Reviewing the performance of your business is not just an annual chore around the end of financial year. Rather, it is crucial that Australian businesses regularly examine their finances and adjust their strategies and goals as needed.
The benefits of quarterly business ‘health checks’ are many, but most notably they can often decrease the chance of insolvency by allowing you to identify and address high risk factors early. With the first quarter of this financial year just behind us, here are three crucial factors to consider when conducting your quarterly performance review.
Cash Flow
It is vital to frequently monitor your cash flow as a business. Knowing whether your accounts are in the positive or negative significantly impacts the business strategies you adopt. For instance, poor cash flow may require you to spend less or cut costs in the next quarter, and positive cash flow may indicate that your business can recover losses or has room for expansion.
A business should review its cash flow statements and balance sheets and identify whether debtors are repaying outstanding accounts on time. These documents provide a snapshot of your liquidity and allow time to tweak business goals and budget estimates. Likewise, simply following up with debtors to collect money owed on time or identifying legal options early to recover debt can assist your business maintain solvency. These strategies are essential to reduce the risk of insolvency.
Tax Compliance
It is important to ensure that your business submits its quarterly BAS (business activity statement) on time. It demonstrates your business’s tax compliance by recording any GST (goods and services tax), PAYG (pay as you go instalments or withholdings), or other taxes incurred in the last quarter and avoids unnecessary penalties.
Importantly, the ATO requires businesses to submit a BAS even if the amount of taxes payable is nil. Struggling businesses can often overlook compliance with these obligations and should be reviewed regularly to ensure you are meeting your obligations. Compliance with these lodgements can assist you in negotiating payment arrangements with the ATO in the future if required.
Budget Adjustments
Another perk of quarterly ‘health checkups’ is that businesses may make smaller and more manageable tweaks to budget estimates. Waiting a year to check the books can be unwise if earlier examination would have revealed issues arising from exceeding the budget, having a list of debtors who are not paying, or negative cash flow. Even if these kinds of financial stirs do not exist in your business every quarter, knowing that your budget estimates are accurate and cash flow is steady can provide business owners confidence in their performance. It is also useful to know if in one quarter, for example, that your business was particularly successful compared to previous periods as this can assist with forward planning.
Takeaways
It is prudent for businesses to engage in ‘health checkups’ of their finances at least every quarter. Among other considerations, ensuring that you monitor cash flow, tax compliance, and budget performance allows for prompt and flexible responses to any issues that may arise. Putting off these tasks until the end of the financial year creates uncertainty and is easily avoidable.
Need Advice?
If you require assistance with improving your cash flow or restructuring your business, please do not hesitate to contact us at your nearest Hunt & Hunt office.
Prepared by Matt Gauci, Partner and Dallas Torresan, Paralegal
