2020 has already proven to be an incredibly challenging year for everyone. Businesses, especially sole traders and SMEs, are at the forefront of our economy and also the most exposed during these times. Below are 3 key tips to help you get through these times, protect your business and get through 2020.
- Understand your outgoings
This might seem like a simple proposition but there is no better time than now to really dive into the details and get a thorough understanding of your outgoings.
Ask yourself this, right now: What are my outgoings every week or month? If you don’t know the answer immediately and to the nearest $100 (I am being generous) then you need to get to know your bills better!
You don’t need any elaborate accounting systems, just start with an excel spreadsheet. In the first column, set A1 as the title of “Expense”. Then, set A2 as “Value”. (Tip, with the values make sure they are ALL EX-GST or INC-GST. It doesn’t matter if you choose to use one or the other, it just needs to be the same for everything!). Now, in A3 set the title as “Frequency”. Frequency will help you understand your outgoings based on a time scale so you can really know the deal. How you format this is up to you however try and keep it regular. I.E. Just use six options, daily, weekly, fortnightly, monthly, quarterly and annually. That should just about cover everything.
Now, your basic structure is done.
Next, in the first column, write down every single thing you can think of that you spend money on. From things as little as parking to rent. A few examples that can be forgotten are payroll tax, quarterly BAS payments if you are GST registered, vehicle rego and CTP, business insurance, phone bills, subscriptions (professional, software etc.), and website costs. Another good way to make sure you don’t miss anything is to go over 3 months of credit card and bank statements.
Once your list is done, it is time to fill out the value of each line and the frequency it will occur.
You are nearly done!
All that is left to do is to add up your running totals. If you are an excel whizz, a simple pivot table or SUMIF statement will work, if not, just sum them all up with a simple sum function (i.e. =A1+A2). If you have access to an accountant, bookkeeper or tax agent, you can always reach out for help.
Treat this as a working list and update and delete as things change. You might even find a few things you have been paying for that aren’t required anymore and end up saving some cash!
This simple exercise will help you better understand your outgoings. Cash flow is king so if you understand your cash flow, you will have a much better handle to navigate tough times.
- Stay on the front foot with grants, rebates and stimulus packages
Even when we aren’t experiencing the extreme change we are seeing today, there are always stimulus packages and grants being issued by Federal, State and local governments. These can be quite lucrative to help promote anything from hiring new staff, buying new assets, to building, growing and encouraging technology development.
Two examples are:
- The government’s instant asset write off means that the threshold that once was $30,000.00 has now been increased to $150,000.00. This means when you buy a new asset for your business you can claim all of the applicable tax and depreciation up front.
- Research and Development Tax Incentive helps offset your costs when you invest in R&D. Businesses with turnover under 20million can claim up to 43.5% as a refundable tax offset.
For more information you can check out the Governments Grants and Programmes page.
- Mitigate your risk
Irrelevant of when things are booming or when times are tough it is always important to understand your risk and mitigate what you can. From sole traders to large SMEs, there is always some level of risk when you operate your business. The first step is to understand the risks that are within your business by completing a simple risk assessment.
The first step is to make a risk matrix. Simply get a piece of paper and draw a grid with 9 equal boxes. On the X axis from left to right you will have the likelihood an event may occur from low to high, and on the Y axis from top to bottom you will have the possible consequences if the event were to occur from mild to severe.
Once that is done, mind dump every single risk you can think your business may be exposed to. A few things to consider are:
- Do you provide advice and what are the possible consequences of bad advice?
- Cyber crime – If you have a database, could it be hacked?
- Key person risk – What if someone leaves or something happens to a director?
- Theft, fraud or vandalism
Once you have written them all down, arrange them in the boxes accordingly.Working from the top right down, anything with a high likelihood of occurrence and a possible severe consequence should be tackled first. Many risks can even be insured against through the various types of business insurance in Australia.
Professional Indemnity Insurance expert David Green says,
“All too often people don’t have a strong understanding of the risks in their business. There are many different types of business insurance in Australia that can help protect you and your businesses risk. Professional Indemnity Insurance helps protect people providing advice or a service in the event they make an error or an omission. When you think about it, you don’t want it to happen but if it does, it’s better to be protected”
Running a business can be challenging at the best of times. Take some time to plan and understand your business to ensure you have great success moving into the future.