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RESOLUTIONS NO BUSINESS SHOULD DO WITHOUT - CPA AUSTRALIA
Do a
financial health-check of your business
Year end is a good time to check the financial health of
your business. Reviewing your financial statements and doing some basic
calculations on liquidity, solvency, profitability and return on investment,
and comparing these results with previous annual figures and similar businesses
in your industry will help you identify strengths and key areas of weakness or
potential threats to your business.
Revisit
your strategic plan
After doing a financial health check, you should use the
end of the financial year to reconsider your strategic plan. This should
involve an analysis of your market and predictions on future developments. It
is important that your strategic plan reflects the objectives you, as the
business owner, have for your business and your personal life.
Your strategic plan should also address weaknesses
identified in the financial health check and should include a work plan,
responsibilities and due dates. The work plan should be implemented and
monitored throughout the coming year.
Draw
up a budget for the new financial year
Your budget needs to align to your strategic plan so you
can allocate resources to achieve your plan’s objectives. If the budget shows
that an objective is not affordable, you may either need to seek more resources
for that objective (for example, borrow funds from a bank) or modify your
strategic plan.
List your assumptions when setting your budget. To stress
test your business, you can amend these assumptions to see what it does to 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 monitored against actual
results and variations should be 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 a fundamental part of
good business practice. Ensure that your cash-flow forecast aligns with your
budget and is monitored regularly.
Review
your business's profitability
Issues impacting your business profitability may come to
light in your financial health check, review of your strategic plan and while
drafting your budget. Other issues impacting profitability may also be found by
reviewing:
staff productivity
your production process
your supply chain
how you are using your business assets
costs.
You should also consider tactics to increase sales of your
most profitable products or services, reduce input costs and seek advice from
your 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 for the finance, e.g. an asset purchase, will help you
determine the type of finance you should access.
If you borrow from a lending institution, year-end is the
perfect time to meet with your lender to discuss your business plans for the
coming year. You may find that they will offer finance for your future plans.
It is good business practice to have some surplus finance
available to cover business contingencies including taking advantage of new
opportunities.
Revisit
your marketing plan
While it may seem obvious, it is important that your
marketing plan is focused on achieving your key objectives, particularly
improving your cash position. Ideas for using your marketing plan to improve
the cash position of the business include:
focusing on sales that have a high margin and bring in
cash quickly, e.g. well-placed visual displays such as instore signs and
posters to highlight a special or high-margin product
rewarding staff for sales of products with a higher
margin paying staff a commission only when payment is received
measuring the success of each promotional activity or
campaign so as to gauge its effectiveness
focusing on encouraging customers to pay at the point of
purchase or to pay as early as possible.
Review
your risk management strategies
Whether your business is facing good times or bad, it is
important to always have appropriate risk management strategies in place.
Important risks to be aware of and manage include:
relying too heavily on a small number of major customers:
can in part be managed through increasing customer numbers and helping smaller
customers grow
relying too heavily on one supplier: identify potential
alternative suppliers
selling on credit: subject potential customers to credit
checks, limiting the amount of credit that a customer can have, following up on
payment before the due date and not supplying customers if they pay late
fraud: have internal controls in high-risk areas, e.g.
cash handling, and making sure those internal controls are enforced and
breaches are acted upon promptly.
Take
advantage of opportunities
Don't turn a blind eye to new opportunities that are
consistent with your strategic direction and can be properly funded.
Conclusion
Businesses that are
well run use these ideas during good times and bad in order to maximise their
profits, grow and minimise risk. Using them now can help your business improve,
which will likely lead to long-term growth.
Disclaimer
Every effort has been made to offer the most current, correct and clearly expressed information possible within this site. Nonetheless, inadvertent errors can occur and applicable laws, rules and regulations may change.
These materials on this website are general in nature. It is made available on the understanding that the JH Business Services & Taxation is not thereby engaged in rendering professional advice. Before relying on the material in any important matter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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