EOFY resolutions for your small business
Do a financial health-check
Year end is a good time to check the financial health of your business. Reviewing financial statements and conducting basic calculations on liquidity, solvency, profitability and return on investment – and comparing the results with previous annual figures and to similar businesses in your industry – will help identify strengths, key weaknesses or potential threats.
Revisit your strategic plan
After a financial health check, also use the end of financial year to reconsider your strategic plan. This should involve an analysis of your market segment and predictions about future trends and developments. It is important that a strategic plan reflects the objectives you, as the business owner, have for your business and personal life.
A strategic plan should also address weaknesses identified in the financial health check and include a work plan, responsibilities and due dates, and be implemented and monitored throughout the upcoming year.
Draw up a budget for the new financial year
When your budget aligns with your strategic plan, it allows you to allocate resources to achieve your plan’s objectives. However, if the budget shows that an objective is likely unaffordable, you may either need to seek more resources to fund it (for example, borrow funds from a bank) or modify the overall plan.
List all your assumptions when setting a budget. To stress test the business, amend these assumptions to determine what impact it has on your financial position; e.g. include a 10 to 20 per cent reduction in sales or a 20 per cent increase in fuel costs.
A budget should be regularly checked against actual results and variations always questioned.
Prepare a cash flow forecast
One of the most significant problems a small business can face is poor cash flow. A cash flow forecast is therefore fundamental to good business practice. Ensure your forecast aligns with your budget and is monitored regularly.
Review your business’s profitability
Issues influencing business profitability may come to light during the financial health check, strategic plan review, or while drafting the budget. Other issues impacting profitability can often be uncovered by reviewing:
- staff productivity
- your production process
- supply chain
- use of business assets
You should also consider tactics to increase sales of your most profitable products or services, reduce input costs and seek advice from a CPA Australia-registered tax agent on tax-effective strategies.
Ensure you have finance options
All businesses need finance to fund ongoing operations and to grow. Finance can be provided from debt, equity and internally generated cash flow. The purpose of the required finance – e.g. an asset purchase – will help you to determine the best type of finance to seek.
If you borrow from a lending institution, end of financial year is the perfect time to meet with your lender to discuss business plans for the forthcoming year. Indeed, you may find the lender offers to help finance your future objectives.
Of course, it is always good business practice to have surplus finance available to cover business contingencies, as well as to take advantage of new opportunities.
Revisit your marketing plan
While it may seem obvious, it is important that your marketing plan is focused on achieving key objectives, particularly with regards improving cash position. Ideas for using a marketing plan to bolster the cash position of a business include:
- focusing on sales that have a high margin and bring in cash quickly; e.g. well placed visual displays such as in-store signs and posters to highlight a special or higher margin products
- rewarding staff for sales of products that carry higher margins
- paying staff commissions only when payments are received
- closely monitoring promotional activity or campaigns to gauge their effectiveness
- encouraging customers to pay at point of purchase or as soon as practically possible.
Review risk management strategies
Whether a business is experiencing good times or bad, it is important to have appropriate risk management strategies in place.
Key risks to be aware of and manage include:
- relying too heavily on a small number of major customers, which can in part be managed through increasing customer numbers and helping smaller customers grow
- over-reliance on a single supplier: identify potential alternatives
- selling on credit: conduct customer credit checks and if prudent limit the amount of credit they can access, follow up on payment before due and cease supply if customers become late payers
- fraud: implement internal controls in high-risk areas – e.g. cash handling – and ensure the controls are enforced and breaches promptly acted on
- cyber security: speak to your IT support provider about the cyber threats you potentially face and how to best mitigate them.
Take advantage of opportunities
It simply makes good business sense to never shy from new opportunities that are consistent with your strategic direction and can be properly funded.
Avoid these record-keeping mistakes
The Australian Taxation Office (ATO) has advised that when it comes to record-keeping, the most common mistakes it sees are a failure to:
- record cash income and expenditure
- account for personal drawings
- record goods for personal use
- separate private expenses from business expenses
- keep valid tax invoices for creditable acquisitions when registered for GST
- maintain adequate stock records
- substantiate records for motor vehicle claims.
Well-managed businesses use many of the above-mentioned ideas through both good times and hard times to maximise profits, minimise risks, and grow. Applying them now to your business can not only help improve it, but likely lead to long-term growth.