Business Systems

What Can Happen When Your Business Grows but Your Systems Don’t?

Recently the cosmetics company Lush reported itself to the Fair Work Ombudsman after it discovered a payroll error that resulted in staff being underpaid since 2010 to an estimated total of over $2 million.

‘What has become alarmingly clear to us at Lush Australia is that our internal payment systems have not kept pace with our growth,’ Peta Granger, national director, said. ‘This resulted from a very serious failure on our part to upgrade our internal systems.’

The modern award system came into effect on 1 January 2010. It seems that Lush had not upgraded their payroll systems at that time, which allowed errors to occur. What is unclear is why such errors were not picked up for eight years; however, respect to Lush for initiating an internal review when they realised they had major issues. They have committed to paying back (with interest) all monies owed to both current and previous staff.

Lush has stated that the error was not deliberate. We have seen many errors in payroll that we know are not deliberate on the part of owners and employers, so we believe this situation is probably more common than business owners realise.

These unintentional errors can arise for a variety of reasons:

  • Unqualified or inexperienced staff. Are your payroll staff actually qualified in payroll and knowledgeable about modern awards, the National Employment Standards (NES) and the Fair Work Ombudsman? Do they keep up to date with changes to Fair Work laws?
  • Inefficient reporting and/or management. Perhaps the errors were reported in different ways at different times but not followed up—what are your internal systems like? Are issues raised by staff actually investigated, followed up and resolved? Do some systemic problems end up in the ‘too-hard basket’?
  • Lack of planning or budgeting. Do you have a budget in place that allocates funds for technology upgrades and business system evolution?
  • Inappropriate systems or technology. This was certainly a culprit in the Lush situation. Many employers continue to use old or manual payroll systems, which are antiquated and actually take significantly more processing time than available current technology.
  • Unwillingness to spend money on upgrading systems. The longer you leave it to analyse and upgrade systems, the more costly it will be to make changes when they become unavoidable. If you are growing and evolving your business, there is no excuse for not putting time, energy and funds into assessing your business systems and technology for relevance to your current business state and future business goals.

 Give Your Business Systems Some TLC

We understand that many small business owners struggle to work on their business as they are constantly working in the business playing catch-up with customers, administration, staff management, marketing and more.

If you are not already in the habit of dedicating time to working on your business, consider making this a regular ‘business date’ with yourself. Put time in the diary now and commit to keeping it free from other bookings.

Many business owners start their business on a shoestring budget and make the effort to be involved in many areas of the business in the early days. But this must change if the business is to grow and the owner is to embrace a more appropriate role with the business evolution.

The free or low-cost options that we often choose when starting out are not necessarily the best solutions as the business grows.

If you are willing to give your business time from day one for management and development, it will be much easier to continually evolve your systems with the business. The effort involved in upgrading or overhauling systems when you haven’t looked at them for years is massive, and certainly enough to put you off the idea!

How Do You Know If Your Systems Need Upgrading?

While this article has been inspired by the Lush story of payroll systems not being up to the job, all your business systems are worthy of analysis from time to time.

  • Does your monthly profit show a regular increasing trend? You may need to look at business systems in general, particularly internal management. Are you still running your company as if it were a two-person start-up when in fact it is an established 20-person company?
  • Do you suspect that some internal systems and processes are less efficient than they could be? Do you observe staff taking excessive time to do what should be simple tasks? Is there a bottleneck manifesting with particular staff or administration processes? Again, maybe it’s time to assess internal management systems and whether you have the right technology for the job and the right people doing the right tasks.
  • Has the number of staff increased significantly in the last two years? Is the time taken to process payroll realistic for the number of staff? You may need to assess your current payroll solution.
  • Has the number of customers and type of sales grown rapidly in a short time or regularly over a longer time? You may need to look at customer management solutions and email management solutions.
  • Have your sales stalled? In this case, you may need to look at your marketing strategies and technology and whether they are relevant to your target market and current business operations.
  • Do you have trouble getting accurate and up-to-date financial reports? If so, you may need to look at your administration and bookkeeping systems, so that you are able to access financial reports at least on a monthly basis.
  • Do you find that there are particular departments or locations that have a higher number of errors or high labour percentage? Do you (or someone else) consistently make excuses for why this happens and why it’s acceptable? It may be time to get real with what’s happening at a detailed level so you can understand why the errors are being made and if better systems would help to minimise this issue.
  • Have you had security breaches or threats? It may be time to look at whether the level of security and data protection needs upgrading. Read our related article on Security Measures for tips on implementing better security.

Change My Systems? You’ve Got to Be Joking!

Changing systems that you have been using for years can be daunting and challenging. It requires good planning and excellent management to implement better systems, whether those are internal systems, specialised processes or technology solutions.

It can be confronting because in order to know what you need now and in the future, you have to understand why the current system is failing you, and this can show up areas of incompetence, mediocrity or ‘head-in-the-sand’ mentality. Making this assessment may be time consuming itself, before you have even researched better options!

It’s a big deal to change your systems and you will most likely need to get advice from various professionals who are expert in the relevant areas before you make any final decisions. But if you are serious and dedicated to the success of your own business, you will make this commitment of time and money. Once you have initiated a regular system of business analysis, it will be easier to maintain over the long term.

Use Technology to Your Advantage

One example that is easy to talk about is the use of optical character recognition (OCR) technology to automate the data entry of your accounts payable. We meet business owners who are still paying staff to enter data manually, even though they may be using great software like Xero. The owners resist the idea of paying for yet another subscription—but when we do the calculation for them showing the cost of the subscription and the savings in labour cost, it becomes obvious that this is a system change that will save money almost from day one. We recommend ReceiptBank and Hubdoc.

Another example is using staff management solutions that track staff time allocated to particular customers or projects. If you are manually tracking this and entering the data into payroll and accounting software, you need to consider getting an integrated solution like Deputy, which offers many practical features to minimise the time spent on employee administration.

What Next?

We love getting involved in understanding your operations and assisting you to get the best systems in place for your business type and financial targets. This often involves implementing new software solutions, training current staff in using the new systems and offering support through the changeover period.

As business keepers, we have a close knowledge of day-to-day transactions and processes that affect your business operations. We know far more about your business than just the financials!

Talk to us—we can assist you in assessing your current systems and technology and advise on systems better suited to your current operations and your future goals.

 

Useful Links

The Guardian Lush Cosmetics Payroll Error

OTM Bookkeeping Business Systems Consulting

OTM Small Business Payroll Challenges

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