Top 5 Financial Spring Cleaning Essentials for SMEs
26 August 2010
A couple of months into the financial year and now is a good time to take stock and evaluate whether your New Year resolutions and good financial intentions have stuck. Reviewing your business with our Top 5 Spring Cleaning Essentials in mind will test if you have managed to start the year on the right foot. It may also help you achieve some fundamental financial improvements and tackle any nagging issues that you've been meaning to address. Take some time to rise above the every day clutter. This will enable you to get some perspective on what's actually happening in your business finances and help you sort and maximise what you have to work with. You'll then be reinvigorated and on a better track by the end of the quarter.
1. Review your business plans
The first thing you should do is review your business plan or if you don't have one, put one in place. This does not have to be complex and the plan if possible should be confined to one page. Start by doing a sanity check on your business strategy. Does it still make sense? Assess what your current competitors are doing and get feedback from your employees and key customers. Assess your strengths, weaknesses, opportunities and threats and make a list of the five key improvements you can implement in your business. Establish a timeline and action plan to implement these improvements.
2. Update budgets and cash flows.
Have the correct systems and reporting discipline in place to avoid financial strain. Update or compile key data such as sales and expense forecasts and set up a simple budget worksheet that tabulates cash flows, such as your beginning cash balance and your budgeted cash inflows and outflows. Use this information for the basis of a rolling three month cash flow budget and update it every 3 months based on your actual and forecast cash position at that time. Most importantly, learn how to read and interpret this information accurately so you can look for future cash flow shortages and ways to reduce costs, as well as identify early warning signs and use it as an accurate decision making tool.
3. Review your business cash cycle.
At the same time as updating cash flows, assess what's occurring in the period between when you pay for raw materials, goods or wages for products and services being delivered, through to when you receive payment from your customers. Delays in this cycle require working capital and reduce profits. Moving money around faster by improving your credit policies, billing procedures and reducing stock levels by clearing out old and slow moving items, can free up cash that can be used to the business' benefit.
4. Prepare and plan for reporting requirements and known payments.
This ensures you meet all compliance requirements this year and get off to a good start with adequate funds set aside when needed. The ATO's data matching capabilities and compliance focus means reporting issues will be more easily identified and lodgement dates and obligations will be enforced.
5. Review debt levels.
Consider your current debt levels and whether your lending facilities will continue to work for you. With interest rates likely to continue rising over the coming year, you may consider reviewing your current facilities and rates in place. You should also make sure you are using these facilities for the right purpose. There are a range of special purpose facilities available to match your lending need. This can for example, prevent the situation where you are incurring interest and making repayments for longer than you need to, by using a long term loan for a short term cash need.
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides outsourced accounting services to businesses, as well as tax advice, business advisory and financial services to fast growing small to medium enterprises.