed for negative stock. This meant that if I had five cameras in stock and invoiced for seven, when we re-ordered, that negative two would be brought into the income statement as zero instead of what they cost. So all new stock and cost of sales became under-valued.”
When Kernes unclicked the tiny “negative stock” box, what before was a healthy, profitable business suddenly revealed itself to be in crisis.
“Where I thought I was turning a profit, the business was breaking even or even making a loss, while I was hiring and buying a car!”
Sailing back to calm waters
“To save the business I had to take responsibility for my business. As it turns out, negative stock is a common mistake to make on accounting software, but ultimately the finances are my responsibility.
"I took it upon myself to learn, I even Googled ‘accounting for dummies’ so I could learn the essentials for turning the business around. The confidence I’ve gained from learning and understanding finances has helped me plan the business’s recovery. I sold my new car, I restructured the business, and we really focused on making every cent count.”
In fact, Kernes gained such valuable financial insight that his business has grown by 50% in the 18 months since the programme ended.