How to use EOFY to set yourself up for success
Each end of financial year ‘EOFY’ is the highlight of the year (at least it is to us)
It’s the green light for business owners to run the rule over their business and set up for success.
It’s not just crunching the numbers and filling out forms. Simply looking at how the numbers total flags how successful your business is.
At EOFY time, you’ve got your head in the books anyway.
So why not jump at the chance to act on parts of your business that need financial attention?
The numbers that matter
To know where you stand, you need to get a fix on a few things, which are:
- cash flow
- profit and Loss
- fixed costs and variable costs
Let’s break those down.
Your cash flow measures the amount of money coming into your business at a given time (usually a month) against the money going out (to pay suppliers and bills).
If more money’s going out than coming in, then there’s a bit of trouble.
If you’ve been in business for a year it’s relatively straightforward to measure your cash flow using online accounting software like MYOB (but get input from your accountant).
Once you’ve got a handle on your cash flow, you can even create a cash flow forecast to see if any rough patches are coming up.
To get your head around creating a cash flow forecast, here’s help.
Profit and loss
This is where the rubber meets the road. At the end of the financial year, did you record a profit or a loss?
If you don’t know you’ve made a profit or a loss, you don’t really know how long you can keep up the business.
There are rules about what’s considered ‘income’ when preparing a Profit and Loss report for the sake of reporting to the ATO.
Again, software like MYOB makes the process of creating a Profit and Loss report simple.
Fixed and variable costs
Being crystal clear on your cost base is vital for forward planning.
Fixed costs include stuff that isn’t affected by your productivity. Things like rent, utility bills and insurance.
Variable costs are costs that change as your business changes. Say, the amount you pay your staff will, of course, go up if you hire more people. The cost of materials for your business will go up if you buy more.
Revenue’s pretty simple – it’s all the money coming in based on the activities of your business.
So sales can be considered revenue but any loans you took out can’t be seen as revenue.
Now the numbers are mapped out, create a plan for how much profit is needed for your business goals.
With your trusty accountant on hand, you can reasonably forecast your expenses and your income.
If you’ve done a cash flow forecast, you can see where there may be turbulence during the year.
Of course, the unexpected always happens in business – it’s the thrill of the chase that keeps our mojo! – but having a baseline to work from is a great starting point.
So, where’s this baseline coming into play for your business goals in the coming year?
It all depends on what they are.
Increase average sale value
If you need more business revenue but don’t want to hire extra staff, try schooling your staff in the art of upselling.
Mix this with KPIs (Key Performance Indicators) for upselling and dangling the carrot of a commission, and you could be saying hello to more business revenue.
Reduce variable costs
Can you re-negotiate with a key supplier?
If your business is growing and you’re buying a lot more, could there be scope to re-negotiate rates based on your loyalty as a customer?
The bottom line
There’s a limitless treasure trove of solutions for your business challenges as there are business problems.
That’s why we can’t shout it from the rooftops loud enough to go find a great business advisor, particularly if you’re new to the game.
Dealing with those challenges depends on your access to timely, relevant numbers so you have the surefire shot at identifying where the weak spots in your business are to solve them.
And it all starts this EOFY.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’ circumstances will vary for end of financial year. Article by MYOB. First published on 5 May 2018 – https://www.myob.com/au/blog/set-up-success-eofy/