Our partners at Pearce & Heers recently wrote an article on the top 5 industries with the most corporate failures. This article aims to expand on that work by listing 5 simple tips to help you run your business successfully.
Often small business owners are great at what they do but have no real experience or skills when it comes to running their business. Well here are our 5 tips for business success:
- Get a GOOD accountant.
- Maintain an electronic accounting file and proper records.
- Know your bottom line – Prepare budgets and forecasts regularly.
- Get your accounts receivable strategies right.
- ALWAYS make provision for your tax debt.
Get a Good Accountant
In this day and age accountants are no longer someone you see once a year for a tax return and some number crunching. Many accountants are now skilled at providing general business advice, including ways to improve your revenue and how to better position your business in the market.
If you want to run a successful business it’s therefore vital that before you get started you get yourself a good business advisory accountant who can stand beside you from day 1 as you try to run a profitable business. A REALLY good accountant will also keep an eye out for opportunities for their clients to collaborate with one another.
Maintain an electronic accounting file and proper records
This is one of the most common mistakes we see in failed businesses. In some cases the business doesn’t maintain an electronic accounting file, such as MYOB or Xero, AT ALL. How on earth is it possible for that business to stay on top of its finances and know whether the business is turning a profit or not? Well they can’t.
Getting a good accountant will naturally lead into this as they will get you set up on whatever system you want and give you training on how to use it. Xero is definitely the most small business friendly system and syncs with your bank accounts to easily track income and spending.
In regards to record storage, as a cost and time saving measure you might consider moving to cloud based storage, rather than possibly maintaining dozens upon dozens of filing cabinets.
Know your bottom line – Prepare Budgets & Forecasts Regularly
It’s absolutely the case that it’s easier for a business to cut expenses than it is to grow revenue. All this focus on “growth” and “revenue” takes focus away from the importance of managing your business’ expenses well. All the revenue in the world won’t help if you’re overpaying staff, rent and buying new vehicles like they’re going out of fashion.
The simplest starting point is to sit down and work out what your monthly, six monthly and yearly expenses are. Then work out what your target profit margin is and add that to your expenses. You now have your target revenue for the year.
What this will allow you to do is ensure you have adequate capital reserves and cash flow at all times. If you want to stay afloat it’s vital you’re holding enough cash in reserve to cater for any unforeseen problems, such as legal claims, disputes with suppliers or customers, repairs to plant and equipment etc.
Accounts Receivable strategies for Business Success
Often small businesses have a tough time getting money out of their customers. Many small businesses operate on handshake deals, which for obvious reasons can be tough to enforce. It’s therefore important that you:
- Make sure your business spreads its customer concentration around, don’t become overly reliant on one customer. Anything over 50% of your total accounts receivable being owed by one debtor is an issue.
- Consider whether trade credit insurance is right for you. Perhaps if you’re doing a substantial contract or job that you simply cannot afford to not be paid on, then protecting yourself with trade credit insurance is the way to go.
- Make sure you have valid contracts or agreements in place, no handshake deals. If you can, you should also seek Personal Guarantees from directors and charging clauses over the business’ and director’s assets.
- If you have a security interest (such as Retention of Title trading terms) make sure you register your security interest properly on the PPSR.
- Don’t allow debtors to go too far beyond trading terms. If they are outside trading terms get them on a payment plan or think about starting recovery action.
If you’re having trouble collecting your debts it may be worthwhile looking into debtor finance. Debtor finance is a specialist product and you should ensure you understand the ramifications for your business before jumping in.
ALWAYS make provision for your tax debt
Almost all companies and individuals we assist have some form of tax debt, big or small. The ATO is often treated like a bank, in that the PAYG and GST that a company should be remitting to the ATO is instead being used to pay other debts. This is a massive problem. Whilst you may be able to get yourself out of a hole in the short term, eventually your tax debt will need to be dealt with and all the time that it’s outstanding it’s accruing interest and penalties.
So what can you do? Well, you should be:
- Ensuring your income tax returns and Business Activity Statements are lodged on time. You may not be able to immediately pay the debt these lodgements raise but you shouldn’t stop your lodgements for this reason! You can always negotiate a payment plan with the ATO to pay your debt in instalments.
- Set up a separate bank account and ensure you’re keeping aside the money you need for PAYG and GST on a regular basis. That way you won’t be surprised when it comes time to pay these amounts.
It’s important to understand that the above 5 tips for business success all go hand in hand. You can’t do one or two and think your business will kill it. Your very first step when starting a business should be to get a good accountant. Someone that will stand by you on your business journey and do everything they can to make sure you’re successful. This will include setting you up with good accounting systems and financial procedures. Either they or you can ensure regular forecasts are prepared and reviewed. They can also keep you on the straight and narrow with your tax debt.
If you’re looking for some business advice get in touch on 1300 906 966 or email us at firstname.lastname@example.org.