Time Billing vs Value Billing
July 22, 2010
By Alycia Edgar, Coastal Accounting Services
As service professionals, most of us are tracking our time, whether that is for the purpose of charging clients per billable hour or measuring our time spent on projects for which a client is paying. How can we satisfy our need to track our time for “billable” purposes with the requirement to satisfy the needs of our clients?
The need to track our time so we are charging accordingly is an obvious one, but it can backfire in the eyes of our clients. Take accounting firms as a prime example. The majority of them track their time in 6 minute increments and bill clients accordingly (as most lawyers do), and this is where the problem can occur. Clients become reluctant to call their accountant or lawyer as they know that the “clock” starts as soon as they say hello. I’m not saying professionals shouldn’t charge for their time, they most definitely should (otherwise I wouldn’t be making a living at all). But when that charging impedes you from delivering your best service to your clients, surely something has to change.
From this dilemma, new models have developed where clients are given a yearly proposal fee that is paid monthly, a little like a retainer type agreement, which clearly sets out the scope of tasks that are to be included within that fee and can include unlimited phone calls and emails. Unlimited, I can hear you all in shock now. How on earth would you handle that. Surely some will abuse that? Yes, the minority probably will, but the majority will probably not use it much at all. The perception that they can call or email you at anytime knowing that you will answer them and it’s within their existing fee is comforting to a client. They feel supported all the time just knowing they can do that. They are not likely to make their own “uninformed” decisions for fear of incurring more fees.
Rather than thinking about billing your time to clients, how about billing value?
Does this mean you stop tracking time? No, as you need to be able to measure the time you are spending against the budget (ie the proposal fee you set) to make sure that that figure was indeed on the mark. From this, you can determine what the true hourly rate for that client was at the end of each year. Then, adjust accordingly for next year’s proposal and/or improve your own systems and those of your clients to make sure the tasks are not taking as long.
Rather than thinking about billing your time to clients, how about billing value? The hard part lays in determining how that value is expressed in $ terms. Start at a base, tweak it and just give it a go. You’d be surprised the change that will occur in the relationship with your clients. Is this hard to introduce with existing pay by the hour clients? Yes, but you can choose a transition time and phase it in gradually. Whereas, all new clients now start with your business under the Value Billing system.
Do you have a Value Billing System? Would you implement one?
MORE GREAT POSTS BY ALYCIA EDGAR
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Alycia Edgar - Coastal Accounting Services
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| Phone: | 0403 983 529 |
| Email: | alycia@coastalaccounting.com.au |
| Twitter: | www.twitter.com/alyciaedgar |
| Blog: | www.numbersarelife.com |
| Member Profile: | See Alycia’s Member Profile |
Half-Time Address
July 8, 2010
By Cat Matson, Alito
I know, I know. Technically, we’ve just ‘closed the books’ on the end of the financial year and started a new one. But if you’re anything like me, the end of the financial year isn’t anywhere as significant a ‘line in the sand’ as the Christmas/New Year break. For me, 30 June represents the ‘half-way’ mark in the year.
And what does any good coach do at half-time? Delivers a rousing half-time address. 
Here it goes …
How are you traveling in this game called your business? Two quarters played for 2010 … are you happy with your score? The ground has been rougher (for some) than first expected, and well-thought-out strategies may have given way to rough-and-ready (scrappy) tactics. But that’s OK, you play the best game you can with the players you have in the conditions of the day.
How does your game plan need to change for the second-half? Do you need to rotate players or change your plan of attack? Is it time to stop playing defense? Remember, the second half of the calendar year always goes faster than the first (much, much faster), so if you need to change strategies, you need to change NOW.
We entered this business year amongst a bit of nervous confidence (we were supposedly coming out the other side of the GFC), and we’ve been playing in that context now for more than 6-months … we know the state of play. The question is, are you playing the best game you can in that context, or are you still using last year’s plays?
Now is a great time to take stock, review your business performance and chart your course of action for the next six-months. The end of the financial year is a great opportunity to look at the financial score (resist the temptation to *not* do your numbers until tax deadlines or your accountant requires them). While you’re at it, look at other key indicators in your business, and determine if you’re on track to reach the targets you set for yourself at the beginning of the year.
Do you need to adjust the targets? Do you need to change the tactics? Does the overall strategy need some work?
Tell me, what will you be saying to yourself/your team in *your* half-time address?
MORE GREAT POSTS BY CAT MATSON
- No. The shortest word to write; the hardest word to say
- The Power of a Robust Conversation
- The Curse of Mediocrity
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Cat Matson - Alito
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| Phone: | 07 3289 7055 |
| Email: | cat@alito.com.au |
| Website: | www.alito.com.au |
| Twitter: | www.twitter.com/catmatson |
| Facebook: | www.facebook.com/AlitoFusion |
| LinkedIn: | www.linkedin.com/in/CatMatson |
| Blog: | www.alito.com.au/blog |
| Member Profile: | See Cat’s Member Profile |
Grab a coffee, take time to pause and reflect on FY10 – 01 July 2010
July 5, 2010
By Julie Wise, The SilverOwl
As I’m writing this on 1 July, it’s the very first day of the new financial year, yet, I feel like I have been living in it for at least six months. Budgets and plans for 2010 were formulated long ago, and sales pipelines already stretch to the middle of the financial year. Last week, a client was even talking about his Christmas party! FY11 feels like an old friend, not a new acquaintance.
Business is a life led in the future, but I do think that it’s important & essential to occasionally spend an afternoon in the past. In fact, I believe that the best thing you can do for your business right now is to cast your mind back over the last year and reflect.
You may say that there is nothing particularly revolutionary about that. After all, many people have asked you how the year has gone. In truth, when someone such as a supplier, customer, financier, accountant, or school Mum asks you about your business, the likelihood is that you are measured in what you say. Many of us, with great dexterity, weave a tale of cautious optimism, a little bravado, and a modicum of humility. The real trouble is that we start to believe our own story.
This year it is even more important than ever to reflect on the year just gone, because we are still believing that we have been peculiarly blessed with a great alibi. I am sorry, but you cannot use the GFC as the excuse for a “less-than” performance. If we simply put our performance, or lack of it, solely down to the GFC, we will miss out on the opportunity of using the other learnings from FY10 to build a great FY11. Many people I hear talk fairly laissez faire that “..things will come back..” when the GFC is over.
NO, things will not go back! The world economy has been stretched to breaking point. Just like the rubber band thats been stretched, the economies will not return to their previous shapes. Instead, they will evolve to new plateaus. Without honest reflection, most of us will not reshape our businesses sufficiently to meet the new world order.
Recently, I have been helping a number of companies to reflect on the year just gone. With an emphasis on reflection and a factual look at events and results, rather than a process to attribute blame or express regret, we have been working through questions such as these:
- Could we have done better?
- Was an increase in sales of x % enough?
- How could we have better dealt with the GFC?
- Did we push our use of technology ahead enough?
- Did we develop our products and enhance our service enough?
- How could we have delivered better on our brand promise?
- How did we make our profits?
- Did we give people what they wanted?
- What did our people contribute?
- What shape were we in on 1 July 2009?
- What shape are we in now?
- What did we do to improve skills?
- What do we need to stop / start / continue?
Of course, the most important part of this exercise is then deciding to take action and do some things differently in FY11. Fortunately, and despite my feelings to the contrary, I still have 364 days to do just that.
MORE GREAT BLOG POSTS BY JULIE WISE
- Unleash The Plan In Your Head
- Customer Service Tip #1 – Hug your customers!
- Get Ready! The financial year end is on the horizon.
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Julie Wise - The SilverOwl
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| Email: | julie@thesilverowl.com.au |
| Website: | www.thesilverowl.com.au |
| Twitter: | www.twitter.com/julie_wise |
| LinkedIn: | au.linkedin.com/in/juliewise |
| Member Profile: | See Julie’s Member Profile |
Kick start your budget
June 17, 2010
By Alycia Edgar, Coastal Accounting Services
So it’s nearly end of financial year and you start to think, goodness I need to set a budget for next year. But, where to start? It’s quite easy really. The basic template you start with is your current year results. Simply, run a current year profit and loss by month report, export to Excel and you have the beginnings of a new relationship with a budget. Why do I suggest monthly? It is often easier for you to determine next year’s results monthly than a large annual figure. So these current year results are the base of your figures.
Now it’s time to analyse each line to determine whether that figure or higher/lower can be achieved this year. Remember your numbers are determined by the organic nature of your business as well as the strategies you put in place to grow your business.
Here are few questions you can ask yourself, to kick start your analysis:
Sales – So, what is your marketing plan for 2011 financial year?
- What do you predict will happen to sales because of this?
- Do you have any new product or service launches?
- Are you withdrawing products or services from the market?
- Are their client contracts in place that will cease and not be renewed?
- Will you be opening a new store?
- What marketing expenses will be incurred from this plan?
Cost of Sales – Depending on your business structure, your costs of sales (direct costs associated with achieving sales) will move along with any sale increases or decreases.
Expenses – People (salaries and wages)
- Will you require any additional resources to support growth?
- Will there be pay rises?
Expenses – Location
- Will you have any rent increases? New office, new store?
Expenses – telephone & internet
- Are you on the most efficient plan? Are you paying for phone lines no longer being used? Do you need to review your internet usage and existing plan?
And the list can continue…. The questions can be endless, but ultimately it is you who knows your business best and can determine answers to these questions. If you need help, speak with a bookkeeper or accountant, someone that can think a little bit outside the square to where you think, so you don’t miss anything.
By setting up a budget you can then track your progress throughout the year against actual results and see how well you are performing. Great to see if those marketing plan strategies are translating into the budgeted results.
MORE GREAT POSTS BY ALYCIA EDGAR
- Do you have a regular money huddle?
- Maintenance is the key to organised numbers
- Are you avoiding your paperwork?
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Alycia Edgar - Coastal Accounting Services
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| Phone: | 0403 983 529 |
| Email: | alycia@coastalaccounting.com.au |
| Twitter: | www.twitter.com/alyciaedgar |
| Blog: | www.numbersarelife.com |
| Member Profile: | See Alycia’s Member Profile |
Do you have a regular money huddle?
May 17, 2010
By Alycia Edgar, Coastal Accounting Service
Hopefully you have all of your business paperwork sorted and you’re in the groove of a regular maintenance process each week. Now it’s time to review your results. Potentially a daunting thought, but knowledge is power. If you are dreading your result that’s great, you care about your business, it’s not just a hobby, and you actually want it to succeed.
So where do you start? What information do you need to look at? I recommend weekly reporting as it is much easier to take corrective action within the month, than after the fact. The frequency of your reporting can depend on how often your accounting system is being updated and reconciled (checked). You should at least look at the following:
Weekly or Monthly reports
Cash method of accounting (transactions only entered in accounting system when paid)
- Profit and loss
- Balance sheet
- GST Summary (If registered for GST)
- PAYG Summary (if an employer)
- Bank Balance
Accrual method of accounting (transactions entered into accounting system before paid)
- Profit and loss
- Balance sheet
- Accounts Payable (monies owing to suppliers)
- Accounts Receivable (monies owed by customers)
- GST Summary (If registered for GST)
- PAYG Summary (if an employer)
- Bank Balance
Let’s start with the profit and loss report. Your type of business will determine the exact type of revenue and expense accounts you have, but basically you should have some of the following:
A form of revenue
- Sales of products
- Services
Expenses
- These relate to the sales (i.e. cost of sale)
- Administrative expenses (relating to the running of an office perhaps)Advertising/Marketing expenses
- Employee expenses
- Property expenses (relating to the rental of a premise including utilities)
- Financing expenses (relating to the funding of the business)
- Motor vehicle expenses
- Training expenses (yourself or employees)
- Communication expenses (i.e. telephones, internet, mobiles)
Now the net result of the revenue less the expenses will result in a profit or loss, thus the name of the report. So do you have a profit? Or do you have a loss?
If you have a profit it means that your revenue (i.e. money that is being earned) is greater than your expenses (money being spent). If you have a loss, it means that your expenses are greater than your revenue (i.e. you’re spending more money than you’re earning.)
However what happens to the rest of the transactions? Well that’s where the second of our reports comes into the equation, the ‘balance sheet‘. A balance sheet will show the net wealth of your business. See examples below.
A balance sheet can consist of such things as:
Assets
- Bank accounts
- Debtors (i.e. monies owed by customers)
- Office equipment
- Buildings etc
Liabilities
- Credit cards
- Bank loans
- Creditors (i.e. suppliers owed)
- GST obligations
- PAYG obligations
- Super obligations
Equity
- Capital introduced (i.e. monies put in by you)
- Drawings (funds withdrawn from business for personal use)
- Profit (loss) to date
An Accounts Payable Report will show you the balances owing to your suppliers (if you use accrual accounting). It will also show how long you have owed them and whether they are overdue for payment. This is useful so you are aware of payments that will be required in the short term.
An Accounts Receivable Report will show you the balance that your customers owe you (if you use accrual accounting). It will also show you how long they have owed you and whether the payment is overdue. This is useful to keep track of monies that have yet to be paid. If anyone is falling behind on payments you can quickly alert the customer.
A GST Summary Report is useful for you if you are registered for GST. This will show you the net balance of GST received from customers and GST paid out to suppliers. If it is a positive number then you owe this to the ATO. If it is negative number this is the amount you will be refunded. It is useful to track this report to be aware of monies that you will potentially owe to the Tax Office. It assists in managing your cashflow.
The PAYG Summary Report is a summary of all amounts paid to employees including the tax deducted and superannuation accrued. This report is useful as it shows the tax that you will need to submit to the ATO on behalf of your employees and the superannuation that you will need to pay when it falls due.
The last thing you need to monitor on a regular basis is your bank account and credit cards. You need to know your cash position and also your credit position if you use credit cards.
Now that wasn’t so scary was it? You have taken a giant leap for your business and you’re no longer in the dark about your businesses financial position. Good for you!!!
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Alycia Edgar - Coastal Accounting Services
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| Phone: | 0403 983 529 |
| Email: | alycia@coastalaccounting.com.au |
| Twitter: | www.twitter.com/alyciaedgar |
| Blog: | www.numbersarelife.com |
| Member Profile: | See Alycia’s Member Profile |
Budget 2010 – It’s no Sex & The City 2
May 13, 2010
By Anna Kyriacou, AKA Group
What can I say about Mr. Swans 3rd Budget Speech, besides the fact it was no Sex & The City 2 (i.e. thrilling)? Instead, we got a very conservative announcement, to say the least.
The good news was there were no real surprises. No ‘effective from 11.00pm EST on the 11 of May 2010′-type announcement (with the exception of the Capital Gains Tax which is effective from 7.30pm 11 May). No surprises means we can stick to our business plans to grow our businesses.
It is also assuring to think that we as a Country could be out of the RED within three years. This is good news – we do not wish to go down the path of Greece. Mr. Swan has forecast that the economy will grow by 3.5% in 2010/11 before reaching 4% growth by 2011/12.
Now, although that is a good growth compared to the rest of the globe, can I make a suggestion? Do not let these rates stop you from aiming for double digit growth within your business.
With this growing economy we will also see unemployment fall to 4.7%, meaning that as business owners we need to focus on our businesses being the place of choice for new team members. We need to focus on being leaders to attract the right staff, as lower unemployment rates often do lead to greater difficulty and employment costs to business owners.
There were no sensational handouts to business owners as in past budgets. We did though manage to get a few scatterings of very very small pearls, but also some disappointment as follows:
- Immediate claim for GST Paid on assets financed via Hire Purchase Agreements for Small Business that account for GST on the cash basis. In the past GST could only be claimed on each monthly repayment.
- The Government will spend $125.2 million during the next four years to establish a single national register for business names. This will result in business owners not needing to register business names in each state and territory, as well as making searching for trademarks, providing licensing requirements and monitoring your business registrations easier.
- $660 million will be allocated over the next four years in improving skills and job creation, with 39,000 new training places been made available in industries suffering from skills shortages along with support for 22,000 new apprentices. Not sure if this goes far enough as no additional support to encourage employers to employ untrained workers and train on the job.
- $2.7 million will be injected into services to support businesses to be able to access early intervention dispute resolution services that operate under the Franchising, Produce and Grocery Industry and Horticulture and Oil Code of Conduct, reducing businesses legal costs to resolve disputes.
- The Recreational Boat Building and Film Industry will also get some boost from this year’s budget but will be subject to public consultation and will require states to be in agreement.
- Raising the effective tax-free threshold to $16,000 from 2010/11.
- A 50% Tax deduction on the first $1,000 of interest earned on deposits, debentures, annuities and bonds from 1/7/2011. All the small business owners with savings put your hands up. I suspect we all pay interest rather than earn it. Well the gesture was there we cannot complain, can we?
- The Medical expense tax offset goes from $1,500 to $2,000 before you can qualify for the 20% offset.
- Taxpayers will also be able to opt to accept claiming a flat $500 from 2012/13 and $1,000 from 2012/13 for work related expenses without having to produce receipts or the need to use a tax agent if all they have is salary and work related expenses. This is good news for taxpayers, not so good for H&R Block and ITP.
All up though not the fan fare of fashion week, no shockers either. The only thing to hope for now is that the Resources Tax passes through the senate. Coming out of the red is heavily reliant on that extra revenue.
For a more detailed analysis of this year’s budget, please contact us.
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Anna Kyriacou - AKA GroupAnna Kyriacou is the founder and CEO of AKA Group, established in 1997 as a total financial solutions destination for start-ups through to established small to medium businesses. With 17 years experience working with and advising clients in Australia, London, USA, Holland and South Africa, Anna has sought not only to deliver accounting advice but also to mentor them towards autonomous business success. Anna is driven to help others help themselves, similarly illustrated by her commitment to community and charitable organisations. Operating with sheer professionalism in tandem with genuine caring, Anna applies a holistic approach to her client’s business development and ultimate success.
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How Will Henry Affect Your Hiring Choices?
May 5, 2010
By Kristy-Lee Johnston, Footprint Recruitment
Well, the overall opinion seems to be that the Henry Tax Review was largely a missed opportunity — hardly the grand reform of our taxation system which had been promised. None the less, some of the changes announced yesterday will undoubtedly impact businesses and their hiring practices, and I expect that small business may feel the pinch more readily than larger organisations.
So what impact, if any, will the changes announced have on your business and its hiring decisions?
The key change announced which will most broadly effect businesses and their hiring decisions is the change in the Superannuation Guarantee Contribution; rising from the current level of 9% to 12%. Ironically, this was not at all part of Henry’s 138 recommendations. At 3%, this is a big increase in compulsory superannuation contributions to be made by employers into their employees’ nominated superannuation funds. Admittedly this will not all impact us in one hit, taking until 2020 to fully take effect, however it will be something that employers will need to think about, and budget for in the coming years.
Let’s face it, most of us would agree that this is great for employees; it will help to fund their retirement down the track and presumably, as it is designed to, reduce the pressure on Governments to fund pensions and support our aging population. But at the other end of the spectrum are the business owners who have to pay for it.
Whilst it will be a cost which is absorbed and over time will go unnoticed, in the next 10 years while the changes filter through, it will undoubtedly affect wage levels and the potential for wage increases during this time.
Having discussed this impact this morning with colleagues, staff members and associates, there is a large percentage of employees, particularly those who are only early in their careers, who feel almost ‘cheated’ by these changes. They understand that the value of their overall remuneration package will be increasing, but for those battling to get on the property ladder, and work to improve their financial security through means other than superannuation, if they are going to be gifted a 3% increase they would much rather have this in terms of wages. Most importantly, it is the fact that a ‘forced’ hike in their super funds will impact on their ability to negotiate any increase in their wage rates, because employers may simply not have the funds for both.
This will not all impact us in one hit, taking until 2020 to fully take effect, however it will be something that employers will need to think about, and budget for in the coming years.
Whilst I am far from an expert on taxation and related matters, it certainly appears that some of the recommendations made in the Henry Review had the opportunity to encourage employment growth in all sectors, and overall make things simpler for employees. Whether these changes will be picked up and tackled in the future remains to be seen, but it’s fair to say that to date the changes announced are somewhat underwhelming and certainly will not go far enough to encourage employment growth, particularly amongst smaller businesses.
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Kristy-Lee Johnston - Footprint Recruitment
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| Phone: | 02 4367 5500 |
| Email: | kristy@footprintrecruitment.com.au |
| Website: | www.footprintrecruitment.com.au |
| Twitter: | www.twitter.com/footprintcc |
| Facebook: | www.facebook.com/footprintrecruitment |
| LinkedIn: | au.linkedin.com/in/kristyleejohnston |
| Member Profile: | See Kristy’s Member Profile |
Don’t let budgets make you go into a blank stare. Take control.
April 18, 2010
If just the mention of the word budget makes you go into blank stare – don’t worry. Take action and take control of your finances.
For the first three years of business I operated without budgets. I was so caught up in running the business that as long as there was some money in the bank (and often their wasn’t) I just kept working hard. But, I was out of control.
I invite you to listen to this message to learn what I did that made the difference:
The moment I started to use budgets I had a benchmark, i could measure the my results of my work against some hard facts.
If you’re operating your business without a budget you may not be aware if you’re really moving forward. As I found out, money in the bank is not necessarily the sign of a healthy business.
This Wednesday, 21 April, the Australian Businesswomen’s Network presents a new one-hour webinar: Budget Basics – Business Budgeting Made Easy
The Budget Basics webinar will be presented by Sophie de Somerville of Precision Pays. Sophie is a certified MYOB consultation.
During this webinar we’ll look at the basics of budgeting in business, what to account for and how to forecast and review your financial situation.
We’ll show you how to get started and how to create very simple budgets in excel and MYOB
AND we’ll talk about how to compare your actual figures to your budget so that you can manage your financial performance
Sophie’s also prepared a free small business budget template for you.
Join us this Wednesday 21 April at 10.30Am AEST for BUDGET BASICS.
Get control of your finances
This event is free for StartUp and Growth Members of the Australian Businesswomen’s Netowrk.
Details are all on our website .
Knowing what your bottom line results are and how to recognise key indicators in your business are paramount to your long-term success.
Don’t let budgets get the better of you. Take control of your finances and you’ll take control of your business.
I hope you’ll join us on 21 April.
Suzi
Maintenance is the key to organised numbers
April 16, 2010
By Alycia Edgar, Coastal Accounting Services
In order to keep on top of your business paperwork, you need a system for keeping it organised all of the time; a maintenance program.
Maintenance must occur regularly, preferably weekly, regardless of who is doing it. Schedule a regular appointment with yourself (or your bookkeeper) to get it all sorted. Let’s say every Wednesday at 10am. Wednesday is selected because you have to pay employees anyway so you may as well do it all at once!
So what is required to maintain your paperwork?
1. Your paperwork needs a home before it’s entered into your accounting software. For this example we’ll assume that you enter all supplier invoices before being paid.
2. This means you need a home for:
a. Supplier invoices to be entered
b. Supplier invoices paid
c. Supplier statements
d. Customer invoicing information (if invoiced after the fact) OR
e. Daily register and EFTPOS receipts (for retail)
f. Bank statements
3. I have always found that manilla files work well for a, b, c and d above. Bank statements should be kept in your financials folder.
4. With daily register and EFTPOS receipts from a cash register (or POS) I recommend an envelope to keep them in one place. Just write the date on the top left hand corner. This can usually be kept near your register so that at the end of each week, that week’s envelopes can be transferred to your office after completing the reconciling process.
5. When Wednesday comes around take your manilla files and:
a. Enter your supplier invoices
b. Apply payments made to supplier invoices
c. Process customer invoices or cash register sales information
d. Reconcile bank and credit card statements
e. Make payments to suppliers – you should always have a day that you pay them
f. Pay your employees (if you have any)
6. Now, how does that feel? Great, doesn’t it? All sorted and empty manilla files! You do have to repeat the process next week but if you follow this method it is much easier to keep on top of your paperwork.
7. On a monthly basis you will need to check your supplier statements against your system. You will also need to reconcile your bank, loan and credit card accounts (this could be done weekly).
8. The maintenance program above will only work if you’re willing to commit to the process. If you’re not willing to do it then look around for someone to do this for you and get them to commit to this weekly process. Really be honest with yourself here – let’s face it, you can probably earn a lot more money doing what you do best than spending your time doing a job that a bookkeeper can do much quicker and probably much cheaper than your hourly rate.
Alycia Edgar will present the Managing Business Performance: Financial strategies for the growing business webinar on 21 April. Be sure to join us. Register here. Learn more.
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Alycia Edgar - Coastal Accounting Services
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| Phone: | 0403 983 529 |
| Email: | alycia@coastalaccounting.com.au |
| Twitter: | www.twitter.com/alyciaedgar |
| Blog: | www.numbersarelife.com |
| Member Profile: | See Alycia’s Member Profile |
Get Ready! The financial year end is on the horizon.
March 29, 2010
By Julie Wise, Silver Owl
Like a lot of people, you probably have just finished getting your new year resolutions and goals underway so you won’t start reviewing your finances until June starts (some won’t start until after 30 June).
For many SMEs, June is too late to consider the consequences and do anything about it. In my corporate assignments, the first day of the last quarter signals a quantum increase in the scrutiny of actual vs. budget vs. plans. That scrutiny takes the form of questions like ‘are you on track?’, ‘what are you doing to stay on track?’, ‘can you go better?’, ‘what risk management plans have you got?’, ‘what are you going to do to make plan?’ etc.
SMEs don’t have finance departments that act the devil’s advocate and your accountant is going to be in demand so access is going to get difficult. So WHEN and HOW you start to focus on your business year will make the biggest difference to your bottom line.
Here are some things you could consider starting and doing right now to ensure that the year end process doesn’t give you headaches. Make sure you get the right professional help with any of these ideas.
Cut-off procedures
When the financial year comes to an end, it is particularly important that you have a proper cut-off point for the company’s operations. Therefore, you should:
- Ensure your suppliers provide you with the relevant invoices for all purchases and expenses for the period up to the end of June.
- Identify your work in progress or sales not yet invoiced and raise the relevant invoices for the period up to June 30th.
- Identify all of the following to confirm that they are correctly recorded:
- pre-payments received from clients
- prepaid expenses to suppliers
- cost accrued for which no invoices will be received before the year end
- stock levels at the year end for goods or work in progress
Reconciliation with clients and suppliers
It is important that your records, as well as those of your clients and suppliers are accurate, particularly if the transaction needs to be declared as part of a due diligence or compliance process.
- You could ask for extract from their records containing information regarding your joint transactions. This will allow you to compare their records to your own and identify any errors or misstatements.
Profits are Likely
If you’re forecasting a profit, you may want to start thinking about the implications of the result. For example:
- Do you have any past tax losses to be utilised?
- Will your cash flow situation allow you to meet your tax obligations?
You may be able to legitimately reduce your levels of profit by:
- ensuring your accruals are indeed reflected in your results
- incurring extra expenses – especially ones you have been delaying
- identify potential bad debts and make the necessary provisions – if you do write off bad debts don’t forget the GST adjustments
- ensure all of your fixed assets have been depreciated correctly in accordance with tax legislation
- review your list of disallowable expenses. Some of them maybe due to a lack of supporting paperwork. You have time now to put some effort into requesting the full invoices from your suppliers
Losses to date
You’re forecasting a loss for the year so you may want to start thinking about the potential business implications of the result. For example:
- Is this expected because of your business stage?
- If not, can you fix the loss situation for the longer term?
- How strong are your cash reserves?
- Are your creditor levels much greater than your debtors?
You should start reviewing your results in depth with a view to identifying areas of improvement and taking corrective action.
You may be able to legitimately increase your levels of profit by:
- Ensuring any services rendered or goods delivered are invoiced before the year end
- Delaying expenses planned until after the first of July
- Ensure that investment items are capitalised as an asset on the balance sheet rather than treated as current expenses
Once you’ve done this work you need to keep a vigilant eye on your budget and cash flow forecasts over the coming weeks and days.
Plan for next year
Even if all of the above is in good order, these disciplines always help you reflect on your business performance. Here are some steps you may want to take to improve on your performance:
- Prepare the budget for the coming year
- Review your credit terms with suppliers and customers and make changes if required
- Arrange credit facilities with your bank if you anticipate cash shortages
- Reduce costs on areas identified as excessive in the current year
- Implement new internal control systems to address weaknesses identified
Don’t be an April Fool!
April 1 started the last quarter of the financial year for majority of Australian businesses – that was 5 days ago! This is the best time to prepare for the end-of-year.
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Julie Wise - The SilverOwl
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| Email: | julie@thesilverowl.com.au |
| Website: | www.thesilverowl.com.au |
| Twitter: | www.twitter.com/julie_wise |
| LinkedIn: | au.linkedin.com/in/juliewise |
| Member Profile: | See Julie’s Member Profile |
