As the new financial year kicks off, now is the perfect time to get your business finances in order so you can ensure your enterprise is financially fit when the next end of financial year rolls around, writes Jason Toshack, VP and GM at Oracle NetSuite ANZ.
The Australian business community is at the start of a new financial year, one that may need to be navigated carefully.
Even in challenging times, companies can take control by tapping into technology to gain full visibility across the entire business and review where things stand in real-time. Instant insight into finances, inventory, and other business processes will enable leaders to plan and respond quickly as the market changes.
Five tips to get your business financially fit
Businesses can better position themselves for unpredictable market conditions if they understand the fundamentals early in the financial year.
Here’s a checklist of tips to get started:
1. Assess operating costs
Where does operating expenditure (OPEX) end and cost of goods sold (COGS) begin? It’s not easy to work out how much money is being spent, and where, especially if real-time information is not available. Even for quarterly reporting, it can be a challenge to pin down costs and expenditure.
If businesses want a better understanding of their costs, they need full visibility of their finances. Technology is key to this. There are software systems that can help businesses proactively assess OPEX and COGS, providing a clearer picture across the operation. Such insight helps a business determine how much money it can use to reinvest for fresh growth or innovation.
This kind of visibility makes it much easier to predict financial flow in the months ahead and plan for the remainder of the financial year, positioning the business better to weather potential disruptions and make the most of the busy periods.
2. Balance the numbers
The anticipation of potential earnings plays an important role in balancing the books, to ensure a healthy financial flow throughout the year. But depending on the business type, revenue may not be easy to predict or account for in real-time. For example, subscription-based services aren’t recognised as income until after they have been delivered.
Meanwhile, if a business operates with terms that stretch out over months, the work done in one quarter may not be paid for until the next quarter. This makes it difficult to balance profits and costs on a monthly or quarterly basis.
Once again, visibility of the entire business, in real-time, makes all the difference to how the quarter finishes. Using an end-to-end financial management platform will help a business monitor incoming cash and outgoing expenses, ensuring strong margins throughout the year and enabling an ongoing financial buffer zone.
3. Review product portfolio and pricing
Once a business has a clear, ongoing picture of its finances, it can adequately adjust its product and services pricing as external pressures weigh on internal costs.
What can be harder, however, is understanding how external pressures affect the competitiveness of pricing for existing products and services. It’s therefore important to keep a close eye on the true profit margin for each product or service and tweak pricing accordingly.
Extending this further, it’s also a good idea to keep track of underperforming products and services. Even if profit margin isn’t a concern but the inventory budget is being spent on something that has little demand, it could become a financial drag on the business.
A good rule of thumb is to review the current portfolio before adding a new offering. Identify which, if any, products or services are underperforming. Are there items that are difficult to produce? These could be quietly eating away at the margin without any obvious signs.
Don’t be afraid to discontinue products that are not selling or not producing a decent margin. At the same time, identify high-margin offerings that have the potential to be shifted in greater volume. Lowering the price on such items could see an increase in sales that may net greater total profit than would otherwise be captured at the existing price point.
4. Build customer value for the long-term
Ongoing customer engagement and loyalty is key to recurring business, which can provide ongoing revenue all year. Regardless of external market pressures, it is possible to keep customers close and active between purchases, building customer retention.
Using various customer insights, businesses can produce and provide personalised promotions for products in which a customer may have previously expressed an interest. Meanwhile, referral programs are a great way to reward one-time or repeat customers for recommending products or services to others, expanding a business’s potential market size and keeping customers engaged in one fell swoop.
As valuable as it can be to net new customers, customer retention is typically less costly than customer acquisition. It’s important to ensure customer experience and connection is maximised, backed up by great value, products and service. Done right, this will have customers returning again and again throughout the financial year and beyond.
5. Increase internal efficiency
Even the smallest of businesses is likely to have slack that can be tightened up. Costs come in all shapes and sizes, and many may not be immediately obvious. Take manual processes, for example. How much time does a business spend on managing its staffing rosters or billing customers?
Many internal processes can be automated. Plenty of external, customer or supplier-focused processes can be automated these days, too. Technology can help businesses automate manual processes and can be implemented quickly and efficiently.
Shifting finances from a spreadsheet to a fully integrated and automated software system can save many hours of work a week. Likewise, automated inventory management systems dramatically reduce the time it takes to count and order new stock. Meanwhile, an automatic online sales portal vastly extends the capacity and potential scale of existing resources.
Such seemingly incremental gains, taken over the entire financial year, can make an enormous difference to a business’ bottom line, helping to build the resources needed to comfortably ride out the lean times and scale up to fully capture the busy times.
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