Are you financially prepared for 2022?
It’s been another incredible year — and a tough one– for small business. As it comes to a close, most business owners are feeling buoyant. Vaccination rates are high, the states are slowly starting to open up, and it feels like the pandemic might be settling down.
That said, if we’ve learned anything from the past couple of years, it’s that everything can change — quickly. Businesses need to stay prepared — in terms of day-to-day operations, strategy and most importantly of all, finances.
By Jim Vass
How to prepare
While there’s a lot of talk about economic recovery, what’s in the media doesn’t always translate to what’s happening on the streets. Things are still ‘revving up’ and business owners are understandably cautious, although most business owners are optimistic that there are better times head.
It’s key for small businesses right now, to retain a strong focus on business stability, in particular financial stability, as we wind up 2021 and head into 2022.
Here are a few key things to consider:
Check your budget
It’s the new calendar year and the half-way point in the financial year. December / January is always a good time to review the budget and to see how you’re faring against original targets and forecasts.
- Can you reduce debt?
- Have you stress tested your interest rates?
- Have overheads or other costs increased?
- What’s cashflow looking like?
Make adjustments accordingly. It’s important to remember too, some of the recent expert predictions around impending Covid-19 driven changes to the workforce, which might mean you need to budget more for staff — both retention and recruitment.
Review your profit margins
It’s also a good time to consider profit margins. This is not always as simple as just ‘whacking on another 10 percent’. To do it properly, really drill down into your numbers — look at where the profitable areas of your business are, compared to the less profitable.
Detailed analysis here can help you pinpoint any issues, such as whether you’re overblown in costs and servicing, if your pricing model hasn’t been updated in a while, or if the demand for a particular product or service has slowed down.
Sometimes you can cut costs, which will obviously allow for more profit, other times, it might mean a price hike. But the trick here is to ensure whatever adjustments you make to pricing and profit margins are sustainable.
Make sure you're getting paid
When you’re a small business, even being owed a few thousand dollars can be potentially problematic. And payments come sharply into focus at this time of year as many businesses face the traditional “Christmas Credit Crunch”.
So, make sure that you have solid contacts and payment agreements in place. If you don’t then make it your holiday homework. It’s wise to have these checked by a lawyer to make sure that you’re on solid legal ground if you need to follow anyone up through a debt collection agency or in court or end up as a creditor in a bankruptcy situation. Hopefully that won’t ever happen.
You can protect your business by considering the following:
- Implementing strict payment terms and conditions
- Imposing late fees
- Offering discounts for early payments
- Making payment easy with a few options, including one via an online platform
- Taking deposits up front
- Insure the business to cover big losses?
- Having an effective accounting system that can identify debts
- Putting in place a threshold for bad debts.
Tidy up your accounts
On a final note, if you have taken advantage of Government assistance over the past 12 months, such as the New South Wales Government’s JobSaver scheme or other business grants, take time now to get your paperwork tidied up, in case you’re audited.
If we can help, please reach out the team.
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