The start of the new financial year is a good time to stop and review your business and financial affairs.
Here are 10 things to check:
1. Review how last year went
Although the last year is now the past, reviewing your financial performance over that year can give you good insights on how your business is performing. Did you make a profit? What was the real cash profit? Where did the money go? Did you make enough cash profit to fund your living needs, loan payments, etc to give you a cash surplus? If you made a loss, why? How did last year compare to previous years?
2. Look at your June 30 balance sheet
Don't bother with the one your accountant prepares each year! It is full of historic costs, depreciation and various "book entries", which are not real assets and liabilities. Instead prepare a "Statement of Assets and Liabilities"; this is like what your bank wants each year. Assets should be at market value and liabilities should be what is owing at June 30.
Your balance sheet is a "snapshot" of your net wealth at a moment in time. By comparing the photo at June 30 this year compared to the photo taken at June 30 last year you will see if you have gone forward or gone backwards. When doing this consider movements in market values. For example, if cattle have increased in value on a per head basis, but you have the same number or less than last year, there is probably nothing to pat yourself on the back about. If your numbers have increased, you have reduced debt or you have increased cash or off-farm assets, you are progressing.
3. Review your goals
It is a good time to review both your business and personal goals. If you never have, take some time out with your spouse and family to write down what you would like to do and achieve over the next year and over the long term. Where do you want this business of yours to be in 5, 10 or 20 years' time? What would you like to achieve over the next 12 months that would be a step towards the long-term goals?
Remember that goals that are not written down are just dreams. We all have dreams, but very few convert them to goals and go about achieving them.
4. Reset/set direction - a five-year plan
We encourage clients to put together a five-year financial model. This is like a "big picture" budget. It helps business owners play around with what is possible over the next five years and consider the impact of different decisions, prices or yields.
5. Prepare a budget for the next 12 months
It never ceases to amaze me how many businesses both rural and commercial don't do this. This is basic business-101. Knowing your numbers is crucial. Budgets are a tool to guide you through the next year. Knowing now what the next year may bring will help you make decisions. Things will change and you will need to adjust as you go as circumstances change. They are never meant to be set and forget.
6. Review your estate planning
It is important you regularly review your wills and your estate planning to make sure what you have in place is still suitable.
7. Review your insurance cover
Do you have enough life insurance cover? Do you have enough total and permanent disability cover?
Consider your general insurance, is it sufficient? Review your last insurance schedule to make sure everything is on it. Perhaps you have items on it you don't really need to cover, ie. can you wear the risk of those items being destroyed? A careful review can sometimes save you money.
8. Review your trading entities
Talk to your accountant and solicitor about the appropriateness of your structuring. Consider the tax impact. Consider asset protection. Consider their suitability for your long-term plans (ie. succession) Have you outgrown them?
9. Review your banking arrangements
Talk to your bank manager about your banking needs. Is there a better way to structure your finances to meet your needs?
10. Consider cloud accounting software
Depending on the quality of your internet, you should be seriously considering cloud accounting if you haven't already embraced it. Cloud accounting programs such as Xero give you the ability to have up-to-date records and keep your finger on the pulse. Once set up properly it can also save you a lot of time. Cloud technology is rapidly advancing all the time. There are also "add on" software such as the farming budgeting software Figured that "talks" to Xero that may help you manage your business.
Of course, the list could go on, however I believe if you address all of these, your business should be on track for a great future.
- Tony Olsen is a director of Flor-Hanly, Commercial and Agribusiness Accountants. Tony can be contacted on 4963 4800.
- Information provided in this column is of a general nature. It does not take into account your personal financial circumstances. Tailored professional advice should be sought before acting on any of the information contained.