Another Year, Another Dollar & That's Before Tax?

INTRODUCTION:

Welcome back! By now most small business owners would be back into the swing of things after Christmas and New Year. Last year I did a blog post that talked about how 2016 represented a wonderful opportunity for those to plan and improve the way they did things including improving profitability, cash flow and their business valuations.

So, how did 2016 go and what will 2016/17 look like compared to 2015/16? Here are some tips to get the 2017 calendar year starting off on the right foot.

Figure 1: The holiday might be over but that doesn't mean it's not an exciting time to get back into business and plan a positive year ahead for cash flow, profits and business valuation. Photo courtesy of Balmain Baz and Lara Scolari Gallery Balmain

1: Review Budget Versus Actual

By now you should have your December accounts ready for review so that you can compare the first six months to budget. If you don't have an accounting system such as Xero to allow you to do this consider changing if your business size warrants it.

Were:

• Sales/revenue up or down (& if so why or why not)?
• Were gross profit margins up or down?
• Overheads higher or lower than forecast?
• Wages consistent with revenues achieved?
• Debtor days, inventory days and supplier days in line with expectations?

These are just some of the key areas you should review and discuss variances with your team and small business accountant.

2: Update Forecasts Including Three Way Budgets

After reviewing what has happened for the first six months of the financial year, it is usually good idea to adjust your predicted year end profit and loss, balance sheet and cash flow projection. This can be done by altering your three way budget.

Check that cash flow will be ok over this period and if not, work out what needs to change to make sure you have enough cash to grow and implement your revised plans.

Figure 2: Don't be a baboon & do the same as last year or nothing at all!

3: Tax Plan

It's never too early to start tax planning. If you are having a great year, consider what you might need to do to minimise your tax for 2016/17. Remember that this will usually affect cash flow so you may need to check your cash flow forecast to see if the tax minimisation strategy is possible or other arrangements may need to be made. Again discuss this with your small business accountant.

4: REview Strategic Plan

As time passes, changes often need to be made to plans. If you can see that variances are not in the positive territory that you were hoping for, it might be time to change tack. If so, work out what these changes are and how they will be implemented and over what time frame. If they involve extra cost or will affect revenue initially (due to lost time etc) then make sure you adjust your cash flow forecasts.

5: Consult Your Small Business Accountant &/Or Business Advisor

If you are struggling understanding the numbers and why they haven't resulted in an overall satisfactory business financial performance then don't be frightened to contact your small business advisors and accountants for assistance. Consider meeting them monthly or quarterly after you spoken to them to make sure you stay on track.

CONCLUSION:

 The years will keep flying by but are you winning or are you content the way you are or going backwards? Adopting the above tips should see you give yourself the best possible chance of making a difference so that in January 2018 you can honestly say you gave the previous 12 months a great crack and in the majority of cases you should see a better and improved performance.