Let’s look at how to use the end of financial year to help set you up for business success!
EOFY enables you to run your eye over your numbers and learn where you have been successful and where improvements can be made, try not make this period a time for trepidation and stress. Without knowledge, there can only be limited success so get in amongst the detail and use the numbers and insights to your advantage. Change your mindset and view the end of financial year as a time to jump in and act on the parts of your business that need financial attention or to help make decisions about your business and future!
What numbers matter?
To know where you stand, you need to get your head around the following points:
- cash flow
- profit and loss
- fixed costs and variable costs
What do they really mean?
Cash flow assesses the amount of money coming into your business over a certain time period (usually monthly) versus the amount of money going out (your expenses to pay suppliers and bills).
If more money’s going out than coming in, then this highlights areas for opportunities and improvements.
Don’t forget, there are really affordable accounting software programs that are extremely user friendly which can help you make sense of all the numbers in an instant. These programs’ core responsibilities include accounting workflow basics such as invoicing, connecting directly through to banks, claiming business expenses, charging for a company’s/employees time and workflow management. But I digress…
Once you’ve got your head around your cash flow, you can generate cash flow forecasts to see if any rough patches are coming up.
Profit and loss
At the end of the financial year, you need to ascertain if you recorded a profit or a loss.
If you don’t know you’ve made a profit or a loss, you won’t know how long you can stay in business and keep up your current lifestyle – or if you need to improve it.
Fixed and variable costs
Fixed costs are expenses that are fixed. Fixed cost do not vary with the volume of production. A fixed cost will not change with the amount of goods or services a company produces. It remains the same even if no goods or services are produced.
A variable cost is a company’s cost that is associated with the amount of goods or services it produces. A company’s variable cost increases and decreases with production volume.
Revenue’s simple. It’s money coming in based on the activities of your business.
So the sales of your goods and services are examples of revenue but any loans you take out, are not considered as revenue.
After understanding the numbers, create a plan for how much profit is needed to reach your business goals.
With a trusted financial advisor’s advice, you can forecast your expenses and your income.
If you’ve done a cash flow forecast, you can see where there may be times you need to knuckle down and curb spending during the year. It’s often a good idea to plan for the unexpected as a safeguard too.
Try reducing variable costs
Can you re-negotiate with a key supplier?
If your business is growing and you’re buying a lot more stock from suppliers, can you open up discussions to re-negotiate rates based on buying in bulk or being a long standing customer?
The bottom line
Look at your numbers. Do your homework. And seriously, get the courage to deal with any challenges as quickly as you can before they escalate. You’re not alone – all businesses have challenges.
It’s so important though to understand what challenges you may have, and the only way to do this is by accessing your financial data and running the numbers. By doing so, you can identify weaknesses, opportunities, threats and strengths of your business. One of the best times to do this is at the end of financial year. Good luck.