Same new year, same business valuation?

THE New Year is in and many of us start making resolutions that will change our personal lives. However, very few do this with their business.

What are your New Year’s business resolutions? Hit and hope this year is better than the last? Look at last year and add 10 per cent?

It’s never too late to review your plans and I find most businesses have the chance in January, when things are normally a bit quieter, to sit down and check what they are doing over the next 6 to 18 months.

So what should you do as a minimum before you consider contacting your business advisor for their opinion?

STEP 1: Update figures july to december

IF you are using an accounting software system, whether it be in the cloud or not (we recommend Xero), update your first six months as quickly as possible. Establish your profit for July to December as a starting point.

STEP 2: Predict profit for next 6 months

REVIEW the next six months’ likely sales and expenses figures. As a guide, look at these numbers from your system (you simply change the dates for January to December last year). Use these as an indication only.

Then establish what profit might look like for the year based on your answer in Step 1 and adding your initial prediction for the next six months in Step 2.

STEP 3: Check cash flow

USING your starting cash at bank figure, inventory and debtors and creditors in your balance sheet at the end of December, check that you will have enough cash flow based on the figures you have worked out in Step 2. 3-Way Budgets (sometimes called 3-Way Cash Flow Statements) make this job much easier and more accurate but you can attempt to do this yourself in a spreadsheet or manually on a sheet of paper.

What is your expected monthly bank balance up until June?

STEP 4: Are you happy with tracking

IF this all looks good and you are happy with the projected outcome then all you need to do is go in and update your budget in your accounting system so you can monitor and measure any variances each month.

Work out whether your business will be improving its business valuation based on the projected numbers, whether it will stay the same or go backwards. This is particularly important if you are thinking of selling your business over the next few years as this may cause you to want to improve the business performance in terms of revenue and expenses – generally higher profitable businesses realise higher business valuations as most business valuers would tell you.

If you are not happy with the profit and cash flow projection go to Step 5.

STEP 5: Review business strategy for new targets

AFTER taking the first six months’ actual profit, adjust what revenue at what margins and then take off expenses until you are happy with your projected profit for the current financial year. It’s time now to amend your business planning assumptions.

Consider new marketing strategies and other approaches such as up-selling to existing customers. Work out how often they buy and what value and how you might be able to increase these amounts.

STEP 6: Repeat steps 2 and 3

If you are targeting business growth by increasing sales and/or through overhead reductions, make sure your estimates are reasonable and that you will have enough working capital to fund your growth.

Determine whether you are getting the best deals from your suppliers. This could improve margins and reduce overheads.

Negotiate, negotiate, negotiate!

Consider new marketing strategies and other approaches such as up-selling to existing customers. Work out how often they buy and what value and how you might be able to increase these amounts...

Conclusion:

BE disciplined! Do not wait until the end of the year to review your numbers with your accountant or business advisors. If the above seems too hard, get help!

New Year’s resolutions on a business level will help your lifestyle, just as your lifestyle resolutions will help your business.

Why do we tend to concentrate on a personal level?

More importantly, what are you waiting for?