4 Strategies to implement in 2017 to improve the financial performance of your business

February 15, 2017

By Jon Traynor

You should be well into 2017 by now! These are my top 4 strategies to improve the financial management of your business

Strategy 1 – Prepare a budget

Budgeting is an ugly word but is essential for any successful business. We prefer utilising the software you currently have rather than an Excel masterpiece.

Successful businesses will look forward at least 12 months to project their profitability and cash flow.

Key items to consider:

1. The profit and loss budget should be GST exclusive while a cash flow budget should be inclusive.
2. The cash flow budget should automatically calculate GST owed to the ATO depending on whether the business is using monthly or quarterly GST reporting and whether GST is paid on either a cash or accruals basis.
3. Opening balances (for example: bank overdraft/credit balance, GST liability/refund, debtors and creditors) need to be recorded on the cash flow budget.
4. The collection and payment percentage rates for debtors and creditors (for example: current, 30 days, etc) should be recorded to better reflect the impact of sales and purchases on the cash flow budget.
5. The cash flow budget should include common items such as PAYG instalments/income tax, loan repayments, plant & equipment purchases, dividends, and loans made to the business.

Strategy 2 – Monitor your business

Now that you have a budget prepared use it to monitor your businesses performance! Timely knowledge of business performance allows decisions to be made from an informed position, with monthly comparisons to budget and exception reporting ensuring that problems are identified and acted upon quickly. You should be monitoring:

1. Variances between actuals and budget
2. Gross profit margin
3. Debtors turnover
4. Breakeven sales
5. Return on investment

Strategy 3 – Real time data

You need real time data to make real time decisions. If you’re a client of ours you’ll know we love Xero, but MYOB Essentials and QuickBooks Online are also options – this isn’t about product you simply must be on the cloud!  Being in the cloud offers a number of benefits for businesses including:

• Direct link to your business bank account to ensure accuracy and timeliness of data.
• There is no need to store and manage data and maintain expensive computer hardware. You can operate the software from a single computer without having specific software installed on the computer.
• The information can be updated and accessed from any computer anywhere in the world.
• There is only one ledger kept and that is the file in the cloud, which improves the accuracy of the information and therefore minimises errors at BAS and tax time.
• Multiple users can access file from different locations simultaneously.
• The software is automatically kept up-to-date meaning that you don’t need to download updates such as new tax tables.

Strategy 4 – Review expenses and negotiate the best deal!

Business owners should be regularly reviewing costs and comparing their financing facilities.  Quick wins can be achieved by:

1. Meeting with your business banker to discuss current facilities and business position enables a better understanding of the terms of current facilities as well as other available facilities. For example, there may be better interest rates available, reduced fees, more convenient ways to pay, or the availability of credit to assist with cash flow.
2. Engaging an insurance broker to assess your policy and ensuring it’s the right one for your business.
3. Reviewing your key suppliers costs against the competition.
4. Pay bills on time. Cash flow is ‘king’ in small business, review your payment terms with suppliers to see if they offer discounts for early payment.