Who needs a Festive Season Financial Health Check??

Personal finances are typically top of mind for people during the festive season. Christmas is often linked to a rise in household debt and “spend less, save more” is usually among the top three resolutions made (and broken) each year.

Business finances, however, rarely get a look in.

Business owners generally don’t reflect on their business’s performance or financial health until the end of the financial year – to their detriment.

Saving a financial health check until May or June leaves little time to implement any required changes to pricing, client base, services, packages or spending habits.

Analysing all aspects of your business over the holiday period may reveal that a product or service is, in fact, losing you money.  This isn’t ideal but it does mean you have the next six months to turn it around and introduce strategies to fix the leak.

Let’s face it; a lot can happen in the space of 12 months. By only reviewing your products or services and pricing once a year, you may be undervaluing your offering. You may also have inefficiencies in your client base that are hindering your profitability.

Think like your customers

The best way to review your business is take yourself out of the business and think like your customer.  What do they want? What are they asking for? What are their problems that you are solving? Then, compare this to what you are actually offering.

Christmas is a great time to review this as things tend to slow down and you can really work on your business, rather than in your business.

“Running a financially healthy business takes time and planning. Becoming profitable rarely happens due to luck, accident or magic.”

Several well-known brands hit the headlines in 2015 due to financial woes. The collapse of premium chocolate retailer Koko Black into voluntary administration was an eye-opener for many. The owners spent money expanding their business and this appears to have been above their capacity.

“These high profile cases bring one thing into sharp relief – business owners must bulletproof their finances to stay afloat.”

To do this, you need to understand various financial reports and regularly update your budgeting and forecasting. Reviewing clients and pricing structure and ensuring you are operating under the right legal structure should also be priorities.

Business owners are often guilty of wearing too many hats and trying to ‘do it all’. Sadly, the consequences of getting your financial obligations wrong can be devastating. I have seen various ‘mistakes’ throughout the year that have put clients and their businesses in crisis.

Having a trusted financial adviser on your team can have immeasurable benefits for your business. Something as simple as having a two-hour training session to ensure your data file is correct can ensure you have the knowledge to run accurate financial reporting.

Additionally, a review each quarter to reassess your business budget will make sure you remain on track. If one of your goals for 2016 is to boost your profit, then someone with a knowledgeable financial background is instrumental to have on your team.

Avoiding the Christmas cash flow crunch

You may be taking a break over the holidays, but unfortunately bills will keep rolling in!  Here are four tips to keep cash flowing over Christmas:

1.  Invoice upfront.  That’s right, before you have even done the work.  Once your client or customer commits, you should be raising the invoice.  December is a difficult month cash flow wise, so get in first and request the money that is owed to you before your clients spend it on other things.  If requesting full payment upfront is not an option, think about requesting a 50% deposit. Chasing money after the fact is stressful and time consuming.
2. Get it in writing.  Ensure all clients agree to your services in writing, either via an engagement letter or contract that they’ve signed.  Verbal agreements are notorious for going pear-shaped. Electronic software tools such as Hellosign and Docusign make this process a breeze.  A little bit of work to create and send a contract of service pays for itself when the clients pay on time, every time.
3. Make it easy for your customers to pay you.  It helps to understand your clients and how they usually shop and purchase.  I know a lot of my clients like to pay by credit card or PayPal. I therefore link the PayPal feature to my accounting software and most invoices are paid within 24 hours. Sure, some credit card facilities and PayPal charge fees based on the value of the invoice, but the trade-off is receiving money immediately and cash flow problems are instantly reduced.
4. Lastly , be on top of any debts owing.  The longer you leave it to chase payment for overdue invoices, the harder your life will become. For each month you leave it, the chance you will actually receive the funds reduces by 50%.  Many accounting systems have email reminder features built in, so ensure they are setup correctly and use them. Don’t feel guilty by asking for what is due to you.

You should already be planning January and February work now. Having clients lined up, specials advertised and work flow planned two months in advance ensures your cash flow is regular. You can then schedule jobs, time and rosters, manage your diary more effectively and reduce Christmas stress!

“This article originally appeared on the Smart Company website.”