6 Accounting Tips for Your Business
Well, 2020 was undoubtedly an unexpected year! It is essential now more than ever, during uncertain times, to reconsider long term business plans that have been affected, and of course, to tighten up your bookkeeping. Here are our accounting tips for 2021 planning.
1. Switch to accrual accounting
If you’re currently using the cash accounting method, it may be an excellent time to consider accrual accounting.
Accrual accounting is the practice of recording revenue and expenses when the transactions occur, rather than when payment is received or made, so there’s no lag between incurring a cost and paying it or making a sale and receiving the payment.
A practical example would be inputting an invoice into your accounting system when you receive it, even if you don’t plan to pay it until it’s due.
Accrual accounting builds a more accurate picture of how your business is doing (however, you must be on top of your cash flow to ensure you’re not overestimating your ability to make payments) and is often the accounting method most small businesses should work towards.
2. Account for inventory
Did you end the financial year with expenses looking a lot higher than revenue and a lot of stock sitting in the warehouse? This isn’t necessarily a bad thing if you reflect the inventory as an asset in your books!
If your warehouse or inventory software tracks your stock levels daily, check the report on 30 June. You can include a line item called Finished Goods, for instance, in your balance sheet that shows the value of that stock. You can choose whether to express the number as the cost value or its retail value.
When you have a better idea of your purchases, stock levels and sales, you can more effectively plan for consistent inventory flow in the coming year. The ideal inventory scenario is based on frequent turnover so that your cost of goods sold (COGS), and therefore margins, accurately reflect any cost increases or decreases as they’re incurred.
3. Claim instant asset write-offs
In some cases, small businesses can claim instant asset write-offs. These are immediate deductions for the business portion of the cost of an asset, which is applicable in the year the investment is first used or installed ready for use.
Instant asset write-off can be used for:
- multiple assets as long as the cost of each asset is less than the relevant threshold
- new and second-hand purchases.
Cars used for business are included but have limitations. For example, the car limit is $57,581 for the 2019–20 income tax year. If you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $57,581, which equals $43,186.
Instant asset-write offs are now $150k for business assets, up from $30k last year, and eligibility has changed.
Check the ATO’s website for changes, eligibility, thresholds and instructions on claiming instant asset write-offs.
4. Forecast sales for 2021
After 2020, this initially may seem like an impossible task, but there’s now six months’ worth of data on how the pandemic and associated lockdowns have affected small businesses. New consumer trends are emerging, from increased spending on groceries and home goods to prioritising Australia-made products. Either you will have become aware of your positioning within the changing marketplace – or you know you need to work to pivot your offering.
Either way, it’s essential to look at your revenue over the past months and years to begin to project what your sales may look like in the coming year. If you have clarity on how your business has been affected this year and you’re on a growth trajectory, you might feel comfortable going for 20-30% sales growth in 2021.
Or perhaps it feels more realistic to use 2019 numbers and aim for 10-20% growth. When sales forecasting, there aren’t answers, only careful approximations using your own sales history and observing external circumstances.
5. Create a budget
After forecasting your sales, you can look at your costs to create a budget that determines how much you should be spending and what to reach your goals.
You can start by running a 12-month profit and loss statement from the previous year to see your regular expenses.
Then you can categorise these costs as fixed or variable costs. Fixed costs stay the same regardless of business activity or size, whereas variable prices will vary with product sales.
For example, email marketing software maybe $100 a month no matter how many campaigns you send out, but your packaging expense will increase with sales volume.
So, in that case, you can estimate your fixed expenses based on your monthly costs and calculate your variable payments as a percentage of sales.
Creating a budget will bring your attention to areas in which spend could be reduced and the other regions in which it could be increased. For instance, you may be cutting conference costs in 2021, but you may want to increase your digital advertising spend with those sales goals!
6. Establish a cashflow forecast
Once you know how much you plan to sell and how much you plan to spend, you can create a cash flow forecast to determine when to keep cash in the business and when to use it.
Typically, a cashflow forecast will have an opening bank balance (i.e. actual cash on hand) and show cash inflows and outflows for each period, usually by month.
As well as regular operational costs, outflows will include loan repayments, payments to the business owners and asset purchases. The number at the end of each month is referred to as the closing cash balance, and this number becomes the opening cash balance for the next month.
Understanding your cash flow is essential in scaling your business and is all about the timing of the flow of cash. You can use a forecasting template to create a cash flow forecast.
Even with uncertainties in the marketplace, you can still use best practice accounting tips for your 2021 planning. It helps immensely to use robust software to track all your sales and expenses and generate reports. It’s also a good idea to support an experienced bookkeeper to stay on top of changing regulations, financial planning and accounting hygiene. Here’s to a great 2020-2021 financial year!
Grow Your Business
Does your business show consistent growth and increased returns? Is your business actively creating a better lifestyle for you and your family?
A successful business does precisely that – it provides the time and money necessary for its owners to achieve their lifestyle goals. Sadly, yet unnecessarily, many businesses are a burden to their owners, returning very little by way of income, work satisfaction and a healthy work-life balance.
Spiralling debts, poor return on investment, unreasonable working hours and an over-stressed owner are symptoms of a business that needs help.
What is there to lose?
A poorly performing business! If you’d like to:
- Create a business that runs efficiently in your absence,
- Increase your net return,
- Retire within five years,
- Achieve a work/life balance of your design, then AAP can help.
Improving profitability & cash flow
Many business owners cast their nets too widely to find customers, which wastes enormous amounts of time and money. Many business owners are offering goods and services that aren’t pulling their financial weight.
Many business owners maintain poorly structured accounts receivable and payable systems, which impede cash flow. We could go on…
Only an objective, experienced professional knows what they’re looking at when they assess the profitability and performance.
Top 10 Business Growth Ideas
Business growth is simply achieving big numbers. This entails typically refining some business measures and practices. Businesses acquire growth either with improved sales by targeting the top line or cost-cutting by focusing on the bottom line.
A good entrepreneur always looks for effective time management. Business growth and development is not a matter of luck; it comes to those who struggle with it. In this article, we will discuss the top 10 business growth ideas that work. Let’s explore these tips together to incorporate success in your small business.
1. Belief in Yourself:
Self-belief is fundamental to growth and development. You can only grow when you are determined about your potential. Operating on a small scale doesn’t mean that you can never move to a medium or large scale. Positivity and hard work are the two perquisites for growth.
2. Setting Realistic Goals:
Goals are vital to derive growth. If you have no vision or mission about your business’s prospect there is no growth generating force. No matter what is your current business standing, you only achieve growth milestones when you dream big. It is advised to set small, realistic and achievable targets. Small successes trigger big business developments.
3. Set Your Priorities:
Priorities always change. Emerging market trends call for revisiting priorities. It is quite possible that some product lines that were initially profit-making sectors run into losses or vice versa. Regular analysis of strategic business units is required to set priorities accordingly. This greatly helps in right allocation of resources.
4. Apply Market Growth Strategies:
Continuous improvement is needed for sustainability. It is quite possible that you need a paradigm shift to achieve break-even. Adjusting and applying growth strategies as per market condition can play a crucial, growth factor. These strategies are:
Entering into a new market by producing a new product or launching a related product line of existing product.
Producing or providing a new product offering with extra benefits. Innovation and modification can be in design, formula or simply presentation.
Acquiring more market share in the similar industry by improving sales. This is largely done by reducing selling price, offering special discounts and promotions.
Targeting new market fragments for current products. For example, providing luxurious cars on easy installments converts non-buyers into potential buyers. A slight change in terms and condition can fetch more clients.
5. Introduce Referral Program:
Money has proved to be a successful motivating factor. When sales are not meeting the desired targets, try commission based policy. Employees work robustly when you provide a lucrative incentive. Other bonuses or rewards also work well to ignite the passion to work.
6. No Compromise on Quality:
Do not ever compromise on quality. Unsatisfied customer call for a chain of customers that will boycott your product. Acquiring and retaining the customer is really hard so compromise on quality is simply out of question.
7. Gradual Growth:
Always grow slowly but wisely. Acquiring loan to inject enormous products into the market and then worrying for recovery is definitely not a vigilant approach. Try to figure out product demand, accounts payable period and accounts receivable period. A balance needs to be maintained to keep the system working.
8. Winning Customer Loyalty:
The customer is the king. When the market is swarmed with so many similar products you need to be customer friendly in all possible ways. This ensures customer retention. A satisfied customer is a long-term asset. Keep on improving customer loyalty strategies to show you care for customers, offer membership perks and royalty programs, one to one correspondence and easy return and replacement policy.
9. Digital Media Marketing:
In this era of digital marketing, reaching customers is far more easy and convenient. Improving and outsourcing digital marketing strategy is something that can bring a visible difference imparting effective and efficient online presence.
Practically you can’t handle all online marketing activities if you don’t have an in house digital marketing team. Experts will definitely help in optimizing sales by providing the best internet marketing services.
10. Expert Consult:
A professional advice can bring a significant difference. You might want to grow but don’t know reliable options to consult. With so many business consultancy services to offer, Alterf Service is the hub of top rated advice.
Be it a Social Media Marketing, Search Engine Optimization, Pay Per Click Management, Local SEO, Email or content marketing or accounting & finance planning and forecasting, Alterf Services provide both consultancy and outsourcing services. The best part is that you can see performance difference while engaging them for a short period. If satisfied you can look for long-term collaboration.
5 Bookkeeping Tips for Small Businesses
Having good financial records is crucial for running a business, whether you’re a sole trader, company, partnership or trust. With expert, up to date bookkeeping, you will be able to easily manage your invoicing, cash-to-cash cycle, deposits, credit and any of the other myriad of daily finances your business engages in. Keeping your finances in good shape is fundamental to business growth and success.
Savvy non business owners make it a point to keep track of their daily finances. This minimizes costs and stress. Keeping up-to-date financial records helps when lodging a small business tax return. If you want to start taking charge of your business’ bookkeeping, here are a few tips from us:
1. Separate Business and Personal Finances
Some small business owners mix their business and personal finances. If running a business, you must open a separate business bank account to help keep accurate records of your business’ financial transactions and help build your business credit rating.
2. Know Your Taxes
If you are doing your own taxes, you may be familiar with the processes and the documents needed. But, keep in mind that business tax may differ from personal income tax with different rules, regulations and claims you are eligible to make. A basic understanding of the tax requirements of a business is crucial, so be sure to consult a professional tax return accountant so you know exactly what you need to do.
3. Prioritise Your Books
We understand that as a new business owner, you have a lot on your plate already. However, it’s important to prioritise your books alongside running your business. Keep control of all your paperwork so you don’t experience any issues come tax time.
4. Back Up All Financial Records
Make sure that all the relevant documents used in the day to day transactions of your business are stored and are up to date. Bank and credit card statements, profit and loss statements balance sheets and receipts are some examples of these documents. These can also help you establish a good and stable financial ground for your business.Receipts can be retained digitally saving the hassle of keeping paper receipts that fade and are problematic for storing.
5. Perform a Quarterly Review
Take the time to perform a review for your bookkeeping and accounting records at the end of each quarter. Observe any trends such as growing or declining sales and customer increase and discuss these with your accountant. They can help you become better prepared for future capital needs such as expansion and/or buying new equipment.