Part 1 - Four Vital Things You Need To Know about Your Business

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Part 1 - Four Vital Things You Need To Know about Your Business

Nick Roberts • June 23, 2015

Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you're going to survive the ongoing recession (just how do they work out those GDP growth figures by the way?) and make it through to retirement or maybe even successfully selling your business.

Here are four of my eight favourite things each and every one of us business owners should know about our businesses:

Whether you're exceeding your Current Break-Even Point
Whilst all the other things listed in this article are very important, knowing whether you're exceeding your current break-even point is just about THE most important thing about your business you need to know. Even if you have a cash reserve stashed away, sooner or later you're heading for trouble if you don't sell enough to cover your outgoings. And I stress the current, not a historical figure based on your costs two years ago or a gross profit margin you haven't achieved since the start of the last recession!

If you'd like to know how to calculate your break-even point click here and to make sure it's the full picture click here.

Current Cash in the Bank and whether you can pay all your bills for the month
Sounds crazy I know, but many business owners have absolutely no idea about what money they have in the bank, let alone whether they can pay their bills for the month. Why else do people persist in sending cheques that bounce? Even an accountant I spoke to recently doesn't have internet banking! Come on now, we're in 2015, not 1915!

As for knowing whether you can pay all your bills for the month, that's pretty important right? Even a couple of years ago, you could safely pay your bills on the 20th knowing that enough of your customers would pay you on the 20th to cover these, but not anymore as people are, bit by bit, slipping behind a few days. An excellent client of mine uses a monthly spreadsheet template to predict whether their business can pay the bills on the 20th. This works well – they had a shortfall in August and couldn't pay their Provisional tax. But because they knew in advance, they consulted me and I arranged Tax Pooling to cover the tax – problem sorted, no last minute panic and stress!

Current Profitability
Year-end financials prepared many months after the year-end are absolutely useless in managing the financial side of a business. You need to know what profit (or otherwise!) you made last month, the last quarter and for the year to date.

Preparing monthly or bi-monthly financials make a huge difference to business success which can be demonstrated in the very strong correlation between the frequency of financial reporting and business survival:

Monthly reporting	80% survival rate
Quarterly reporting	72% survival rate
Half-year reporting	50% survival rate
Annual reporting	36% survival rate

(*) Source: Williams, A.J., A Longitudinal Analysis of the Characteristics and the Performance of Small Business in Australia

With modern, powerful accounting software that is cheaper than a weekend away for two and with so many other benefits (built-in database, timesheets, inventory control, invoicing etc), like it used to be, is no longer an excuse. OK maybe they won't be quite as accurate as your annual financials but they'll be a good enough guide upon which to make decisions and take any necessary corrective action.

Gross Profit Margin
Your gross profit margin is the very key to sustainable life in your business. Turnover is turnover yes, but no good to you if you're not making sufficient gross profit on that turnover to cover all your outgoings. It's also a vital part of working out your break-even point if you sell goods or services where you incur direct or variable costs. It is necessary therefore to track your gross profit margin at least quarterly, if not monthly. Nothing much stands still in business, and change is constant. Fashion, prices, tastes, the competition, and any reason you like. Are you discounting your prices? Clearing out older product lines at knock down prices? Either which way, know your current gross profit margin and monitor this regularly.

Keep an eye out next week for my final four vital thing you need to know about your business.

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Trades, Service and Professionals – Setting Your Charge-out Rates

By Nick Roberts • May 3, 2016

High, low or somewhere in the middle? Where to pitch realistic charge-out rates is a common question facing trades, service and professional businesses. In fact it's probably one of the most difficult areas of business. You have to be careful not to underprice as this will reduce profits, but at the same time, overpricing could turn customers away. Setting charge out rates is just as important as marketing and delivering a fantastic service. You can do these two things excellently and then undo the lot by setting charge out rates too low or too high. This means pricing is a complex strategy that should be carefully undertaken and reviewed. Read more here

Save Money - Get Your Rates Back

By Nick Roberts • April 11, 2016

Do you wonder sometimes why your Council rates are so high and what they do with all the money? Especially when you see Council workers (as hard working as I'm sure they are) using leaf blowers on the Havelock North to Hastings cycle path? Finding the money to pay your rates is hard enough as it is, but when you're in business and you have a bad year it's even harder, so did you know you can get a rates rebate if your income drops below a minimum threshold? The threshold level varies depending on your income and situation, but for example, a household with an income of $30,000 and one or two kids could get a $600 rates rebate. And then, even better, you can take the kids to Splash Planet and get in cheaply with a copy of your rates bill! For further details click here, or email Nick for help if you're not sure what to do next.

ACC Costs and Fatal Benefits

By Nick Roberts • April 4, 2016

n previous blogs we've talked about cutting ACC costs by switching to ACC Cover Plus Extra. However, you need to make sure that if you reduce the level of your ACC cover, that you have adequate life cover in the event of your untimely demise. This is because ACC pay out Fatal Death Benefits, the amount of which depends on your income for ACC purposes and the amount of the ACC payout can be very substantial. A spouse is entitled to 60% of the 80% ACC entitlement for 5 years whilst children (via the spouse) will receive the benefits until they turn 18 at 20% each up to 40% in total. Take, for example, an earner on $80,000 income who dies an accidental death with a spouse and two children of 4 and 7. Collectively they will receive benefits of $1,049,600. If, on the other hand, the earner had reduced his ACC income to $22,464 the benefits would reduce to $368,410, a very substantial reduction indeed! So, if you want to reduce your ACC premiums by switching to ACC Cover Plus Extra, you have three options: Take care not to die accidentally! Get adequate life cover Stay single without any dependants! If you need help with ACC, contact me at Accountancy + Business Advise Centre.

7 ways you can use your annual financials to improve your business

By Nick Roberts • February 29, 2016

The availability of your annual financials is a wonderful opportunity to review your business performance. You can discover how to improve your business as well as refresh your enthusiasm and drive in the business. Click here to read seven ways you can use your annual financials to improve your business.

Interim accounts - a vital business tool

By Nick Roberts • February 22, 2016

Your annual financial statements have their uses, but by their very nature, they are far too historical to be of any use in managing or improving your business. The most valuable financial accounts you can get your hands on are interim accounts prepared periodically - monthly for larger businesses or quarterly or bi-monthly for smaller businesses in line with your GST return periods. There is a strong correlation between the availability of interim accounts and business survival. Find out here what having interim accounts to hand means for you

Can't pay your taxes?

By Nick Roberts • February 9, 2016

These are the four most common courses of action you can take if you can't pay your tax:

Protecting your business name

By Nick Roberts • February 1, 2016

o get some advice (we'll be happy to help) and take action today!

How to succeed with cash flow forecasts

By Nick Roberts • January 25, 2016

p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 15.0px Helvetica; color: #3d596d; -webkit-text-stroke: #3d596d} p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; font: 15.0px Helvetica; color: #00aadc; -webkit-text-stroke: #00aadc} span.s1 {font-kerning: none} span.s2 {text-decoration: underline ; font-kerning: none} Preparing an annual cash flow forecast can tell you a lot about your business. It can warn you with plenty of time to spare that you're not going to have enough cash to survive the next year without getting additional working capital - which is vitally important to know. Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you're in a twilight business and it's time to move on. Read more on how to prepare and read your forecast here.

8 Vital Things You Need To Know about Your Business – Each and Every Month

By Nick Roberts • December 9, 2015

Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you're going to make it through to retirement or maybe even successfully selling your business. These are my top eight favourite things each and every one of us business owners should know about our businesses.

Simple Business Systems

By Nick Roberts • December 6, 2015

I've said this before (and no doubt I'll say it again) but I'm always surprised at the lack of simple systems utilised in owner-managed businesses. Using the word "systems" can be off-putting because people immediately think it's going to be too complex, too costly or too time consuming but a system can be very, very simple. Using systems makes a huge difference to the way a business operate, read more here.