SPRING CLEAN YOUR BUSINESS.
Director Gemma Denton gives some advice on harnessing Spring energy to give your business a good clean out, so you know exactly where you stand for new financial year.
I love Springtime. It is time to throw back the curtains, dust of the shelves and get out in the fresh air.
Spring is often a time for resets, letting go of bad habits and making goals. This can be true for business too.
The end of financial year brings a scramble of last-minute chores and once your tax is done for the year it is a great time to assess and reset.
There are 5 things you can do to make your life easier, save you money and get a better handle on your business for the year to come.
Review your balance sheet.
Everyone looks at their profit but how often do you review your balance sheet?
The balance sheet is the key to the health of your business.
Current assets such as cash in the bank and debtors (people who owe you money) will show you how much money you have available. The current liabilities such as GST, PAYG, credit cards and creditors (people you owe money to) will show you what you must spend in the next few weeks or month. Where does this leave you?
Then have a look at what loans you have, what is your normal monthly payments for these longer term debts? These have to come first before you pay yourself.
What profit are you expecting in and of that, what will you end up with after all the above is paid?
Then look at how much have you been drawing? Your profit less around 30% for tax is what you have available, assuming no loans! If you are spending more than that, you are going to have a cash problem.
The balance sheet is the key to your future cash position. Have a look at where you are today compared to this time last year. Your software should be able to show you this at the push of a button….if not, you are flying blind. Information is power and helps make sure you always have money when your BAS is due, and you are never caught short on loans. Your business should be able to provide for you but make sure you aren’t taking more than it can handle.
Review profit trends
You should be able to run a few different profit reports to tell you a lot about your business.
Firstly, try looking at a month-by-month comparison. Look at trends, what is a ‘normal’ month and what is perhaps an outlier. Do they all look correct? Start to make a list of what your recurring costs are to build a budget for the months to come.
Try looking at a period of time, quarter by quarter for example is a better indicator of profit as it will even out bigger one off expenses. Then look at 12 months to the prior 12 months. Is there sales growth enough to match the increase in costs? Has your gross profit gone down in which case you may need a price increase.
What is a ‘normal’ profit? This number will be will need to have tax paid on it first so it isn’t all yours. As a rough guide, 70% is the maximum you can use. Loans and debts need to come first too. Try and work on getting this to a point where only 50% is used and save the additional 20% for further debt payments or a rainy day emergency fund.
Review recurring costs & product offerings.
This is true in private and business expenses. So often we put our card details in and forget about it.
My card was recently hacked, and I had to get a new one. I had no idea how many things I was paying for!
In business you would be surprised also.
Do you have multiple subscriptions for products you don’t use?
When was the last time you looked at your insurance and what they offer?
Do you need all the services you pay for?
Review what your products do and the latest offerings. Technology is constantly changing and the things always use, may not be the best anymore. They also may have improvements you didn’t even know about.
At least once a year I like to look over the software we use. Does it fit what I need still? Is it expensive compared to comparative products. Is there someone offering something better. Get onto the sales team and get them to run you through what the product does as if you were just buying it. I guarantee there will be some new function you didn’t know about.
How does the world see your business?
It is an interesting exercise to have a look at yourself from the eyes of your customer. Say you are an electrician in Busselton and your ideal client is new homeowners…. then you need to be a new home buyer.
What would you google if you were looking for an electrician for your new home? What photos would get you in?
What testimonials would make you trusted?
Does your business even come up?
Marketing is a difficult space, and a lot of money can be spent on Google Ads and other social media marketing. Make sure that it is working and regularly check to see that your presence is there and that it is attracting the clients you want to work with.
Have a look at your competitors. What do they look like? If they impress you then get busy! It is better the devil you know as far as trying to get ahead of the game.
Let’s talk interest rates?
Do you know what interest rates you are paying on debt and vice versa. How about what interest rates you are getting on savings?
In the last 12 months interest has gone up significantly and it is now the case that you can earn over 4% on a savings account. If your business has an account it puts money away for tax or savings, make sure it is a high interest account. You could be missing out on thousands in interest. This is not to say you shouldn’t pay off debt first and you would need to look at your individual situation but just make sure your money is working for you.
What are your credit terms with suppliers? Having longer payment terms and not paying invoices until they are due can make you money!
As far as debt goes, have a look at what you are paying and shop around for interest. Like recurring costs, it is too easy to set and forget but the savings could be worth the effort of a quick google search!
