A business health check for the new tax year
This month saw one of the most important dates in the business calendar.
April 5 marks the end of yet another tax year, and Self Assessment forms will soon be arriving on doorsteps across the country.
But the end of the tax year also provides business owners with an important opportunity to take stock of their position. By looking back over the twelve months just gone you can identify your strengths and weaknesses, and plan more effectively for the future.
We’ve put together five top tips to help you give your business a year-end health check.
1. Identify your key metrics
Every business has a set of metrics that will provide an overview of its health. These are referred to as key performance indicators (KPIs). If you have not already done so, take some time to identify your own KPIs. The metrics you choose to measure will be unique to your business, but are likely to include things like sales volume by month, customer attrition, and invoice ageing.
2. Compare with projections
In order to work out where you’re going, you need to understand where you are. Look back at your performance in the tax year just gone, and compare it with your projections. Were those projections accurate? Did you fulfil your goals? If not, why not? Look at the strengths and weaknesses in those figures, and use them to help you tweak your predictions for the coming year.
3. Keep an eye on costs
With inflation on the rise and profit margins being squeezed everywhere, cost reduction is likely to be a priority for many firms in the coming twelve months. At the very least, it is vital that you understand exactly how much you are spending, and on what. If you’ve not yet done so, write down all of your regular monthly outgoings. There may well be more there than you previously thought. Then, go through that list and consider where you might be able to drive costs down. Where possible, contact your suppliers and try to renegotiate your terms. In the current environment many will be willing to negotiate.
4. Don’t forget cashflow
Cashflow is a major issue for businesses of every size. Even profitable ventures routinely suffer from cashflow issues. Use this opportunity to take steps to ease potential cashflow problems before they arise. You might try, for example, to negotiate better credit terms with your suppliers, or to extend your lending facilities. Crucially, you should put together as accurate a cashflow forecast as you can, in order to identify problem periods and to prevent overtrading.
5. Keep monitoring
Finally, it is important that you think of the health check as an ongoing process. Make sure that you keep an eye on the metrics identified earlier. By consistently monitoring these numbers you will be well-positioned to determine whether or not you are on the right track.