The start of a new calendar year can be a good opportunity to take stock of your business' finances in order to better meet your goals, maximise profits and so on. These four actions and metrics are a good starting point.
1. Cash flow
A key measurement for your business’ financial health, managing your business cash flow (money coming in and going out) is essential. Your cash flow covers your expenses like day-to-day bills, stock and salaries as well as operating expenses and overheads. It can also give you an indication of whether your business is growing, so it’s something you need to be fully across.
Get into the habit of forecasting cash flow monthly, quarterly and annually and make sure you stay on top of regular invoicing and receiving payments from your customers. Here are some more ways to manage your cash flow.
2. Know your financial ratios
Getting to know these five basic financial ratios can help you assess the financials of your business. Net profit margin is one of the calculations that will indicate whether you’re making a profit after covering all of your costs.
If you’re not making an acceptable profit from your sales, work out your break-even point so you know:
- The profitability of your product
- How far sales can drop before you start making a loss
- Units you need to sell before you make a profit
- Effects of changing your price or volume of sales
Then think about your business’ pricing strategy to help you plan and manage the amount of income your business could bring in.
Estimating future trends can help you predict things that could affect your business’ finances and help you plan. Focus on forecasting your costs, sales, profitability as well as the market you are trading in.
Once you’ve set your forecasts, make sure you review them regularly so you can see any issues/problems before they develop into something major. Over time this will help you see trends well in advance and plan for them accordingly.
4. Get the most from your bank
To reduce administration time and account fees, make sure you’ve got the right financial products for your business.
Think about what you need from your business bank account – whether it’s real time SMS alerts when your balance is low, high or you’ve just received a payment (helps with managing cash flow) or consolidating your online accounting service (for example, MYOB or XERO) with your online banking.
Take a look at your EFTPOS costs. Does your merchant plan still suit your business turnover or can you cut costs by moving plans? Look for an EFTPOS deal that that works best with the sales volume and goals of your business.
A good accountant or book-keeping routine is also invaluable, and can help identify areas you may have overlooked when managing your business’ finances.
If you’d like some expert advice, you can book in a free business financial health check with us by contacting your local Business Banking Specialist.