16 Jan 7 Questions to Better Understand your Business’ Health
We think the beginning of a new year is the perfect time to delve into your business’ financial closet and give it a good, clean, fresh start for the year ahead. A financial re-vamp can improve a business’ efficiency, growth and profitability… who doesn’t want that? So that you can accurately assess your business’ position, we thought we would highlight seven important questions which will help you better recognise growth possibilities and how to boost your profitability.
Why are you keeping records?
Your financial data is useful for so much more than just meeting tax compliance. You should be using your financial data to evaluate your business’ strengths, weaknesses and opportunities. Your data should be constantly leveraged for effective decision-making within your business. Your tax requirements should be the final use of your financial data collection – after you have extracted all the valuable business information you can from it.
Do you understand the data?
If you’re going to utilise the significant data that your financial records offer, you need to be able to understand what you’re looking at. Understanding how to read your financial statements will help you enormously when it comes to evaluating your business’ position and opportunities for the future.
…And which data matters?
Once you understand how to read your financial statements and business reports, you need to know what data is going to help you analyse your business most accurately. It’s crucial that you can dissect the profit before interest and tax, which is the best indication of your business’ health. In order to do that, you need to know what impacts that figure and how to calculate it.
Can your business afford debt?
Bad or inconsistent debt management can severely damage a small business. Not knowing your company’s financial position and the debt to income ratio (DTI) can stop you from making informed decisions about your business’s direction or opportunities due to cash flow and exceeding debt management capabilities.
What are the business’ goals and aspirations?
Understanding the direction and having clear goals for your business is vital for success. Where should the business be in 5 years? 10 years? Having goals allows you to benchmark performance against where you want to be, showing strengths, weaknesses and also giving you clarity of direction when it comes to decision making.
What risks does my business face?
Having an honest assessment of the threats and risks your business may face is vital; allowing for crisis management planning and reducing the risk where possible. Many things can affect a business, such as weather, material or produce prices, taxes and levies, or health and safety risks.
Where does the business make its profit?
A business’ ability to generate profit is crucial to its survival. Understanding the concepts of your business’ profit margins and drivers allows you to develop strategies to increase your profit, such as cost reduction and sales growth tactics.
At Conrad Carlile we work with our clients, offering a multitude of business accounting and financial advisory solutions that can put your business in the best possible position. We work closely with our clients to grow wealth, increase profit, improve and forecast cash flow as well as strategically planning your business for future growth and success. Contact our friendly team today on 07 3871 1522, or complete an online enquiry and we will be in touch to discuss your specific business needs.