Action.......what it can mean for your business

Last fortnight I talked about Knowledge & what it does for your business & a while back I challenged you to think about whether you wanted to Sink or Swim in business. The next step from the "thinking" about your business is ACTION. And there is no better time than the end of the Financial Year to plan that action.......

Thanks to regulation we are forced to do a number of things at the end of the Financial year. Instead of moaning & groaning etc about having to do your Stocktake, write off Bad debts, PAYG payment Summaries, BAS, Financial Statements, Tax Return & the list goes on how about using this information to your advantage.

So you have to do a stocktake at year end.........Instead of just counting your stock what about actually doing an analysis while you are counting. What about comparing the items that you have in stock turnaround days - i.e the number of days on average it takes you to sell that item. What about looking at which stock items give you the best margin in your business? What about undertaking a review of your suppliers? Do they offer settlement discounts? Are there any new suppliers around the corner? What other items does your current supplier stock? How has the price of your stock items differed during the year? If these prices have increased have you put your prices up? How much stock do you have in dollar terms? How have you financed this? Is there a better way to finance your stock? Do you need to carry as much stock? The questions from completing a stock take alone should give you a page of action items to look at. The aim with your stock is to get a better understanding of your business to allow you to make those informed decisions during the year.

Let's take a quick look at Debtors (the money you are owed by your customers). Each year you need to write off your Bad Debts for tax purposes. But instead of just writing these amounts off it's important to have an action plan so this does not happen in future. For each $1 in bad debts you write off that is $1 less you have to pay yourself, buy more assets or pay down some debt. Is the bad debt a cause of paperwork not being completed correctly therefore the customer not accepting the invoice? Is it a customer who has a bad payment history or was in trouble before you completed the job? How closely do you look at your customers before providing them with credit? Do you take deposits for work? Do you invoice as soon as you complete the job? Do you invoice during the job at say the halfway point? Do you have a debtors process - i.e when your customers are overdue do you call them, send them letters & continue to chase up etc? Or do you just leave this until it's too late? Do you consistently know who still owes you money? From reviewing your debtors and bad debts you can create a simple action plan to ensure you are collecting your debts on time & are not providing credit to just anyone. Your action plan can be as simple as jotting down a diary entry to follow up customers each Wednesday who have not paid or it may need to be as elaborate as completely overhauling your billing system.

Now of course my favourite of all is the reviewing of your Financial Information. Numbers can tell you so much about a business if you just take some time to review them. How often do you look at your own Profit and Loss? Is this broken up into Direct Costs / Cost of Goods Sold that should vary with your Sales Changes? How does this percentage of costs compare with last year or the year before? Have your costs gone up but sales flatlined? Have both gone up but your costs at a faster rate? What are your wages percentage costs this year compared to last year? If there is a variance why? If you have purchased some new equipment this year has this resulted in the savings in costs/efficiency you expected? What other costs have increased from last year as a % of your sales? What other costs have increased in $ terms from last year? How are you performing compared to others in your Industry? What is the return on your Marketing spend for the year? Has this worked? What is your Budget for the next financial year? The action items you can get out of reviewing your Numbers is endless. They can be as small as reviewing the return on your yellow pages ad to working on a plan to reduce your Cost of Goods Sold by 2%.

Remember without knowledge you are putting your entire life savings on Black at the Casino. However Knowledge means nothing without Action.

What does your action plan look like?