Whether running a small business or operating as a sole trader, having a good eye for financial planning and meeting obligations is key to keeping your services afloat.
A good strategy should facilitate growth, raise profit margins, and prepare for tax. Analysing your cash flow and understanding how to manage various reporting sheets will give you the information needed to succeed. So, where do you start?
We’ve compiled a helpful checklist outlining the fundamental aspects of developing a reliable strategy.
Manage Taxes Obligations
Regardless of whether you’ve registered your small business under a company, trust or sole trader structure, you may have the following obligations:
- Goods and services (GST) tax (You must register and pay GST if you generate revenue greater than $75,000 on an annual basis)
- Superannuation contributions (if you employ yourself or staff)
- Income tax
- PAYG Tax withholding
If you’re keen to discuss a few strategies around tax, then we’re ready to give you a hand and provide some expert advice.
Remember, setting aside profit for taxes is important as well, because your quarterly BAS and income tax obligations come around quicker than you might think!
Mastering the basics: Financials Statements
These are the foundations (pun intended) of understanding your business’s financial health and there are two primary areas to focus on for you.
- Balance sheet: This provides a snapshot of your business’s financial position at any given time. It shows your assets, liabilities and equity giving you the best overview of what your business owns and owes.
- Profit-and-loss statement: This statement summarises all your revenue, expenses and profit over a specific period of time (usually a month, quarter or year) and helps provide the best insight into whether your business is making a profit or a loss. It’s handy for knowing if you have made money over a specific period of time, even if you don’t get paid for a while after.
Accounting software such as Xero, makes creating and managing these financial statements easier.
Identify Your Profit Margins
Evaluating your business’ profitability lets you identify expansion opportunities, whether that’s by recruiting new individuals so you can take on more jobs efficiently or investing in cutting-edge equipment. It also encourages you to review your pricing strategy to ensure it remains profitable but reasonable.
So, how do you work out your profit margin? Using your profit-and-loss statement, try this calculation: Net Profit divided by your Total Revenue = Net Profit Margin.
This indicator then shows you that on average, when you make $1 dollar of revenue, how much money do you make as profit as a result. A healthy profit margin ensures your business remains sustainable going forward.
Receive Professional Support
Financial management is a whole job in itself. Enlisting the support of skilled accountants takes the weight off and lets you focus on the work you enjoy. Contact us to get the ball rolling on developing a financial strategy right for your business’ unique needs.
