Transform Your Business This Financial Year
Okay, so you've done your tax for the year. That's a relief!
Now is a great time to use all the information you gathered for the taxman to work out ways to improve the company's financial performance during the next reporting period. It's time to analyse past performance and create pathways to increase your business profits.
So how do you develop financial recommendations for a company? Let's consider some strategies to increase profitability. We'll look at both economic and non-finance-focused initiatives.
How to Optimise Your Business for the Next Financial Year?
Plan, plan, plan
It’s time to take a look at your strategic plan for the business. As part of your tax lodgement, you will have undertaken at least a rudimentary financial health check of your business. Using this data now is the time to see whether your strategic plan delivers what you anticipated. Are you targeting the correct customer? Is your product offer providing sufficient margin to generate profits for the business? Does the program still make sense under current conditions? For example, many companies determined that due to the COVID-19 pandemic, more customers were using digital channels to transact business. Accordingly, many companies have decided to invest in those channels to ensure they continue to grow their market share.
If you find this all rather daunting, check out these business plan templates developed by the Australian Government (one detailed and the other concise). It offers a straightforward way to either update your existing plan or create a new business plan that will improve the financial performance of your company.
How effectively has your marketing developed the outcomes you need to increase business profits?
Let's talk about customers. What do you know about current customers? Is your selected target customer profile still right for your business, or have things changed? Can you improve your data collection next year to better understand your customers and start predicting their needs?
How well have you communicated with your customers in the last year? Can you improve how you upsell and cross-sell?
Successful companies strive to increase profits for small businesses by modelling customer behaviour using systems like Google Analytics. Using that data, they can seamlessly evolve their offer and finetune their communication to cut through with those customers.
As more businesses start capitalising on the power of digital, now is the time to ensure your business is holding its own. Are your customers finding your business when undertaking a generic search for your product category online? Check it and see. And if, based on last year’s results, you believe you are lagging in digital – act immediately. It could be your website design (do a free website health check here), or it might be that now is the time you refocus your marketing budget with a greater emphasis on digital marketing strategies.
While it may seem obvious, your marketing plan must be focused on achieving your key objectives, particularly improving your cash position and profitability.
Products and services
Now is the time to review all your products and services. Consider some of these questions below when evaluating them:
- How have they performed?
- How do they stack up against competitor products in the market?
- Does a service you offer require overhauling to match market expectations?
- Do your products and services align with an increasingly digital world?
- Should you plan for some product development in the upcoming financial year?
How to improve your business’ financial operation?
- Financial health-check
Every year you should complete a financial health check. It will help with your tax lodgement, but it is also a powerful source of data for planning and even better next financial year. Make sure you have generated your financial reports and have a sense of your performance in terms of liquidity, solvency, profitability, and return on investment.
Comparing these results with previous annual figures and similar businesses in your industry will help you identify strengths and critical areas of weakness or potential threats to your business.
Your balance sheet should be able to identify the magnitude of your expenses. Look at each expense category in turn and assess its value to your business. If, for example, more of your team are working from home, can you reduce your office space expense?
Are you spending large sums of money on traditional marketing activities when most of your customers have migrated to online transactions and would be better served with a ramped-up digital marketing program?
Amongst your required expenses, is there a way to purchase upfront to enjoy increased tax deductions, which will assist in reducing taxable income? Why not buy your domains and hosting for multiple years and apply the total cost as a deduction?
Pricing is a balance between your cost of inputs and the need for profit balanced with the market's ability to pay. If your cost of inputs has increased, it may be the time to raise prices. Now is definitely the time to undertake a formal price review with a thorough assessment of your input costs, competitor pricing and your target market’s appetite for a price change.
- Cash flow
The end of the financial year is an ideal time to review your cash flow. Careful control and management of your cash flow are vital. Is your debtor list growing? Worse still, are you continuing to provide products and services to customers who do not pay on time? Perhaps it is time to consider a pay in advance arrangement with slow payers. Now is a great time to create a formal strategy for collections, chase overdue accounts and ensure regular ongoing reviews.
What about your own debts and payments? An effective cash flow strategy takes the bumps out of your cash holdings. Investigate ways to negotiate a “smoothing out” of your required payments throughout the next financial year. It will help if an unexpected call on your cash reserves emerges.
Look at ways to reduce your tax burden. For example, ensure superannuation payments are made on time, both for employees and for your personal super. Review your finances to ensure your business is structured correctly and your liabilities are minimised.
Seek advice from your CPA Australia-registered tax agent on tax planning strategies. They not only offer support in managing small business tax returns but can provide many small business tax tips and insights that should be included within strategies to increase your profitability. Tax agents can also advise on issues such as small business tax write-offs, which will help reduce your taxable income.
If there are better ways to manage your future tax burden, start looking for them and using them at the beginning of the financial year. The longer these initiatives are in place, the more likely they will have a greater impact.
Don’t forget about the power of pre-payments to increase your deductible expenses.
- Forecast and monitor
Although much work is needed at the front end of the financial year, it is of little value if it does not generate a financial forecast and that forecast is regularly monitored.
While ambitious goals and a clearly defined business strategy are essential, you must also have a framework for measuring and achieving these goals. The forecast highlights achievements and areas that may require your attention throughout the year. Learning early about non-performance can assist in the rectification of that problem.
The beginning of a new financial year is the perfect time for you to take charge of your small business and its future.
If, like many, your business is ready to fully engage in a digital transformation to meet the changing needs of the market, give us a call. From domains and new websites to digital marketing and office apps, we have you covered.