Regular reporting -key to a successful business

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88% of business failure is due to reasons within the control of owners or directors.  Most worrying, is that the number one reason reported is a lack of regular reporting and financial management.  Have you ever wondered why larger businesses post “half yearly results”, “quarterly results” and “monthly results”?  Does it really matter to anyone?  Who uses these “results”?  Many small business owners only get their results to keep the tax man happy – sometimes up to nine months after the end of the financial year.  Effectively, the information being reviewed can be up to twenty one months old.  So what does all this mean and how does this impact on small business?

The underlying reason why successful businesses have regular reporting systems is to assist managers to operate a more efficient business and leaders to make more effective decisions.  Posting regular results allows business owners and managers to review the performance of their business more often and make any necessary adjustments in a timely fashion.  A 2% reduction in the Gross Profit Margin of a retail business can lead to a huge reduction in the cash position and net profit of the business over twelve months.  However if this is detected in a more timely manner (whether it be monthly or quarterly) the business owners and managers can take immediate action to remedy this issue.

The review of businesses over many years shows that each and every business has both good and poor periods.  The better businesses merely detect the poor periods sooner and take quick decisive action.  This means that their poor periods are shorter and their good periods are extended.  There’s no genius in this – there’s just consistency and discipline from the business owners who commit to reviewing business performance regularly.

Many successful business owners only take a cursory view of the financial accounts prepared on a regular basis.  Rather they look at the underlying Critical Drivers that impact business results.  To reach this point the business owners must create and develop a rigorous and trustworthy financial reporting system – allowing them to view summary reports with confidence in the supporting information.

Creating these systems is not difficult and most accounting packages, when used correctly, can provide much of the information business owner’s desire.  The key is to work out what information will assist the owners and managers in operating a successful business.  It is generally worthwhile to contact your accountant or advisor to ensure that the information being provided by your accounting software is reliable and assists you in achieving your business objectives.

If you would like to further discuss your business performance and the reporting procedures currently used to make your business decisions you can contact us at McMahon Osborne Group on 03 9744 7144.

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Your business value today versus tomorrow

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For most small businesses, the easiest way to increase profitability is to reduce costs. Reducing direct costs can dramatically increase the profit on each sale, and eliminating unnecessary business overheads can have an immediate impact on your bottom line.

The best way to improve profitability is to increase turnover as there is no limit to sales but there is a limit on reducing your costs.

Reducing your costs

Identify the steps you can take to minimise your direct costs, such as negotiating lower prices with suppliers, reviewing processes and systems to minimise wastage, and implementing additional security to reduce the chance of theft.

For example, the owner of one manufacturing business used the same supplier for 30 years, and never investigated buying raw materials from anyone else. When the business was sold, the new owner put all the main purchase requirements out to tender. The result shaved 14% off the company’s inventory costs or close to $100,000.

Most businesses tend to stick to the same supplier year after year, so this is an area well worth exploring. Costs that could be put out to tender in your business include insurance, power, telephones and internet.

The value of implementing good systems

Introducing systematic procedures and methods will help reduce costs. Good systems will help you minimise errors, and reduce time and money.

The time invested in creating systems is usually minimal compared with that spent solving a problem from scratch. Where appropriate, turn decisions into policies to avoid having to make the same decision again or sort out the same issues.

Learn from mistakes and problem areas, and if systems go wrong, fix them. It’s a good idea to review your systems periodically to see where improvements can be made.

Stay focused

Focusing management awareness on profitability can have a dramatic impact. Even if cash flow is your top priority, this should not be at the expense of profitability.

Make sure all your employees are aware of the importance of profitability. The most commonly used key performance indicators are actual sales against forecasts, costs against budgets, gross margin and staff costs. Get help from your accountant to ensure you’re monitoring the right indicators for your business.

 Nurture your team

Monitor and measure employee performance and productivity, it’s important to praise staff when it’s due, and provide a clear path so they can grow and don’t see their prospects as limited.

Continuous improvement

A simple planning cycle greatly enhances your ability to make continuous improvements. Good planning also helps you to anticipate problems and adapt as circumstances change.

Set measurable, time-limited targets to monitor how effectively your plans are implemented. Then review what you’ve achieved so you can learn from your experience and make continuous improvements. Keep improving the underlying systems and the planning process itself, but be ready to alter your strategy if necessary.

Apply lessons business-wide

Set up systems that encourage the communication of best practice in your business. For instance, benchmarking different parts of the business against each other can be a useful way of sharing best practice.

Also improve communications with your customers and suppliers – they can offer useful tips and advice. Your customers will be aware of any problems and can tell you what you need to improve.

Increasing your turnover

Below are some possible tactics to improve your turnover:

  • Invest resources in increasing your sales volume.
  • Look for new markets and distribution channels. For instance, are you really making the best use of the internet? Can you form a strategic alliance with a complementary business or a joint venture to tackle work you don’t have the resources for on your own?
  • Actively sell. Don’t just take orders. Businesses that are content to simply take orders are less likely to survive, let alone grow.
  • Retain existing customers through good service and explain to your staff why the lifetime value of customers makes this effort worthwhile.
  • Maximise the value of your sales. Consider moving upmarket and providing a premium product and service. Add features to products if the perceived value to the user is greater than the cost to you.
  • Keep your product or service up-to-date. If appropriate, extend your product range or work to ensure it stays ahead of the competition.
  • Compare your price and quality with competing products or services. Aim to charge a full price and offer value for money from the extras you provide, such as after-sales service, installation and training or bundled extras.

Review your profit margins

Businesses that offer a menu of products can use a simple technique to improve overall profitability. This involves reviewing sales and profit margins periodically, and dividing products into four categories:

  1. High percentage of sales and high profit margins – nurture these stars.
  2. High percentage of sales but low profit margins – consider a price increase and examine how you can cut costs to increase your profit margins.
  3. Low percentage of sales but high profit margins – consider a sales push.
  4. Low percentage of sales and low profit margins – eliminate these where possible.

If you would like to learn more about putting these strategies into place for your business, please contact our team, visit www.mcmahonosborne.com.au

An Eye for Now, an Eye for the Future.

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Let tax planning be more than just getting a bigger refund

It’s the last quarter of the financial year. It’s the best time to review your profits, estimate your tax bill and determine what you can do to get your tax bill as low as possible (or your refund as high as possible).

While we all love spending money on what we need now, tax planning season is also an opportunity to claim a tax deduction for growing your wealth. With the right planning you will not only be getting money back, but you’ll be getting a return on the money you claim as a deduction.

Here’s 2 key areas for you to look at:

Making Contributions to your Super Fund

If you haven’t maximized your contributions to superannuation this year, make sure you do. By putting your money into super not only are you getting a tax deduction now but you are growing your retirement nest egg.

There is a limit to how much you can contribute to receive a deduction ($30,000 if you are less than 49 years old, $35,000 if you are older) so please come and see us to make sure you don’t exceed the cap.

Prepaying Interest on Investments

An important part of growing your wealth is leverage – borrowing money to invest in an asset of higher value. If you have a leveraged asset, consider pre-paying the interest for the next financial year.

If you have the cash available and you have had unusually high income for the year, a one-off prepayment might be what you need for some tax relief. Remember – if you prepay the interest this year, you can’t claim it next year.

Please come and see us first so we can go through the impact of prepaying your interest with you.

Contact us today to book in your tax planning meeting on (03) 9744 7144 or visit http://www.mcmahonosborne.com.au

General advice disclaimer – General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.]