- As the end of the financial year comes up, there are some tasks you must undertake. The first two: look at how you did and then reflect on what you can do better.
- Next, work on ways you to improve your cash flow and how you can keep your expenses under control.
- Then, keep risk at a minimum, and finally, give yourself a break.
The period before the end of the financial year (EOFY) is usually a time when you are busy sorting out your finances, meeting with your accountant to realise all your tax benefits and making all the necessary payments to meet your tax and employees’ obligations.
Although tax compliance is crucial to your business, I think this is also a perfect time to reflect on the year gone by, look at the scoreboard and review strategies for the new year. There are plenty of things you can and should do, to set your business up for success next year.
It’s also an ideal time to celebrate your milestones and analyse your mistakes as a business owner. It’s time to say thank you to your team for a job well done.
As the new financial year nears, I’ve listed the top must-do tasks so you can wrap up this year on a good note and propel your business forward with confidence and clarity. In no specific order, business owners need to:
1. Review your business plans and current position
It is good practice to revisit your business plan if you have one. If you don’t, this is the right time to create one. Your personal situation, business environment or financial situation may have changed in the last 12 months, so your plan and strategy need to reflect current circumstances.
These are the subtasks you should do to navigate forward:
Ø Review and evaluate your performance to your business plan. Did you hit your sales, income, profit or cost cutting targets? If not, then figure out why and draft a plan to improve in the new year. Seek advice from your CFO or accountant.
Ø Review the assumptions underpinning your business plan and, if those assumptions need to change, then amend and incorporate this into your plan to reflect the present situation.
Ø Brainstorm and develop strategies to improve your business, whether in finance, branding or operations.
Ø Commit to the plan and get everyone on board.
2. Increase your business productivity
Regardless of what business you’re in, you should always strive to get more from existing assets and employees. For a business to be sustainable during good and tough times, it needs to operate as efficiently and effectively as possible. In other words, look for ways you can increase productivity using existing resources:
Ø Collect more data that tells you how your business is performing. Start by comparing your performance year-on-year, evaluate industry benchmarks and the strategic goals of your business. Get your accountant to help you out. Peter Drucker puts it best when he says, “You can’t manage what you don’t measure”.
Ø Establish or improve the key levers and drivers of your business. Set realistic goals for them. For example, aim to reduce the turnaround time for your deliverables by 10% or seek to reduce operating costs by 5%.
Ø Establish a process where you regularly review and monitor those key drivers against your goals. Identify areas of improvement and areas at risk by studying historical trends. The best practical approach is to use a dashboard for quick reporting. This puts you in the best position to share this feedback with your team in a clear and concise manner.
Ø Develop and implement strategies based on the feedback. Monitor your new plan’s effectiveness, and then adjust accordingly. Don’t be afraid to scrap your plans and adopt a new strategy when it is ineffective. Rinse and repeat.
3. Improve cash flow to lower reliance on external funding
A debt is a debt, whether personal or business. It is a liability you must manage carefully in business, or it will take you under. It's normal to take out a loan when you’re strapped for cash, just starting out or growing the business.
But you should strive to lower your debts, especially reliance on any external funding. You can do this by increasing the productivity (efficiency) of existing assets including employees as well as improving cash flow.
Improving your cash flow can free up money to fund necessities, pay down your debts or reinvest in the company. Here’s what you can do to improve cash flow:
Ø Chase down outstanding payments.
Ø Examine trading terms and credit accounts to get paid faster.
Ø Work closely with your bookkeeper and accountant to perform regular cash flow forecasts.
Ø Focus and prioritise your marketing towards products and services that generate cash quickly.
Ø Maximise your suppliers' payment terms to hold on to your cash longer. Always honour your commitment and do not pay late.
Ø Reduce stock levels and replace slow-moving products with products with a faster turnaround time.
Ø Sell unnecessary assets and obsolete stock that are clearly not fit for purpose or aligned to your goals.
4. Review your cost structures
This is a critical area in business--keeping your costs under control. For small businesses or sole traders, the rising cost of living will place more pressure on the business with having to provide enough income to maintain your lifestyle.
If you cannot keep your costs in check or pass the costs to your customers, your cash flow and profit will suffer. You should always aim to save as much as possible to prepare for stormy weathers. Here are some ideas:
Ø Review business costs which are under your control. Be strategic in cutting costs, consider implementing changes in phases to avoid cutting aggressively, which may be disastrous to business.
Ø If you don’t ask, you won’t know. Do not be afraid to ask suppliers for discounts or a better deal. Negotiate better terms and condition, not just the price. For example, ordering stock on consignment can reduce warehousing costs or adopt “just-in-time” supply chain.
Ø Do your research, compare your cost structures with industry benchmark, speak to other businesses in your industry and identify areas for improvement, perhaps by working together with them.
5. Identify and adopt risk management strategies
Although risk is an inherent part of business, you should always manage it properly. It’s important to implement risk management strategies so you don’t run into trouble. Below are a few examples of what you can do to reduce risks:
Ø Reduce the reliance on one type of income source or funding.
Ø Reduce client/supplier concentration risk. When your business relies heavily on a small number of customers or supplier, you’ll face serious issues should circumstances change.
Ø Review your credit policy and terms. If you sell on credit without appropriate checks, your business may be vulnerable to fraud.
6. Take a time out
You deserve a break so take some time off to yourself. Treat your staff members to celebrate your winnings and reflect on the mistakes. Remember to give yourself a break now and then so you don’t burn out.
While all businesses are inherently different, the opportunities are usually endless, if you are willing to work hard and create opportunities for yourself. It takes a special kind of person to enter the world of business, so I commend you all for your courage and belief in yourself. My final recommendation is for you to work closer with your team of professionals and experts. Let them help you make the best financial decision this new fiscal year.