However, do not fall into the trap of rushing through the review of the current financial year; make sure lessons are learnt from it, avoid making the same mistakes and persist with successful strategies. Good business practice is not just about getting your house in order, it is about setting up the business for the challenges and opportunities it will face in the future. Good business practices add value to a business - in both good times and tough times.
A business following good practices benefits in many ways. These benefits seem twofold. There's power in knowing. When you know the enterprise's likely income and tax position there is time to consider and implement a variety of strategies to compliment the forecasted profit and loss situation. Planning provides confidence. Managers can confidently plan to make longer-term changes, such as adding additional staff, investing in marketing, making asset investments or accessing external finance.
A simple thing like a 'checklist' can prove most helpful. By adhering to such a list, a review for pursuing best practice can be undertaken. At the least this list should consider:
- In financial recording, is the business entering data promptly?
Is there regular review of working capital items like stock balances, work-in-progress, debtor and creditor ledger ageing, equipment and fixed assets? Review the payroll system; annual leave and long-service leave entitlements, superannuation, PAYG withholding, fringe benefits tax, payroll tax or other state based taxes?
- Strategic financial tasks should be reviewed.
Set targets for financial performance, analyse financial statements, review actual performance against budget. Undertake a sensitivity analysis. Ask yourself: What if sales dropped 15 or 20 per cent? Or you lost a major customer? Or a major supplier stopped selling to you? What if your best sales staff resigned? Factor answers to such questions into your budget forecasts and risk management strategies. Review and update the cash flow forecast. Review bank loans, leases, credit cards or other finance while reviewing interest rates on loans, ensure financial statements and budgets are provided to lenders as required. Review compliance with repayment schedules and any debt covenants or terms and conditions.
- Consider strategic management tasks.
Update the strategic plan, review employment arrangements, review sales contracts and customers' terms of trade. Also consider suppliers' contracts or terms of trade. Review financial commitments, such as leases and securities over assets. Review and if necessary, update the Policy Manual. Review and update IT systems, ensuring all software licenses are in order, back-ups performed and the Disaster Recovery Plan has been updated. Review your intellectual property. Ensure the renewing of trading names (including trademarks, business names) and domain names. Review all insurances, any outstanding legal disputes or Government grants that may be available. Ensure the business is keeping pace with lodgement and payment of its statutory obligations.
- Look for services or products that aren't 'earning their keep'.
Low sales might be the indicator; frequent problems with product support might be another. Your financial system should be able to identify where there is little or no gross profit from a product, or the product might tie up too much working capital relative to its profit level. It is always beneficial to address these concerns.
Good business practices help ensure the business is well run and reviewing practices ensures that it remains strategically viable.
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