The end of a financial year is just a date in a calendar. We use this date to draw a line in the sand and say to ourselves – this is how my business has performed. We then report that data to the relevant stakeholders and measure our performance, pay our tax, meet our banking covenants and the list goes on.
The risk of this is that we are always looking backwards at our performance and all too often it is sometime in May the following year that we collate and report this data. If this sounds like you, stop and consider that it has been 22 months since that financial year started. If there was a trend or negative impact on your business, wouldn’t you like to know about it sooner rather than later?
Too many businesses rely on the idea that the bank account tells them how the business is going. With a fast paced world and the increasing use of data and technology, there really is no reason to continue to use the 30th of June as a date to review your business when preparing your historical reports.
Instead you can use this end of financial year to change your mind set on business reporting, one way is to start with the 3 R’s: Reflect, Reassess and Redirect.
Reflect
You are already “reflecting” on your year, but this can be done a lot sooner than your annual visit to your accountant. Regularly reviewing your financials is not just looking at your Profit and Loss statement, but analysing your reports monthly, quarterly, and annually to look for trends and patterns in the whole business and also in product or service lines. Are your margins dropping, increasing, seasonal?
Make use of technology. Cloud based accounting systems can also assist by giving live access to your records to your accountant and advisor. In a world of big data this is going to be utilised more and more to give businesses the competitive edge.
Reassess
A constant and regular reflection on the business will help you make informed and up-to-date decisions and be able to reassess your products or service lines. This is not simply looking for the areas that are giving you the best returns now, but also reviewing the trends to determine what will give you the best returns in the future. Are the products or services you are currently offering the products or services of the future?
Technology and legislation are big impactors in most businesses, and these are anything but static, so your business needs to change with technology and other economic conditions to keep ahead. What changes that are happening will affect your business? Are you aware of any changes? If you are aware of changes, have you reassessed your products or services to adapt to the changes?
Redirect
Once you have reflected on the profitability of your business, and reassessed your products or services, then hopefully your business is primed to tackle the new financial year. At this stage, you and the stakeholders are well informed and up to date with the status of the business.
If this process has left you thinking that your business is not in an ideal position, then it is a good thing you know now and not in 22 months’ time. The next step is to ensure you have all the information required and that any changes made are on the basis of accurate information, and are well thought through and discussed with your Board of Advice.
A Board of Advice is not just limited to listed public companies, even small businesses have Boards of Advice. They may not be called that, but they will normally include other Stakeholders, Accountants and other Advisers. It can be as simple as sitting down with these advisers and running your ideas past them to get another opinion and have someone critically evaluate your idea or conclusions reached.
Once you have discussed this with your advisers and reached the decision to redirect some of your products and services, then you will have comfort in knowing that you are acting on the latest information and with the help of informed advisers.
Your decisions may not always be the right decisions, but you should have further comfort in knowing that you will be running this process regularly and if the decisions made are not working the way you thought they would, you will be aware of this in a timely manner, and be able to Reflect, Reassess and Redirect to keep pace with this ever changing and fast pace world.
About the author
Brendan Campbell is an Associate Director at Prosperity Advisers Group, an independently owned business advisory and wealth management practice. Clients partner with Prosperity for strategies and techniques to minimise taxes, maximise profit, drive growth and build or protect their personal wealth.
