5 EOFY resolutions for your business
The start of a new financial year is an excellent time for businesses to reflect on their practices and pinpoint areas for improvement. There are 5 key problem areas we often come across in SME businesses that are barriers to growth and success:
- Lack of strategic planning
- Cash flow problems
- Not keeping up with ATO obligations
- Profitability issues
- Poor record keeping
If any of the above strike a chord with you, the new financial year is the perfect time to address them and commit to improving business practices.
Resolution 1 – Review your Strategic Plan
Strategic Planning provides an opportunity to influence the future and assume a proactive position. It provides focus, direction and purpose to your everyday business activities.
Strategic planning is not a short-term activity; rather it is a long-term commitment to ‘big picture’ goals, which will ultimately change your current position. A comprehensive Strategic Plan communicates your mission to everyone involved in your business and breaks down your big picture into actionable goals and objectives. It can also help business owners and management teams determine where to spend time, how best to use human capital and where to concentrate funding.
But what really matters most is how well your Plan is implemented and managed. Ultimately, the key factor in successful Strategic Plans is the commitment to follow up and follow through. Some questions to consider in your Strategic Plan review:
- Are we doing what we said we were going to do?
- Is what we said we were going to do still appropriate?
- How much have we progressed towards our goals?
- What new information do we have and does it alter our plans?
Resolution 2 – Control cash flow (instead of cash flow controlling you)
With 41 per cent of Australian small businesses failing due to poor cash flow management, it’s clear that adequate cash flow is central to business success.
A cash flow forecast is one of the most important tools in your business. The forecast will tell you if your business will have enough cash to meet expenses or pay for expansion. It will also show you when more cash is going out of the business than in, which allows you to manage the shortfalls.
Remember that the key to successful cash management is to monitor all the elements of the working capital cycle. The faster the cycle turns, the faster your trading activity converts into available cash. Introducing relatively small changes to your accounts receivable process can result in significant improvements to cash flow and reduced reliance on banks and suppliers for cash.
Resolution 3 – Stay on top of your ATO obligations
When cash flow is tight, ATO compliance is often the first casualty as preference is given to paying wages, rent and suppliers. In the past the ATO has been quite agreeable to negotiating payment arrangements, however, they have recently toughened their stance on outstanding tax debts. We recently wrote an article on an increase in ATO enforcement activity with the key takeaway being that the ATO is a very powerful creditor, and therefore requires careful handling.
The consequences of non-compliance are significant and range from penalties and interest charges to personal liability for the debts of your business. The best course of action is to ensure you are complying with your legal obligations and payments. However, if you do fall behind, we recommend early engagement with the ATO to address the default and bringing your affairs up-to-date as soon as possible.
Resolution 4 – Measure and monitor profitability
There are two types of profit margin you can calculate - gross and net.
Gross profit margin is the percentage of sales dollars left after you subtract the production cost of goods sold from your total sales figure. It measures the percentage of sales dollars remaining to pay your overhead expenses and provide you with a profit.
Gross profit margin = (gross profit ÷ sales revenue) x 100
Net profit margin reveals how much money is left after deducting direct and overhead expenses from gross profit. This ratio is the percentage of sales dollars left after subtracting the cost of sales and all other expenses (except tax).
Net profit margin = (net profit before tax ÷ sales revenue) x 100
Comparing your gross and net profit margin with other businesses in your industry will help you work out where you need to improve efficiency, reduce costs, increase turnover or increase productivity.
You should keep in mind that, while an overall picture of your business's profit margin is useful, it is also important to check the profit margin of individual products/services you sell. This allows you to assess whether these products are worth pursuing, or concentrate production and marketing efforts to improve that product's revenue.
Resolution 5 – Keep your bookkeeping up-to-date
When your financial data isn’t up-to-date you don’t have the information you need to effectively manage your business. It’s a bit like trying to drive a car while wearing a blindfold! You need to make business decisions based on the most up-to-date financial information available and this means staying on top of your bookkeeping.
Successful businesses have clearly defined financial goals and continually monitor the progress of their business against those goals. Weekly, monthly and quarterly financial reporting is the best way to achieve this.
Need further help?
Marsh & Partners advisors have many years of experience supporting business owners with financial management strategies and advice. If you would like further help to improve your business processes, please contact us to find out how we can support you and your team.
If you have struggled to keep up with your record keeping duties over the past year, perhaps now is the time to consider outsourcing this function to an experienced bookkeeper. The Marsh & Partners bookkeeping team can ensure you always have the up-to-date information you need to manage your business. Find out more about our Bookkeeping Services.
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