26th August, 2014
Remember when you used to look forward to New Year’s Day? In the finance world, the equivalent day is July 1, and this financial year we are subject to a deficit levy, rising unemployment and a competitive business environment where profit margins are under pressure.
However, from a financial point of view, the New Year gives us an opportunity to reflect on the performance of the previous financial year and create a plan for the future. With the help of your financial advisor or mentor, you need to ensure that you have the right accountant — one who is up to speed on your business and industry. So here are six things to review with your accountant that are beyond preparing the BAS statement.
How are you operating compared to your competitors? While every small business is different, in order to outpace your competitors, you must know how they are operating. Your accountant should be examining your competitors or businesses that are similar to yours and letting you know how you compare to the best. Use their knowledge to look at areas where you can improve your business, and implement the changes over an agreed time frame.
Have you reviewed your insurance or formulated a backup plan in case something goes wrong in the business? There are many variables such as sickness and injury that can affect a small business. What would this cost, and is the insurance still right? On top of that, look at what could happen if a key person were to get sick, become injured, or had personal problems such as getting separated or divorced. Could this affect others in the business? What are the risks? Your accountant can help identify variables that influence the individuals within the business — not just the business!
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You hear that revenue and margins are the key drivers for success in a business, but what we are seeing now is that your costs can have as much impact on your profits as your overall revenue, yet many business owners do not review them. Whilst we experience rising unemployment, this means that there are good quality candidates out of work, and you need to make sure the ones in your team are the right ones. In addition to looking at costs, your accountant can benchmark against peers and identify areas where you may be spending too much or have a capacity to save.
Setting the right price on a product or service basically means survival or death in any business. Too high and you’ll price yourself out of the game; too low and your profitability is hit. There is a major difference between getting the business in the door and making a profit based on revenue. If your margins are too low or your pricing is not putting your head above water, then you may as well not be in the game.
While it seems boring, you need to know what you have done and where you are going. Part of that is doing a budget. Is your business seasonal? Do you have contracts that are up for renewal? How are you positioned for this financial year and beyond? For some business owners, a budget blowout can take years to recover from. This can result in owners or stakeholders not taking wages or drawings, as profits turn into losses.
The key here is knowing your costs — both fixed and variable — and looking at your sales and income forecasts, and assessing if they are in line with your objectives for the business and your own personal goals. The accountant or bookkeeper should have all this information from previous years, and time should be spent forecasting or budgeting for the future.
Are you ready to sell your business if someone walks in with a cheque book? Is the business your retirement plan? Do you need to sell it, or can you retire while still in it? If you have business partners, are they of different ages? Do they have — or do you know — their exit strategy?
Your accountant and financial adviser can help. They will analyse small business tax concessions, contributions to superannuation, tax minimisation strategies, fair and reasonable business valuations, cost bases and estate planning.
As you look in the mirror into last year, meet with your financial advisor and your accountant to look forward and assess your future. Ensure your business is in the right shape for 2014-2015.