One of the keys to shake-up your business in the new financial year is to keep your records up to date. Doing this increases your business’ value, provides easier access to finance and allows a better insight into how you are performing.
Business policy advisor at CPA Australia, Gavan Ord, told Dynamic Business that too many SMEs viewed their reporting requirements as a compliance issue rather than as a tool to help them grow, exert control and measure progress. There were a number of issues that SMEs needed to consider:
1) Accounting software: Mr Ord suggested many operators did not make the most of available accounting software and neglected to produce cashflow forecasts or debtors’ ledgers highlighting customers with large outstanding amounts.
“If a small business is active in its reporting, measuring, monitoring and acting they are more likely to be successful. They are also more likely to get finance from a bank and or attract other investors,” he said.
2) Access to finance: A business that is attuned to its financial situation will be able to respond more appropriately to changing circumstances and more easily identify looming cashflow problems. This allows operators greater access to finance and more flexible business strategies.
3) Setting goals: Mr Ord said all SMEs were capable of setting broad goals for the financial year, including profit targets, return on investment targets, sales targets and expense targets. Whether or not these targets are achieved can depend upon how effectively a business monitors its financial records.
“By keeping your financial records up to date, you can produce financial information on a regular basis and compare how you are going more than once a year. You will be able to prepare for the end of financial year more effectively,” he said. “You identify problems or issues early. It can help you gain access to finance when you need it and it can therefore help you grow your business and increase the value of your business.”
4) Seeking assistance: With professional assistance, small businesses can also delve into more complex targets and compare their working capital ratio, stock turnover ratio and profit per employee ratio to averages in the industry.
5) Tracking performance: Other practices to adopt include regular health-checks of various aspects of your business. Stock and purchasing practices should be reviewed every six months and asset stock-takes taken on a quarterly basis so obsolete equipment can be written off.
Keeping on top of the payroll system can also return dividends. Business owners should encourage staff to take leave regularly to avoid a build up of entitlements.
Track your profit and loss statements to regularly assess the health of your business and hone any sales targets you might have. Your balance sheet and cash-flow statement will give you an idea of the net-worth of your business and seasonal trends in your industry.