This article was written by guest author Arpana Patel, Avenue Solutions Tax & Accounting
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Financial Year End
This is the time to see whether your goals set out in your business plan is aligned with your success planning. And if there are any gaps, what checks are in place.
Why Is it important to understand your Financials?
The primary objective of analyzing your financial data is to understand and diagnose what went right and what went wrong. The data will assist you with forecasting your next financial year targets and help you make the informed decisions about your business.
What to look for…..
There is no real science behind reviewing your data. If you have budgets in place, the best way is to compare whether the budgets have been met and if not, where are the discrepancies. Budgets are a good way to set yourself up for a new year as it will keep you focused and motivated to achieve a desired result.
If budgets are not in place, then compare your results with previous years. If an expense is too high, find alternatives or substitutes to lower your cost. Most small businesses spend money on marketing and lead generations. Calculate if the expenditure gave you a good return on investment (an accountant can assist you with this).
Lastly, some of you, who are interested to benchmark your business with similar industries, ATO collects data from businesses to help you compare your performance with similar businesses around Australia. Refer the website below:
https://www.ato.gov.au/business/small-business-benchmarks/
Don’t shy away from asking questions
Let’s be honest, we all see our accountants once a year to do the tax return. We never stood to understand that an accountant can assist with succession and tax planning. Most of us are not aware or feel embarrassed to ask questions. Below are some of the valued questions you could ask:
- How did my business perform? Let them form a comparison opinion that would enable you to see your business with a new eye.
- Can you perform a health check on the financial data and explain the financial reports in plain English? This would assist you in understanding how well you have performed during the year and any area of concerns to be highlighted.
- If you are a product-based business, ask your accountant to explain the difference between a Gross Profit (GP) margin and a Net Profit (NP). You will be surprised to know that most product business are under costing and not setting the right selling price of they products.
- How do I take profits out in a tax effective manner and pay myself a regular salary? Statistics shows that most small business owners do not pay themselves first. This is important because this might be indicating a cashflow issue and your accountant can assist ways to improve them for example better debtor management or negotiating better terms with the suppliers.
- Get them to check that your business structures are still effective in terms of obtaining tax benefits and asset protection. If you need to move from sole trader to a company/trust structure, your accountant can provide valuable advice to avoid any costly mistakes. If the business is doing well, ask your accountant effective tax planning and wealth creation advice. Usually they have referrals who could assist you further in succession planning.
- Finally ask if there are any changes in laws that you should be aware of in terms of your business activities.
Latest Tax updates
1. Single Touch Payroll (STP) is now compulsory for small businesses with less than 19 employees.
2. From 2nd of April 2019, small business can purchase asset up till $30,000 and get an instant write off.
3. The tax threshold 32.5% extends to earnings until $90,000.
About our Guest Author
Arpana Patel is a Melbourne based accountant providing tax and business coaching services to small businesses/startups around Australia. She is a single mum who ventured her business with minimum capital and maximum challenges. With a lot of passion and determination and without any family support in Australia, Arpana created her own small accounting practice to assist mainly small business owners through her own experience of running a small business. Arpana’s expertise are tax planning, investment strategies and wealth creation along with tax compliance and Financial coaching. To get in touch, please visit Arpana’s website and Facebook page.