How often do you review your pricing? Both for your sales, as well as your supplier’s prices. There may be a better deal available for you that will easily increase your profit margin without you changing anything for your clients.
There’s many options for costing software. Make sure you take advantage of them. You absolutely need to look at the whole picture when you assess your prices. Consider that you buy an item for $5 and sell it for $10. That looks like a great margin, right?
But, your business costs are, say, $3. You’re now at a $2 profit. 20% isn’t bad. But that 20% profit is before tax. This is why the big picture is so crucial to understanding your financial state, and to staying in control.
Invoicing on time and correctly is also highly necessary. You may be sitting well, but It only takes a couple of late invoices and there’s a ripple effect can throw you into chaos.
Use whatever available technology you prefer, Xero QuickBooks etc., and make sure your invoices are getting paid. It’s important to work with your banking structure and look at your numbers regularly.
Active cash flow is essential to keep business your business running.
Your terms need to be clear and to reflect your business needs. How long do you give people to pay? You can end up with quite a cash gap if your terms are too generous.
Analysing your debtors and recovery days on a regular basis will ensure you find any anomalies quickly. It will also ensure that you know what your team are doing when it comes to collecting payments
How much current becomes 30 days 60 days 90 days? What systems do you have in place to measure and control this?
Your financial records are a great indicator of control. Not just the numbers they contain, but the records themselves. If you get audited, you need a clear paper trail. And yes, paper is only half the situation these days. Your electronic records need to be as immaculate as your filing cabinet. And with reliable backups.
Take a look at your record keeping regularly. I recommend getting on top of it before the 10th day of month ideally. This allows you to understand where you’re sitting early enough that you can get on top of any issues or cash flow blockages. You have the next 20 days to get it sorted out. That said, it really does depend on your individual business. Your payment terms will dictate the regularity with which you need to know where you’re sitting. 7-day terms – reconcile weekly. 30-day terms – reconcile monthly. And so on.
Remember when you delegate that means checking in regularly that these things are under control and being done. By making an assumption all is well is abdicating and that can create chaos.
When it comes to taxes, control is much easier if you and your team tax plan at the end of the 3rd quarter, so you have a full quarter to sort out any issues that may arise. Make sure your accountant can fully explain the taxes you’re paying. Ask for justification. Ask where the numbers came from, how they’re created, and how they came about. And keep in mind that paying taxes is a good thing, it means you’re making money!
Each end of quarter comes with extra control challenges. It’s BAS time. Do you have a separate bank account that you use solely to prepare for tax? Using this account for any operating costs is detrimental to your state of financial control. It means that you’re behind. Your cashflow should support you to put 10% away and to leave it untouched. If there happens to be extra after tax, then you can consider it a business bonus.
Remember when it comes to the GST we are basically tax collectors for the govt. If you put It aside it will ensure you can always pay it on time. There is nothing worse than falling into that deep dark hole of owing the ATO money and having to negotiate and re negotiate those payment plans.
Finally, after all these areas are under control your reporting and understanding of them is paramount for your future success
Understand profit and loss. Understand where your money goes. Your P and L statement should have enough account lines to be quite detailed. Your bookkeeper can help you work out how to split your operating costs to direct and indirect as well as sort out your Cost of Goods sold into categories to allow you analyse what your position is on a monthly basis. This means that if something isn’t seeming right for you, you can see exactly where the money is leaking from.
Technology costs like printers, mobiles, and internet are one area that can add up very quickly. Because of clear account lines, one client of mine noticed this area was blowing her budget and threatening her financial control. She was able to make a couple of calls to providers and instantly saved 40% of her total technology budget.
As I said earlier, no one has your business interests as the highest priority except for you. It’s up to you to make sure you’re always getting the best deal, because financial control is making sure you’re on top of the best deals.
Control means that every dollar you spend is an investment in your future. The return on your investment is your business having a secure financial future.
Financial Control means Peace of Mind.
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