How does your business rate?

The initial start up and development phase of a business is vital. Too often, businesses fail during this critical phase because of poor, but avoidable, business practices. The following mistakes are common. How does your business rate?

Insufficient planning

The old adage “Businesses that fail to plan, plan to fail” is very true. Every business needs a documented business plan. For many, a simple one or two page strategy will suffice. It effectively becomes the road map for the business. It should be dynamic and updated regularly throughout the life of the business.

Inadequate start up capital

Under-estimating start up costs and working capital requirements is a common problem. A financial budget and cash flow must be prepared taking into account seasonal factors. Your banker will expect to see this planning especially when you seek increased finance facilities for the business.

Confusing profits with cash in the bank

Some business owners wonder why, on paper, they have reportedly made a profit but have no money to pay wages or tax. Profits often get re-invested in the business by way of stock, debtors and equipment. Understanding the difference between profits and cash will help you avoid potential cash flow problems.

Statutory obligations and record keeping

There can be a temptation for business owners to fully concentrate on “working in the business” whilst overlooking essential administrative tasks. Obligations like GST, BAS, superannuation and PAYG tax need to be paid regularly and on time. Overlooking them can have serious consequences for your business. Administrative and bookkeeping procedures should be established and suitably documented to ensure that day to day issues are given the priority they deserve.

Managing working capital

It is important to avoid locking up cash resources in poor debtor management and over stocking. This can restrict growth, cause difficulties in on-going funding and even require costly external finance. Careful control and monitoring of debtor collections and stock purchasing will free up cash which is the life blood of any business.

The wrong sale

You should know your costs of production or break even point. This will enable you to identify your target profit margin on various types and sizes of potential sales. Increasing sales volume at the expense of profit margin may have a short term benefit. But long term it can restrict and reduce fundamental business profitability.

Succession Planning

Most businesses do not have a suitable succession plan. A well considered and documented strategy will ensure that you have appropriate ways to release your investment and capital at the time that suits you. We would be pleased to help you identify the various options for both short and long term succession planning.

We can help you

At Saward Dawson, we wish to see all our clients achieve their full business potential. We want to ensure that you are clear on what you want to achieve out of your business and that you understand your future direction. It is our role to raise these strategic issues with you as we work together to help you achieve your business goals.

Published : 12 September 2006