EOFY resolutions every business should have

The start of a new financial year is a good time to set business resolutions

Do a financial health check of your business

Year end is a good time to check the financial health of your business. Reviewing your financial statements and doing some basic calculations using liquidity, solvency, profitability and return on investment ratios, and comparing these results with previous yearly figures and similar businesses in your industry will help you identify strengths and key areas of weakness or potential threats to your business.

Revisit your strategic plan

After doing a financial health check, you should use the end of the financial year to reconsider your business’ strategic direction. This should involve an analysis of your market and predictions on future developments. It is important that your strategic plan reflects the objectives you, as the business owner, have for your business and your personal life. Your strategic plan should also address weaknesses identified in the financial health check and must include a work plan, responsibilities and due dates. The work plan should be implemented and monitored throughout the coming year.

Draw up a budget for the new financial year

Your budget needs to align to your strategic plan so you can allocate resources to achieve your plan’s objectives. If the budget shows that an objective is not affordable, you may either need to seek more resources for that objective or modify your strategic plan.

Checklists: Professional year-end tax resources from CPA Australia

List your assumptions when setting your budget. To stress test your business, you can amend these assumptions to see what it does to your financial position, eg, include a 10 to 20 per cent reduction in sales or a 20 per cent increase in fuel costs.

A budget should be regularly monitored against actual results and variations should be questioned.  

Prepare a cash flow forecast

One of the most significant problems faced by a business is poor cash flow. A cash-flow forecast is therefore a fundamental part of good business practice. Ensure that your cash-flow forecast aligns with your budget and is monitored regularly.

Review your business' profitability

Issues impacting your business profitability may come to light in your financial health check, strategic plan review and while drafting your budget. Other issues impacting profitability may also be found by reviewing:

  • staff productivity
  • your production process
  • your supply chain
  • how you are using your business assets
  • costs.

You should also consider tactics to increase sales of your most profitable products or services, reduce input costs and seek advice on tax effective expenditures

Ensure you have finance options

All businesses need finance to fund ongoing operations and to grow. Finance can be provided from debt, equity and internally generated cash flow. The purpose for the finance, eg an asset purchase, will help you determine the type of finance you should access. It is good business practice to have some surplus finance available to cover business contingencies including taking advantage of new opportunities during the year.

Where you borrow from a lending institution, year-end is the perfect time to meet with your lender to discuss your business plans for the coming year. You may find that they will offer further finance for your future plans.

Revisit your marketing plan

While it may seem obvious, it is important that your marketing plan is focused on achieving key objectives, particularly improving your cash position. Ideas for using your marketing plan to improve the cash position of the business include:

  • focusing on sales that have a high margin and bring in cash quickly, eg well-placed visual displays such as in-store signs and posters to highlight a special or high-margin product
  • rewarding staff for sales of products with a higher margin
  • paying staff a commission only when payment is received
  • measuring the success of each promotional activity or campaign so as to gauge its effectiveness
  • focusing on encouraging customers to pay at the point of purchase or to pay as early as possible.

Review your risk management strategies

Whether your business is facing good times or bad, it is important to always have appropriate risk management strategies in place. Important risks to be aware of and manage include:

  • relying too heavily on a small number of major customers: can in part be managed through increasing customer numbers and helping smaller customers grow
  • relying too heavily on one supplier: identify potential alternative suppliers
  • selling on credit: can be managed through subjecting potential customers to credit checks, limiting the amount of credit that a customer can have, following up on payment before the due date and not supplying customers if they pay late
  • fraud: have internal controls in high-risk areas, eg cash handling, and making sure those internal controls are enforced and breaches are acted upon promptly.

Take advantage of opportunities

Don't turn a blind eye to new opportunities that are consistent with your strategic direction and can be properly funded.

Conclusion

Businesses that are well run use these ideas during both the good times and bad in order to maximise their profits, grow and minimise risk. Using them now can help your business improve, which will likely lead to long-term growth.

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August 2020
August 2020

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