Having got 2013's problems under control (as addressed in my previous blog), now is the time to make a plan for 2014 so it will be a year of reinvention and forward progress, rather than a repeat or worsening of the challenges of last year.
Key driversIn order to grow your business and move forward in 2014, you must address the key drivers for success:
- COGS (cost of goods sold, or direct costs)
- Accounts receivable
- Accounts payable
- Inventory / Work in progress
Far too many of the cash flow and budgeting projections we see people do are, to put it bluntly, rubbish. Then they wonder why their businesses face problems down the track.
To manage the growth of your business so it is sustainable:
- Understand your cash flow cycle - the time between paying for stock and when your customers pay you. Keep this cycle as short as possible. Identify if there is going to be a shortfall and how you will deal with it.
- Following on from the point above, you may need to address your credit policies and terms of trade.
- Realise that as your business grows it will require money to pay for that growth e.g. new employees, extra stock, higher GST and tax payments. You'll have to pay for those before money comes in from sales, so you must have funds in place for this in advance.
- Understand that your revenue, overheads and COGS will not be exactly the same every month - allow for seasonal variations.
- Plan for capital expenditure e.g. buying assets or moving premises. If possible, do this before March 31.
- Ensure that your growth plans won't put you outside your obligations to the bank.
As well as the factors discussed above, look at your overall position for 2014. For example, are your tax and legal structures still appropriate? Have your circumstances changed?
We saw a client recently who had set up their structures about eight years ago and hadn't thought about them again. At the time they had just rental properties, but since then they had started a business. Their structures were outdated, with a mixture of business and private assets that was putting the growth in the rental properties at risk. It was fortuitous that they'd come in to see us about another matter, because we picked up the problem, and addressed it then and there.
Put a plan in place
Don't run blind; instead create a clear road map for 2014. Make an appointment for a free meeting with your GRA CSM to go over your affairs. We'll take a fresh look at your position and help you put some plans in place to move your business forward this year.