4 ways you could be holding back your business
Overcoming the biggest problems in business often comes down to the simple things, but there are also a few simple things you can do to capitalise on opportunities and reduce risk.
Business owners have a lot to juggle to grow and sustain their businesses, staff, and products or services, but many businesses struggle or unintentionally put themselves at a disadvantage because they don't – or can't – see the missed opportunities or reduce risk.
Setting goals – "I don't have time" is an excuse
Most people simply don't set aside the time to do the forward planning they know they need to do. Here's a simple test: write down your goals for the business.
Now ask yourself, are you doing something to achieve those goals every day or every week? If not, it's not a goal. It's just a nice thought.
Understand what a realistic budget for your business looks like
Financially mapping your business reduces your risk and removes some of the surprises that can occur. Cash flow is the lifeblood of any business and preparing a detailed budget is essential for success.
Your budget needs to be realistic – not just a percentage increase on last year. Understanding its operating costs is an essential first step – map revenue to see where, how, and when money is coming into the business so that you have a realistic view on revenue for the coming year. Once those expectations are set, it's important to understand how that revenue will be generated – think marketing, business development, advertising.
Once you are clear on your revenue, it's time to get a complete view of your expenses. Be tough on costs, but don't forget to allow for growth and the increases that are likely to flow through.
If you're not good with numbers or you're not sure which numbers you need to understand to be successful in your business, it's time to talk to your accountant. Aside from helping you to get clarity, they can also help you understand the drivers in your business, the impact of changes to your assumptions, and support you to track your progress throughout the financial year.
It's also important that your management team understand and is part of the process of achieving the budget numbers they suggest is achievable - having a budget in place that they need to report on regularly makes creates focus on what really needs to be done.
Map your cash
Cash flow: It's critical for business success and every March, we hear the stats of businesses who've failed because they weren't able to manage cash into and out of the business. Even some very large businesses have failed because they ran out of cash.
Understanding your cash flow needs is vital, particularly for high growth business, and it comes down to really knowing the answers to some critical questions on timing:
- How long will it take for customers to pay you?
- How much stock do you need to hold?
- What are the payment terms for your suppliers?
- Have you allowed for tax payments, loan repayments, dividends and capital purchases?
- Have you accounted for super guarantee payments, staff costs, and other HR related costs?
If you don't know the answers to these questions, again, speak to your accountant. They will be able to look at your plans for the business and ensure that your numbers stack up – or give you a reality check about what needs to be done to achieve your business goals.
Expect the unexpected
While it may sound absurd, 'growing to death' is actually not an uncommon phenomenon in business, usually the result of unplanned growth opportunities that stretch the business too far.
Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in-depth knowledge of sales performance and revenue.
Few, however, have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not part of the vocabulary. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing, but it is not always counterbalanced by a rush of income and profit, especially if it results in a liquidity problem for the business.
Take all the tax advantages you can
For small business, in particular, there are a range of concessions and funding that can be accessed, however many businesses simply don't realise the opportunities available to them.
A simple example is trading stock valuations. Your trading stock is an asset that is recorded on your balance sheet. In most cases it should be tax neutral to you. The cost of purchasing stock is expensed in your profit and loss account and offset by the value of the stock asset until you sell it.
While the amount of stock you are carrying will impact on your cash position, because the business's funds are tied up in it, there is no direct impact on your profits or taxable income until you sell that stock. However, if at 30 June some of your stock is worth less than its cost price, you have the option to value it at the lower figure and take the tax write off now, rather than wait until the stock is sold. This reduction in your stock value will produce a tax saving for you.
For tax purposes, there are a number of ways of valuing stock. Once you have done a stocktake (assuming you need to do one), you can ask your accountant to help decide which method to apply depending on the stock and your circumstances. The different ways of valuing stock can produce different results and it's worth the professional eye to assess the most advantageous outcome for the business.
Don't forget about Government concessions
Another way businesses disadvantage themselves is not taking the Government concessions available to them.
The R&D tax incentive and Export Market Development Grant are a classic case of missed concession opportunities. In the case of R&D incentives, if you develop new technologies or products, you might be eligible for a 43.5% tax offset (if your business has a turnover under $20 million).
The Export Market Development Grant reimburses up to 50% of eligible export promotion expenses above $5,000 provided that the total expenses are at least $15,000.
Get more information
To get more information about how to grow and maximise opportunities in your business, please contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.