Mark Bouris: Your financial fitness

There’s no denying that hardworking Aussies are doing it tough. We’re facing historically low confidence levels and spending has come to a halt.

For SME’s, this time of uncertainty is a good opportunity to re-evaluate your business expenditure and give your company a financial health check. A company’s financial fitness is one of its biggest assets, so here are a few tips to make sure you’re running a tight but productive ship.

The first thing to look at is your costs. We’re operating in a two-speed economy and as consumers tighten their purse strings, businesses will need to do the same. So have a good, hard look at your books and see what’s costing you the most.

Are you holding more stock than you need? Are you spending too much on transport, vehicles and petrol? What about your premises and office expenses? Items such as IT, stationery and telephone systems can really add up. Make sure you’re looking at your employees’ expenses as well. Mobile phones, travel and accommodation can eat away at profits, so make sure your expenses are contributing to your revenue. If accounting isn’t your strong suit, hire an expert to look through your books and evaluate your costs.

Once you’ve had a good look at your expenses, start thinking about your income – and not just your major revenue sources. A large line of revenue doesn’t necessarily mean big profits, so you need to get down to the nitty-gritty and analyse your margins.

Is each client, service and product actually contributing to your top-line goals? You may have a few big clients that gross the largest revenue but how much are they costing you? How much time and resources are allocated to those clients? How much equipment do you have to hire, or product do you have to source? What exactly does it cost you to maintain the relationship?

Some of the biggest deals in business are also the ones that can send a company broke, so it’s vital to make sure you know exactly how much those revenue streams are costing. Test your big sources of revenue and see where you can cut back, or talk to an expert to identify which revenue streams aren’t making you the money they should.

Managing receivables can be a difficult process, especially if you’re dealing with partners or clients who make a habit of paying late. Take a look at your books and see if you are carrying any clients. Do you have partners who are ignoring your terms? Having to chase payments can cost your business valuable time and resources, so ask your accountant to stress-test your receivables. What you discover will probably surprise you.

Debt is expensive and having the wrong loans and financial products can cost you in both the short and long term. Take a look at the leases you’re holding and use a financial adviser to make sure you’re getting the best deal.

Don’t turn short-term financing options such as credit cards and vendor financing into long-term solutions – the interest will eat at your profits. There are plenty of small business loans that are built to help you run your business more efficiently, so evaluate your capital costs and talk to an expert about testing your facilities and looking at the options available to you. Nothing is worse than a business over-paying for debt – especially if you can do something about it.

Assessing your insurance needs can also be a difficult process but it’s important to know how much coverage you need and what that coverage actually offers you. Imagine paying premiums for years just to find out that when you need the protection, you’re under-insured.

It happens all the time and in nearly every industry, so source a broker who will look at your assets and find the best solutions. Insurance is complex and if the Queensland floods taught us anything, it’s that the fine print can make or break your claim. Make sure you’re covered for the protection you’re paying for.

As the owner of your business, it’s important to assess your own role and clearly define how you contribute to the company. Many business owners try to do it all but the best ones know their strengths and weaknesses and use their resources to make sure their business is performing at its best. Don’t try to do it all – talk to the experts, evaluate your finances and use the expertise around you to build a better business.

Next week: Brumby’s founder Michael Sherlock

BRW

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