Ben Walker is the owner of Inspire Accountants in Brisbane, which works with only small business owners. He shares with us some of the lessons he has learned and tips he has shared over the years to help small businesses avoid insolvency.
Insolvency at the highest level is when a business cannot pay its bills on time.
Insolvent trading can result in heavy penalties for directors who continue to trade despite knowing that their business struggles to pay all its bills on time. This could even expose the director’s assets.
Insolvency doesn’t occur overnight, as I often observe. It is usually evident that the financial stability of the company will be eroded for months or even years.
The accounts payable of the company will gradually increase, putting pressure on the payment terms for the suppliers. Tax debt (BAS is a common one) and superannuation payments late or non-existent are typical. Owners are stressed out because the business is stealing from Peter to pay Paul.
It is vital that you seek out advice as soon as possible if you, as a businessman, are trading insolvent or you could be perceived as such. It is important to seek advice as soon as possible, whether it’s to steer your ship in the right direction using the tips that I will share with you in this article or to speak to an insolvency expert to determine what options you have.
What can we do as business owners to minimize our risk of insolvency?
Ensure your bookkeeping is current
It’s nearly impossible for an adviser to help you if the numbers are not up to date and accurate. This makes it difficult to make good financial decisions regarding your business.
I recommend that you do your bookkeeping at least monthly, but it’s best to do this weekly or fortnightly in order to keep everything up-to-date.
It’s time to find a new bookkeeper if you are not satisfied with the one you have or if you do your own work.
Two: Review your financial performance
It is best to consult an accountant who can interpret the financial performance of your business using reports in your accounting software.
Beware, not all tax accountants are commercially minded and can understand these reports at a management-level.
Compare your numbers with those of previous periods. Also, compare them against industry benchmarks. Check for any anomalies.
Three: Review your pricing
The inflation rate has slashed profit margins in businesses around the globe.
This happens when the cost of our expenses rises, but the price we charge customers doesn’t. The profit that we made before begins to diminish.
You do not want to find yourself in a situation where you are working for nothing, or even worse, that it costs you money to service clients.
Pricing is a key tool that businesses can use to increase their profits. If you haven’t done so already, now is the time to raise your prices. Customers are expecting it because the cost of nearly all inputs has increased.
I recommend that you check when you last increased your prices. If it was more than three years ago, then you should increase them by CPI, not only for the last 12 months but also from the time that you last reviewed your prices.
Your increased prices may result in you losing clients. Here are a few points to consider: * A client who isn’t profitable is not worth keeping.
* If you raise your prices by 10% and lose 10% of your customers, your revenue will be around the same, but your delivery costs will have decreased by 10%.
Communication is the key. Tell them why you are increasing your prices. Let them know and (for those we enjoy working with!) Let them know that it is their decision who they choose to use if they are not satisfied with the new prices.
Lastly, I would like to say that you should not only do it once but also regularly.
Four: Make sure you are efficient
If I am thinking of efficiency, then my frame is to make sure that you get the most out of every dollar spent.
It includes contractors, employees and anyone else who provides services to you. All outgoings.
Here are some thoughts to help you improve your efficiency:
* Make sure your team is well-trained to avoid the need for rework or unhappy clients.
* If your team is on the move, schedule the work so that they spend less time in the car between sites. Software can optimize this and should be less expensive than paying people to spend half the day sitting in a vehicle.
Consider letting go of an employee who isn’t performing.
* Check all your expenses and make sure that you are not paying anyone unnecessary money. You can cancel services you don’t need that will not have a major impact on your business.
* Don’t let your senior staff do junior work.
Have you got extra vehicles that you hardly use?
This article has hopefully given you some inspiration.
Stock levels are important.
This is similar to Point Four on efficiency.
The stock and materials in the shop or in storage is like money that’s not in your bank account. Stocks that are too large can take a long time to sell.
This is where you need to find a balance between bulk discounts and large quantities of stock. My recommendation is to stock up on the right amount of stock and materials to ensure you never run out.
These tips should have given you some great ideas for ways to improve and optimise your business.
Please contact our team at Inspire Accountants if you require assistance in any of the areas I have mentioned.
Five tips to avoid bankruptcy appeared first on SPLASH Magazine. Magazine.
