Business planning tends to be done in cycles. A cycle may be a week, a month, a quarter or a year. At the end of every cycle, you have the opportunity to compare your business plan to your actual results. The insights you gain from this are used to plan for the next cycle. Smart businesses are able to plan accurately and adapt to rapidly changing markets and external events. The end of financial year gives you a longer term view of how you have performed compared to your plan and provides you with an opportunity to focus on making the next year the best one yet.
The end of financial year is a reminder to spend time working on your business strategy and business plan. Below are five key areas to consider as you enter into a new financial year.
- Choose your balance between profitability and growth
All businesses have a choice between profitability and growth. High profitability usually means lower growth, and high growth usually means lower profitability. A business owner needs to take a view on both and then plan to achieve specific profitability and growth. A budget is then put in place with specific profitability and growth targets taken into consideration. Even if you did not do this last year, you should consider doing it this year so that at the end of any financial year, you are able to assess your performance against your profitability and growth targets.
- Verify your information before making management decisions
To make good decisions, you need accurate information. The only way to be sure that your actual numbers are correct is to have a “control point” for reconciliation. Ideally in a business you should be doing this at the end of every month. At the very least, you should be doing this once a year, and the end of financial year is the optimal time. Use an external accountant to verify your information for your own purposes as well as being able to provide accurate numbers for third parties such as banks and financial institutions.
- Translate your decisions into dollars
Ask yourself the questions: what can we do better next year? What do we need to do more of? What do we need to do less of? Then create a budget taking these changes into account. Your budget is the link between strategy and action. By creating a monthly budget, you have an automatic check each month that you are actually implementing your planned changes. Failure to implement will show immediately as a variation in your budget versus actuals.
- Get paid what is owed to you
End of financial year is a good time to review what your customers owe you. Pay particular attention to any debt past its due date. By printing out an aged debtor report you will be able to see the serial offenders. Follow up on all amounts past due date and put a plan in place to manage your debtors more efficiently during the next financial year. Speak to your accountant about writing off bad debts. Review credit terms and credit limits of bad payers. End of financial year is also a good time to look at profitability per client.
- Don’t procrastinate
There are a few things that must be done at the end of financial year that cannot be put off without dire consequences. There are legal requirements to issue group certificates to your employees, to pay superannuation across, and to have an accurate set of accounts in order to lodge a tax return.
If you sell inventory, it is important to do a complete stock take at the end of financial year. Excluding the costs of running your business, your profitability is calculated by taking what you sell (in dollar value) minus what you buy (in dollar value) plus what you have in stock (purchased but not sold). By counting the physical quantity in your warehouse, you can verify that this matches the theoretical quantity on your accounting system. A variance should raise alarm bells. It may indicate theft or a systems failure, such as delivering goods without invoicing them. Divide your annual sales by the value of your stock holding in order to get your stock turnover ratio. Compare this to your industry average to see if you are holding too much stock.
The more routine end of financial year processes can be found in a checklist provided by your software implementing partner or accountant. Instead of seeing the end of financial year as a bureaucratic headache you should use it as an opportunity to evaluate your performance over the last year and plan for the year ahead.
About the author
Ronnie Baskind is the Managing Director of Kilimanjaro Consulting, the leading provider of MYOB EXO Business in Australia and New Zealand, with over 500 enterprise clients. Founded in 2006, Kilimanjaro takes a unique approach in using technology to drive enterprise efficiency, driven by Ronnie’s rich expertise and diverse professional history in management consultancy. The firm operates from the perspective of a farmer rather than a hunter, looking beyond short-term goals and focusing on growing and nurturing client relationships to deliver long-term benefits.