Despite all the marketing noise about buying a new computer (or car or whatever) - to lower tax - there is another opportunity to take stock and invest time and money in making your business more;
1. Valuable, and
And sorry in advance if this means you end up paying more tax next year!
Now is the time to switch your focus to Beginning of Next Financial Year (BONFY).
Get your tax affairs sorted before End of Financial Year (EOFY), of course, but don't let this annual 'event' distract you from the bigger game i.e. the plan to make your business more profitable, more valuable and more saleable.The plan includes the short term i.e. FY20, as well as the long term, say the next 5-10 years.
- What are you going to do differently this year (starting in a week or so)?
- What do you need to help deliver the changes, the improvements, the new direction?
- For that matter, what exactly are your objectives?
I talk openly with a lot of owners about what they want to do with their business and their personal aspirations.
Most conversations are triggered by thoughts like "I think I need to do something about getting out" or "I think I have to sell". When you really drill down on how sale ready the business is a lot of owners decide to stay in the business for a while longer to invest in making the business more valuable and saleable by "working on it, rather than in it".
Based on all those conversations I've compiled my top 4 tips for owners to work on right now to make your business more profitable in FY20 and more valuable when they decide to sell.
Four tips for making your business more profitable.
1. Properly analyse your tax returns and other financial information to better understand what your level of business profitability is or isn't.
Get your Accountant or Bookkeeper to provide regular financial updates accounts to help you understand;
- Exactly where and how your business makes or loses money, and
- What levers you have to change the performance.
If you think it's too expensive then learn to do this basic analysis yourself.
Whatever you decide for it to be successful it must be a regular review process and include;
1. Reviewing current performance against;
- prior year’s results,and
- a well-prepared forecast.
By doing this you will make the compliance based financial reports including tax returns and BAS statements more helpful in driving your day to day behaviour to help improve the operational performance of your business. The key is get started.
2. Use forecasting to understand the link between activity today and changes in profit in the next financial update
Prepare a meaningful forecast for FY20, and ideally further.
It takes time. And it will and should challenge you. Forecasting is hard. But have a crack anyway. You'll get better. More importantly the process of sitting down and forcing yourself to think about what actually drives the numbers will provide you with powerful insights and breakthroughs on how to better run your business.
Get good help if you need it. As owner they are your financial results and therefore your responsibility.
3. Know what the current market value of your business is
Knowing what current market value helps you make much more informed decisions especially if you are planning to sell but even if you aren't.
The longer you have been in business and the more the financial outcome of the sale is important for your personal financial wellbeing the more you need to know "the number".
Get the valuation from someone who is active in valuing businesses for sale or acquisition. What you want is to understand what the business would sell for today, even if you aren't planning to sell tomorrow or anytime soon.
This way you get a base line that is enormously helpful in all of your business and personal planning. Critically you should also make sure you understand what key factors have the most important effect on "the number".
Once you have a base line you need to update the valuation in future years as a comparison point for measuring whether your business improvement efforts are translating to more profit and higher sale value.
4. Make sure you have the right team of advisers and use them
Whether you are selling or improving your business think about the other advisors and mentors you need to help you get where you want to go;
- Is your Accountant (and/or bookkeeper) active, engaged and up for the job?
- Do you need a business coach (or mentor) to set the plans and monitor performance?
- Do you need an advisory board to help 'steer the ship'?
- Do you need marketing & advertising help to grow sales or to build a valuable client database?
- Should you join a networking group or a 'circle of excellence' with business peers to 'share the load' on the stresses and day to day challenges?
If you are planning to sell in the next 5 years add to the list a quality business sale advisor.
www.kerrcapital.com.au/bod is a good place to start
Tax Advice is not the same as Business Advice.
Good business advice creates 'good' tax problems, which need good tax advice
So here's to some 'good' tax problems about 12 months from now.