Benchmarking

Business benchmarking is a tool used in analysis to help answer questions such as:

• Does your business achieve the same level of profit as other businesses in your industry?
• Does your business spend too much (or too little) on rent, advertising, wages, or other expenses?
• Is your business performing as well as it should be?

Benchmarking data can help you to:

• Calculate financial ratios;
• Analyse business performance;
• Compare the results achieved by your business with other similar businesses; and
• Conduct a “what if” analysis.

Using a benchmarking approach, you will be able to:

• Find out how well your organisation is performing by comparing it to other similar organisations;
• Measure and improve the performance of your business in key areas such as sales, profit and expenses;
• Identify the strengths and weaknesses of your business; and
• Highlight opportunities for making your business more competitive.

Bookkeeping

It is most beneficial to you as the business owner to have up to date, accurate and reliable financial data with which to make informed business decisions.
Timely and accurate accounting information ensures that profitability can be measured, cash flow analysed and appropriate decisions made. To not have appropriate accounting information can mean unknowingly overpaying (or underpaying) taxation obligations and/or making inappropriate business decisions.

Borrowing (Gearing)

As a general rule, debt reduction should first be made on non-tax effective debt followed by business and deductible debt. Similarly, where borrowing is required, it is better to borrow money where the interest will be an allowable tax deduction.

Borrowing should always be considered closely with the likely cost of the finance. When used to fund business activity, these costs of finance should be factored in to pricing and rate of return analysis.

The use of an overdraft may be appropriate to ‘smooth out’ your cashflow, but the profitability of the business should be questioned if it needs to be continually overdrawn.

Your business and personal banking structure should be periodically analysed to ensure the most efficient use of your money. Specifically, consider:

• Removing excess cash from business bank accounts;
• Consolidating debt;
• Re-financing from or to fixed/variable interest rates;
• Use of mortgage offset accounts; and
• Use of credit cards.

Budget

A budget is a financial tool that forecasts income and expenses for a future period.

A budget should be prepared annually at the beginning of the financial year and is best set out on a calendar-month basis. A business budget should not be changed once all business stakeholders have agreed upon it. This allows all stakeholders to have an understanding of what financial results are trying to be achieved. A simple budget vs actual report at any stage during the course of the year will assist in explaining why results are not being achieved.

Business Structure

Have you considered the most efficient structure for your business? Too often a business structure is started without appropriate thought and planning. This can lead to:

Lack of asset protection;

• Restrictions in utilising lower marginal tax rates; and
• Difficulty with succession.

Whilst your business structure is already in place, continuous analysis of its effectiveness ensures your structure remains appropriate.

Succession planning is the process of enabling you to get into or out of a business. This process is made easier of harder depending upon the type of structure the business is owned in, as well as the appropriateness of estate planning. There are two main options available to business succession planning:

1. Retention Planning: Retention of the business within the family circle; and
2. Buy-sell Planning: Selling of the establishment to other business owners of key employees or interested outsiders.

Cashflow

A cashflow forecast is a financial tool that should be used to assist in monitoring and planning the flow of cash in and out of your business. It is different to a budget and should be updated regularly (we suggest at least monthly) – with it you can focus on specific objectives such as debtor collection or prioritising supplier payments. Profit is often misunderstood as available cash but they can be different. Profits do not guarantee cash in the bank. Many profitable companies fail because of cashflow problems.

Compliance

The tax office systems for analysing BAS’s and tax returns are becoming more sophisticated. They are frequently finding errors and have the ability to penalise and impose interest charges. In business, you have a responsibility to ensure that this compliance work is done as accurately as possible.

Superannuation guarantee contributions on behalf of employees are generally 9% of the employee’s gross wage and are payable by the 28th day of the month following the end of the reporting quarter. It is very important that these contributions are made by their due date. Where this due date is not met, the superannuation amount paid becomes non-deductible and is payable to the ATO (not the super fund). It can also attract penalties and additional interest charges.

Are you fully aware of all the potential benefits to your business resulting from the numerous Government incentive programs and stimulus packages brought forward in the last financial year? There are increased depreciation concessions available to small businesses in addition to new rebates and refunds available to individuals.

Due Diligence

If you are looking to start a new business, or purchase an existing business, it is prudent to analyse all aspects of the business as well as the ownership structure that you may take on. A ‘due diligence’ process is where a detailed analysis and valuation of a business is conducted.

Pricing Analysis

Pricing is an area that should involved careful financial analysis. You should consider both the costs involved in producing your product or service, and market expectation.
Price sensitivity analysis can be used to predict how changes in the price of your product or service will affect the amount of income your business can earn (i.e. if you increase your price by 10% and lose less than 10% of your customers in dollar terms, you may be in a better position).

Ultimately, being able to sell your product or service is what provides income, so it is important to have as much of your business operating ‘automatically’ so that you can concentrate almost entirely on this aspect.

Tax Planning

Tax planning is a process of reviewing year to date figures and exploring options to reduce the amount of tax that you are likely to pay at the conclusion of the financial year. It is also a process of understanding and planning for your likely taxation obligations.

In tax planning, the following are commonly considered and addressed:

1. Utilise marginal tax rates;
2. Purchases of goods and services prior to end of year;
3. Prepayments;
4. Borrowing money and gearing strategy;
5. Superannuation contributions;
6. General wealth creation strategy;
7. Retirement goals;
8. New business opportunities;
9. New investments;
10. Tax effective investments;
11. Business Structure;
12. Various balance sheet account values;
13. Self Managed Superannuation Funds; and
14. Salary Sacrificing.