Ea r t hs t y l e Au t u m n / Wi nter 2020 CHART OF ACCOUNTS "the books"
ASSETS
LIABILITIES
EQUITY
INCOME
EXPENSES
(things owned)
(things owed)
(business worth)
(money in)
(money out)
BALANCE SHEET
PROFIT & LOSS
futureproofing your business Every business is vulnerable to threats like being out bid on jobs and project blow outs. Recently though we’ve experienced global threats that not many would have predicted nor made allowance for. So how do we insulate our businesses against normal business pressures but also cushion the blows from unexpected or catastrophic events? Know your numbers & get the right help
Visualise Your Future
No, you didn’t go into business to be an accountant but if you don’t know your numbers you do not have control of your business. Seek out a trusted advisor and start by asking them to explain the chart of accounts (pictured above) and the two most important financial reports; the profit & loss statement and the balance sheet.
Once you’ve secured your cash flow it’s time to visualise a new future. Download your profit and loss report to excel or paper and imagine what the next twelve months might look like.
Get the right tools & keep accurate numbers Every successful business has systematic processes to drive results. Your financial processes need to be accurate, consistent and have a regular rhythm. Make the investment in software you can access from anywhere, in other words, get online. If ever there was an event that highlights the importance of being online, it is the current global pandemic. Improve cash flow Cash flow is the lifeblood of your business, ensure it does not dry up by • Focusing on client relationships and quality • Having short clearly communicated invoicing terms • Being consistent in following up outstanding invoices • Monitoring your exposure to individual clients • Paying bills only when they are due but never being late • Building relationships with your suppliers
Consider your • Sales commitments • Cost of sale commitments - what will it cost to fulfill those sales? • Fixed costs - what are the costs that you can’t change, like rent and credit repayments?
COLLEEN STROMEI DIRECTOR, ADDFLOW www.addflow.com.au Addflow is a BAS and financial advisory service and while bookkeeping is integral to what we do, acting as a trusted advisor requires so much more than that. We have a commitment to keeping audit proof accounts, staying abreast of legislative changes and always providing collaborative client service. Addflow provide BAS services, Xero training and process reviews to many different industry sectors and have been the Financial Manager for Landscaping Victoria for nearly fifteen years.
Now picture what you want for the next twelve months? • What are your sales opportunities? Can you offer anything different? How often do you want to make each type of sale? • What cost of sale expenses will have to increase? Do you need more staff (don’t forget to add hidden costs like Workcover increases)? How much will your materials increase by? • Will this have any effect on your fixed costs? Will you need bigger premises? Will you need additional equipment?
Playing with your numbers will help you clarify your ideas and problem solve issues but if you need it, your financial advisor can provide invaluable support in this process.
Then include a worst-case scenario
Good forecasting also allows for quick revisions. If your business is hit by another catastrophic event you won’t be caught on the back foot. You’ve already considered your worst-case scenario, review your plan again, make the hard decisions to minimise disruption and then plan for how you’ll bounce back.
• What happens if the sales don’t come through or costs blow out by thirty percent? • How quickly can you pull back on your expenses? • What would it cost to obtain additional funding? 25 of 43
Revising the plan Good forecasting always includes a reality check. Review your plan against your actual performance on a regular basis, understand any variances and if required take remedial action.
