Don’t Miss This End Of Financial Year Opportunity

key ratios in business

It’s almost the end of another financial year – well at least it is in Australia.

One of the opportunities which is often overlooked by business owners is the opportunity to review and restructure the chart of accounts in their accounting package.

Why would you want to do that?

In our previous Business Owners Board blog “Have You Checked Your Vitals Lately?” we stressed the need for business owners to know their numbers – especially the ‘vital’ financial numbers. To this end, your management accounts are your ‘instrument panel’ for the business. They should be set up to provide you, the business owner, with the information you need to make informed decisions in your business.

Correctly set up, your accounts will tell you; what are your most profitable products and services, who are your most profitable clients, the lifetime value of your clients, where your cash is going and where you can increase your profits – just to mention a few. The start of a new financial year is a great point to start your new chart of accounts.

When preparing your business “ready for sale” the profit and loss statements are crucial. Even if you intend to keep the business for ever, and put it under management – YOU NEED TO KNOW YOUR NUMBERS! It’s easier to do this is you set up your chart of accounts to tell YOU, the business owner, what you need to know.

Make sure you identify different income streams – not just “Sales” or “Income”. Break it down in to logical product or service lines. Track your cost of sales in the same way. Accounting packages these days allow you to assign product codes and associate costs to ‘project codes’. Make good use of the powerful features of the accounting package. Seek help from a good accountant and if you don’t know one, just give me a call.

If you ever want to sell the business, it makes it much easier to put a value on the business if you separate out items which can become add-backs. That is, such things as owner’s wages and super, subscriptions and memberships and anything which is discretionary and not part of the day-to-day operations. It also makes it much more attractive to a buyer and improves the likelihood of getting through due diligence quickly and painlessly.

“You should build your business as if you are going to keep it forever, but could sell it tomorrow!”

The end of the year is a good opportunity for reviewing your business performance over the last year as well as setting strategies, goals and plans for the coming year.

Scroll down and leave a comment below, share your experiences and join the conversation!

If you are a business owner and want to know more about the Business Owner Board process, you can apply to attend one of our bob group meetings free of charge. 

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John Denton

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