Make the next year even better

By closely reviewing the past 12 months, SME owners can gain valuable insights

The start of the new financial year, July 1, is an exciting time to reflect on the past 12 months and prepare for the next. Whether it’s your business planning, tax, accounting or wealth management, there’s no time like the present to get cracking on preparing for the next phase of growth.

SME owners often struggle to take time away from working in the business to work on the business. As soon as possible, and with the assistance of your accountant, take some time out to reflect on the past year and ask yourself some critical questions:

• Has the business grown?

• How have revenues and profits compared with those of the previous 12 months?

• Are sales up?

• Has expenditure increased?

• Have you achieved your goals over the past year?

If you can answer all these questions positively, excellent. However, if this assessment uncovers a few skeletons, ask yourself why and delve into numbers to find some solutions. Your accountant can help here and can play a part in getting you into planning mode and on track for the 2023 financial year.

Bradley Barnes, partner at Brentnalls SA, a chartered accounting and advisory firm, says he looks at goal setting at a holistic level. “We don’t just focus on the business goals, but on what will be a comfortable retirement for our clients.

“We then evaluate where they are now and what they have to do with their business and investments to ensure they can reach their financial goals in 10, 15, 20 years, and we track this year-on-year to ensure they meet their objectives.

“You must be able to track the strategy. In this sense, ask yourself whether your goals are specific, measurable, achievable, relevant and time-bound, and do you have the data to track your objectives?”

Spring clean the accounts

Run the accounts receivable ageing reports using your preferred software package, such as Xero, MYOB or QuickBooks. This data will enable you to determine the actions required to encourage slow-paying customers or clients to clear their debts and, in the future, pay promptly.

At the same time, run an accounts payable report to determine whether your own business pays its obligations on time. Late payments and defaults can be recorded on a small business’s credit history, leading to a lower credit score.

With a bad credit score, your business might attract higher interest rates or perhaps even have a loan application rejected.

Many small businesses are still in the dark about the significance of their credit score. Research by small business lender OnDeck found that 53% of small business owners are unaware that a credit scoring system applies to Australian businesses.

As a solution, OnDeck launched its Know Your Score online scoring calculator in 2016 (ondeck.com.au/know-your-score). The platform is powered by the credit bureau Equifax.

Audit of assets

As part of the planning for the next financial year, audit your existing equipment and asset register. “Supply chains across the globe are at breaking point, so knowing your lead times is critical,” says Barnes. “Let’s assume an SME’s expansion is based on getting equipment that will double its productivity. If the lead time is six months, this could put the expansion on the backburner.” Barnes also urges SMEs to take advantage of “temporary full expensing” that allows them to acquire capital assets such as IT, vehicles, office equipment and tools and obtain an immediate tax deduction. “This initiative is set to end on June 30, 2023, and companies with an aggregated turnover under $5 billion can immediately deduct eligible purchases.”

Make the most of super

Once you’re satisfied your SME is motoring along well, Barnes urges business owners to consider super. He points to the frequent dilemma about whether to pay down the mortgage or contribute to super. “While interest rates might be moving up, research shows that, with long-term compounding growth, higher income earners are better off putting extra money into super than the mortgage.”

While more business owners might also contemplate DIY super funds, Barnes believes this move should be carefully considered. “There are now a number of industry and retail funds that will allow you to derive the benefits of a self-managed super fund without the cost of setting one up.”