Creating your best year in business starts by asking yourself some good questions
It's that time again, the end of the financial year, when we all stand back and look at our business and think about the ‘big picture' vision. It's also the right time to ask yourself some 'good questions' if you want to make sure you're well placed to take advantage of the many opportunities the coming year will bring. It'd be a shame not to at least ask yourself these 'good questions' as one or two could lead you much closer to achieving your 'big picture' vision.
The 1st July has just passed and ideally you have access to financial reporting from your accounting system for the year ended 30th June 2010. If you can't easily access this information, then now is a good time to make it a 'big picture' goal to be more confident with the financial management of your business. The full guide to confidently having a HAPPY EOFY is available as a free download on www.bean-talk.com.au - it's written in plain english and will make your life so much easier.
Good questions about the big picture
- Compared to budget if you had one and ask yourself where we missed our targets and why?
- Compared to Industry Benchmarks - CFO On-Call can provide these - how do we compare and what are ‘top performers' doing and how can we learn from them?
- By percentage - so you can see if things are getting ‘out of whack' compared to the past.
Revenue, Cost of Goods/Services and Gross Profit by
Product category, Service category, Division, Branch/Location, Customer, Salesperson
It's not uncommon to see all revenue and costs lumped into one account, which makes it very difficult to work out where the profits and losses are being made. 1st July is a great time to change your accounting system and start to break it down.
Have a look at the percentages as well as the dollar results. You can get a report from most accounting systems by percentage of sales. This is important because percentages are ‘relative', whereas dollars make it difficult to see if things are getting out of ‘whack'.
Have you increased your prices? 1st July is a great time to review your pricing and take into account increased costs. Selling more stuff is great, but every dollar you increase your price goes straight to the bottom line.
Good Questions about your Cost of Goods
- Are there alternative methods or suppliers I can use?
- Can I seek better prices from suppliers I've dealt with in the past?
Many suppliers have been much more amenable to doing deals recently due to economic uncertainty. Use this to your advantage and create a competitive environment with suppliers.
Every dollar saved in Costs goes straight onto your bottom line.
Good Questions about your Overheads
A little time spent finding improvements here can pay big dividends on your bottom line. Think creatively and laterally about what you are doing in your business.
- Does this contribute to the results of the business?
- Can I do this more efficiently?
- Can I do this more cost effectively?
And remember every dollar saved goes straight onto your bottom line.
Good Questions about your net profit
The reason you're in business, I hope!
Ask yourself:
- Am I happy with the profit result?
- How does it compare to others in my industry?
- Am I happy with the return, considering the effort me and my team put in?
If your profit isn't what you had hoped for and you want to plan for an improvement next year, I have one word for you BUDGET. See our article in last month's magazine on Budgets for more details.
Good Questions about your bank balance
Ask yourself:
- Do I need to do a cash flow forecast to see the future position?
- Will I have enough cash to meet the business's needs and obligations?
- Do I need to consider funding for the near/long term future?
If you are struggling with Cash Flow one of the best tools to help is a ‘Cash Flow Forecast'. It's like a cash ‘roadmap' for your business. It will help you sleep better at night if you know what you are in for.
Good Questions about your borrowings
If cash is the ‘life blood' of a business sometimes it needs and ‘infusion'. Borrowing can often be a ‘knee jerk' reaction, so it's a good idea to take the time to reflect on the situation.
Ask yourself
- Do my borrowing really suit my needs?
- Am I paying too much interest?
- What information will lenders need to make a decision and how quickly can I provide it?
- What does my business need to look like for lenders to say ‘Yes'?
Good questions about your accounts receivables
Once you've delivered a quality product or service and provided an invoice within the terms of trade you shouldn't need to apologise for requesting payment.
Ask yourself
- Are they going up or down?
- How many days does it take our customers to pay - on average
go to our www.bean-talk.com.au website to get the simple calculation to work this out
Calculate this formula on results for June 2010 and 2009 and compare. If it's getting worse you may need to review your systems. CFO On-Call has a ‘Getting Paid Health Check' we can offer to identify areas for improvement.
Good questions about accounts payable
If the person who pays suppliers is too efficient, it could be costing you unnecessary interest as you have to borrow to cover the funds that aren't available.
Ask yourself
- Are they going up or down?
- How many days does it take us to pay suppliers - on average
go to our www.bean-talk.com.au website to get the simple calculation to work this out
Good questions about your inventory
Ask yourself
- Is there obsolete stock I can get rid of and inject cash to buy better moving lines?
- What sales are we expecting in the future and what buying patterns do we need to observe?
Is seasonality an issue?
Are there other products you should consider selling to your customers? Are there add-on sales you could be making that would greatly reduce the sales cost and improve profits?
Good questions about your work/jobs in progress
Ask yourself
- What is the dollar value of work in progress
- Could I be doing progressive invoicing or getting deposits?
- What profits am I making on individual jobs and types of jobs?
- Are there jobs that haven't been invoiced and why?
A quick word about your assets
The question often comes up, should I lease or hire, or should you just save the hassle and pay cash for them - it's often best not to make this decision in a hurry or just because you might currently have a surplus of cash. Know your options and the long term implications of each.
I hope you've had a better year than last year and I also hope you celebrate your achievements - big or small. And if you've got into a bit of a rut with your business, it can help to have someone with a commercially experienced, outside perspective to talk it all through with. That's where we can help.
