Viewing annual reporting as the ideal opportunity to get to grips with what’s really happening in your business or SMSF investment portfolio, rather than simply viewing it as another compliance deadline, can generate real benefits.
Here are three strategic actions you can take during the annual reporting period to optimise your business for the future.
1. Gain clarity on cash flow
If you’ve ever wondered why your reports show you’re making good profits yet you can’t see your bank balance building, it’s worth learning how cash flows through your business.
Gaining a clear understanding on what builds and what eats your cash flow helps develop strategies to divert cash to your bank or to where it is best invested within your business.
Alongside revenue and expense, movements in stock, capital assets, receivables and payables affect how your cash performs and where it ends up.
Understanding cash flows underpins good investment and financing decisions.
2. Review past performance to guide future planning
While working out where the cash went, you will be able to analyse the major influencers that drive your results and develop knowledge of what your true performance measures should be.
Reviewing may also highlight how operational structure and practices affect revenues, expenses and bottom line returns. This enables qualified prediction of sales and expense budgets, which in turn, quantify financing requirements.
Used with rigour, projections can drive revenues higher by matching sales expectations to capacity, resulting in better utilisation of assets, thus generating better returns. This will also help control liquidity and business resilience. Devoting resources to this level of planning, enables progress with confidence and removes anxiety about bank balances. Having money idling in the bank to gain a sense of security erodes returns.
3. Develop strategies to underpin achievement
Armed with knowledge, it becomes easier to set realistic goals, whether these relate to growth, return on investment, succession plans or personal reward. Focusing on what you want to achieve will guide the creation of strategies to underpin the potential to reach those goals.
For example, a goal may be to double sales within five years without increasing production costs through overtime payments. Near-term strategies may be to invest profits into increased production capacity and working with the labour-force to design a flexibility agreement that delivers increased production and simplified payroll management in return for performance-driving bonus payments.
The benefits of understanding the inner workings of your business and translating that knowledge into planning for return, cannot be underestimated. While working on the business should be part of the everyday, it’s beneficial to use reporting times to improve our understanding and crystallise thinking.
If you would like more information about how you can optimise your business during this annual reporting period, speak with a trusted NKH Knight business advisor on 9367 8133.
Written by Heather Moore