What’s Your New Year Resolution For Your Business This New Financial Year?
With the new financial year almost upon us, it’s the best time for businesses to review their financial goals. Inline Partners will help your business grow, by sharing our small business expertise with you.
Through setting objectives, goals and KPI’s (Key performance indicators), business owners can monitor the financial health of their business and ensure optimal growth.
But this year, there is a whole new set of numbers to compare your business progress against. As you might have heard, the Australian Tax Office (ATO) is urging small businesses to make use of the new small business benchmarks.
Benchmarks: What You Need to Know
If you visit the ATO website you’ll see they’ve released updated benchmarks. These benchmarks come from the data provided by over 1 million small business tax returns. They help the ATO and business owners to get an idea of the typical costs, profit margins and financial ongoing of small businesses in each industry.
Small business, industry specific benchmarks are a ‘game changer’, in more ways than one.
Benchmarks have been introduced in an effort to crack down on black economic activities, and make sure that everything is above board! The ATO looks at these figures, to check whether or not a business falls within this range. In fact, there are already over 4,000 planned visits to small businesses to make sure everything is above board.
As a side note: It can also be useful to report your personal trading stock and other personal assets that may be used in the calculation of your business profit, income and assets. Also, if you do not report cost of sales, then it can be helpful to use total expenses to turnover, instead, as this will be a more accurate reflection.
Benchmarks: How You Can Benefit
As a business owner, these benchmarks are useful for another reason: These numbers allow you to check on your competitors’ costs and profits, and see whether or not you’re matching up. Because of this, knowing if you are trending in the right direction will help your business grow. This is a great indicator of how your business is doing, and it might also allow you to see where your money is going. If you’re spending too much on an area of your business, this is a really effective way to find out about it.
If you are outside of the norm, it’s important that you know why, and can explain it clearly to the ATO. Being outside of the norms isn’t a crime – as long as you’re doing everything above-board, reporting all income, and filing your taxes.
If you’re worried about something, or not sure, it can be useful to get in touch with a professional accountant.
What to Do About it
So…what should you do if you find yourself OUTSIDE of the norms? And what does that mean for your business in this new financial year?
Well, this is where we come back to setting goals, and KPIs.
KPI’s (Key performance indicators), are a fantastic way to measure your progress, and make sure that you are hitting the norms, and improving the health of your business. Most business owners will use KPIs to set goals for their business growth.
So…there’s a good chance that you already have KPI, which you use in your business. These KPIs and the goals that they embody, can be used to make sure that you are hitting the ATO benchmarks.
How to Get Started
The first thing that you want to do, is to take a good look at the Benchmarks provided by the ATO. It’s important to look at the benchmarks that are relevant to your specific industry. The ATO goes into detail about most industries, and allows you to look at the income, profit margins, and costs for the small businesses in your industry. All this information from the ATO naturally helps them make sure businesses are paying their share of taxes, but you will help your business grow when you use this data effectively.
Next, it’s important to take a look at your own finances and make sure that you have clear access to these figures. Then review them and compare them to the numbers that you have received from the ATO’s website.
Now, it’s normal to differ a little bit, from the average. Obviously, you will have certain costs that pertain to your business specifically. For example, perhaps the rent in your preferred suburb is higher than the average rent, or perhaps you are a coffee shop that specializes in especially high-quality coffee beans.
Make sure that you can trace these figures and have a good reason for having them.
Discrepancies and Making Changes
Now that you have these figures, you might have noticed a few discrepancies that you didn’t realise you had.
If you have income that you can’t justify, or a profit margin that is exceptionally high for your industry, then it’s a good idea to see if you can trace this or contact a financial advisor to make sure that you get that in order.
If, however, you find that you are spending too much in certain areas, or not earning as high of a profit margin, then it might be helpful to do a bit of a health check on your business.
Find out where this money is going, and why you have this imbalance. This is a really important step. After all, you can’t fix a problem if you don’t know where it is coming from! Once you know what is and is not happening, it will help your business grow.
Once you’re really good and clear on what is going wrong in your business, it’s time to move onto the next step.
Setting Goals and KPI’s
Now that you know what’s wrong, it’s time to put a plan into place so that you can fix it!
To start with, decide what your ideal outcome is. Where do you want to be next year? In five years? Refer to the Benchmarks again and decide how much of a change you would like to see in your business.
Once you are very clear on what these goals are, it’s time to take a look at the details. How are you going to solve the problem in your business?
Maybe you’ve discovered that your prices are significantly lower than your competitors, or that you don’t get as many clients. Perhaps you find that you are over-staffed, or you’re using processes that are costing you too much.
Whatever it is, it’s time to break that down into clear and actionable steps.
This might mean investing in more effective software or tools, or perhaps changing your suppliers. It looks different for every business, and every problem!
So, how do you set (and maintain) the best KPI’s possible?
1. Set Smart Targets
Just as with goals, it’s important to make sure that your KPI’s are SMART. They need to be specific, measurable, actionable, relevant and time sensitive.
If you are really clear in your KPI’s, and how you will achieve them, it becomes much easier to get your team onboard, and to make sure that you can record your process (and change it if something isn’t working!).
2. Remember That Naming is Key
This is an interesting one. Firstly, you need to make sure that the name of your KPI is specific and practical enough that everyone knows exactly what it means. Being specific in what you are trying to achieve will help your business grow. Because when everyone is pushing in the same direction, you get to your destination quickly and with less effort.
At the same time, you need to make sure you think carefully about the language that you use. It needs to be engaging and clear, in order to help bring the rest of your team on board and inspire consistent action.
Through evoking action, urgency and company values, you’re likely to be much more successful in your KPI.
3. Check in Often
Check your progress! However you are measuring it, make sure that you check in regularly, so that you can see what is working and what isn’t. This way, you will be able to continue to make changes, to better your performance during the next financial year. It’s not enough to set your KPI’s, make a few initial changes, and then leave it.
Consistent monitoring and progress updates are vital in making sure that you are getting the right results (or at least moving in the right direction).
4. Have a Plan of Action
When developing your KPI, it’s important to make sure that they are being used to achieve your business goals. One way to do this, is to ensure that you have a clear plan of action. This allows the insights that you obtain through tracking, to translate to action, and changes that can help you keep on track with your broader business goals.
Through regular reviews and action, you and your team will be more aligned to the business goals. This also ensures that you are not just reporting for the sake of it and is a more efficient use of your time as a business owner. This will ensure that the goals of your business are clear and focused to anyone within your team.
There are many ways that you can utilize your KPI’s to help your business reach benchmark goals. It might seem like a long process, but it’s highly effective in making sure that your business thrives and flourishes in your industry.
On that note… If you’re still a bit worried about reporting, or your business falling outside of the norms, contact us for professional and confidential advice. It’s always better to get your documents in order before the ATO comes knocking at your door!