Welcome to the start of a New Year – 2023.
With higher interest rates, rising business input costs, shortage of qualified labour, 2023 is starting as quite a dynamic year ahead. Getting the business finances, margins & prices right, have never been more important.
To assist in getting your business off to a great start in 2023, we recommend you review the following:
1. Clarify your Personal Financial Goals and assess how the business can contribute towards achieving those personal financial goals.
If you are looking to pay off your home loan, buy a new car, buy an investment property, establish a share portfolio, buy a new toy, establish how, when & what the business needs to contribute to make sure you can achieve these goals.
2. Review your Key Business Target numbers and meet with your team to ensure they understand the targets and how important they are to businesses success.
The key targets could be sales, production, new customers/sales, profit and/or cash flow. Engaged team members always want to know what the business is looking to achieve; they want to know and feel they are contributing to the success.
3. Review your Pricing Strategies.
With the rapid increase in inflation & business costs rising including labour costs, if these costs are not passed on in higher prices, business profit margins will take a big hit. As a rule of thumb any business making a net profit margin of less than 5%, will not make any profit in 2023 if they do not consider price increases. 10% is generally considered a good net profit margin, so inflation is expected to take away half the profit margin of good businesses without price increases.
4. Review your Business Financial performance against key Industry Benchmarks.
Benchmark reviews highlight what areas in your business need attention and which areas provide the most opportunity. Invariably benchmarks highlight unexpected trends that have developed over time, that put them at odds with competitors, both positively and negatively.
5. Review supplier prices and trade terms.
Consider whether the pricing models and trade terms are ideal for your business. Consider whether the pricing you are offered is the standard offered or reflects your long-standing loyalty, buying volumes and prompt reliable payments. Suppliers are often prepared to consider pricing models that reflect the importance of your custom to them. Most businesses just accept the prices & trade terms offered by suppliers with limited customisation of supplier terms.
6. Review unprofitable divisions, product lines and services.
20% of the least profitable product or service lines contribute to 80% of the loss in profit margin. A review of unprofitable product lines and services allow you to identify activities that need to be rationalised to improve profitability.
7. Identify new sources of capital for refinancing and or expansion.
Consider a review of existing loans, consider business or corporate grants or Business Investors to provide an additional source of capital to reduce borrowing costs, refinance expensive debt or provide capital to expand.
8. Undertake a payroll audit.
A payroll audit will help ensure you are paying the correct pay rates, deducting the right amount of tax, paying the correct superannuation, workers compensation & payroll tax. Avoid the risk of substantial back pay claims, superannuation paid late & subsequent penalties and industrial action or employee conflict for inadvertent errors in payroll calculations.
9. Take action to implement Tax Planning strategies early.
We would recommend review your tax position prior to the Federal Budget in May 2023. It is anticipated the 2023 budget will not be as business friendly as the last few years. It maybe worth taking advantage of the existing small business tax concessions before they disappear.
10. Undertake a technology and software review and audit.
Review and audit your technology and software to ensure you are not paying for subscriptions on technology that is providing limited value to the business. Technology is often paid on a subscription basis but its value to the business diminishes over time, but monthly payments roll on. Its time to review them.
11. Undertake an insurance review and audit.
Review and audit your insurance to ensure is still fit for purpose and premiums are competitively priced. The key insurances to review include life insurance policies that provide inadequate cover because a change in family circumstances ie marriage, children, death, disability, divorce, retirement, etc. Income Protection insurance cover where your income has increase or decrease significantly; Business insurance cover that does not reflect to size or complexity of the business, are paying for subscriptions on technology that is providing limited value to the business. Far too often insurance policies are allowed to roll from one year to the next without any review.
12. Undertake a Marketing review and audit.
Review and audit marketing to ensure your budget continues to generate the best return on investment. Critically evaluate the cost & effectiveness of all your marketing strategies. It is not unusual to set your marketing budget at around 2 to 10% of sales (with the average around 5%), but it is critically important to eliminate or change the strategy on marketing techniques, strategies & models that are not being effective. We would generally recommend settling on an annual marketing budget and focusing on strategies to get the most value from the budget. This will often mean cutting some marketing spend to take up new strategies and drives efficiency and accountability in marketing strategy, rather than the bottomless bucket approach that allows the marketing budget to grow with limited accountability.
13. If you have been in business more than 5 years, it’s time to seriously consider your Succession Plan.
Successful Succession Plans take at least 2 years to plan & implement. Even if you still looking to be in business for another 30 years, it maybe worth bringing on a new employee, supervisor or manager than has leadership ambition and future owners or partners in the business. With more than 50% of small businesses just closing on the retirement of owners rather than being sold, clearly not enough business owners are not considering success planning early enough.
If you need any assistance in reviewing these strategies for your business, please contact us and we would be please to discuss how we could assist you.