My checklist to better financial health

Better financial health doesn't occur overnight. Rather, it's the product of hard work, the ability to budget wisely and effectively manage external parties. Here's a simple checklist to help your business on its way to improved financial health, broken down into four main areas: wages, suppliers, sales and finance.

Employee wages
Wages are one of the biggest cash flow outgoings, so if you're finding yourself hard-pressed to give your employees a pay rise, it may be a sign that your business isn't doing well or that you're not managing your cash flow well. Ask yourself the following questions:

  • Is my business's compensation and benefits structure up-to-date?
  • Am I paying myself appropriately?
  • Do I know my PAYG and superannuation obligations?
  • Do I have a cash flow statement?

Answers to the above questions should be 'yes' to ensure your business is financially healthy.

Supply chain
An inability to pay your suppliers is a red flag that your business may be experiencing cash flow pressures. Late or non-payment can not only damage your relationship with your supplier, but can also result in a black mark on your credit file. Ask yourself the following questions:

Checking your business and personal credit histories can go a long way in determining your financial health and if you have any outstanding defaults (a record of credit more than 60 days old). You can still take measures to correct the default by paying it off in full, which will be recorded on your personal credit report.

Check your credit report >>

Sales
Sales are the engine of your business as they generate direct revenue, allowing you to make your payments, manage your inventory and grow your operations. Successful selling is in turn dependent on your employees, customers and pricing strategies. Ask yourself the following:

  • Do any of my customers owe me money?
  • Do any of my customers have a history of late or non-payment?
  • Do I know my breakeven point?
  • Have I priced my products and/or services adequately to cover costs and make a reasonable profit?
  • How often do I calculate and monitor my gross and net profits?
  • Have I forecast my sales?
  • Is my cost structure up-to-date and regularly reviewed?
  • Have I considered raising prices to meet rising input costs?
  • Is my sales team meeting their targets?
  • Have I benchmarked my sales with the industry standard or competitors?
  • How can I improve my sales further and improve customer loyalty?
  • Are there any other ways of increasing my income?
  • Are there any areas I can cut costs, e.g. IT, equipment, administration?

Finance
The last, but not least, area you will need to check is your record of finances. Making a profit does not necessarily translate to good cash flow management, as your business may be generating a large profit margin but at the same time may not have cash to pay suppliers. With 90 per cent of small business failures caused by poor cash flow management, it's imperative to ensure your bookkeeping, accounting and budgeting processes are sound. Ask yourself:

  • Do I understand the difference between profit and cash flow?
  • Have I developed a profit and loss forecast plan?
  • Are my credit terms too short or too long?
  • Am I extending credit to good customers?
  • How am I managing customer debts?
  • Is my book-keeping system  adequate?
  • Do I have a sound record of my finances, employment and tax/legal obligations?
  • How often do I speak to my accountant?
  • Is my business heavily reliant on overdrafts or other financing activities?
  • Is my budget detailed enough?

For a full list of financial checks, visit Business Victoria.


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