While many of us may be relieved to see the back of 2020, there’s still some organising to do before we welcome the new year.
It’s arguably been one of the most difficult years for Australian small businesses. From the bushfires in January, to the start of the global pandemic in March, to Australia hitting its first recession in 30 years in September. While some businesses have thrived in the face of adversity, more have struggled, and many sadly have been forced to close their doors forever.
With the end of 2020 in sight, it’s worth putting some thought into what your business will look like in 2021.
Running a successful business starts with the fundamentals, and getting those little things right makes all the difference. Focus on this list of tasks and you’ll build a strong foundation for the coming year. So, if you’re a small business owner, here’s our to do list to prepare for 2021.
Reflect on your year
It’s well worth setting some time aside to reflect back on the year that’s been. Ask yourself, what worked well, and what can we do better? This is also the perfect opportunity to bring your team together and ask them the same questions.
Get your employees to provide feedback and ideas on how the business can improve, such as what can be streamlined, how to remove any obstacles preventing them from being as productive as possible, etc.
Listening to your employees, and following through with action, can help them to feel empowered, engaged, and happy to come to work, so it's a win for your employees and your bottom line.
Plan for the end of JobKeeper payments
On 4th January 2021, JobKeeper payments will decrease by 16%. Payments for eligible full-time employees will drop from $1,200 to $1,000 per fortnight, or 16.7%. There is a somewhat smaller percentage decline of 13% for part-time employees as payments decline from $750 to $650. And there have been no statements regarding extending the programme past its current 28th March 2021 expiry date.
This could have a major impact on small businesses that are relying on these payments to continue to employ their staff. If your business falls into this category, you need to make a contingency plan for how the winding back of these payments will affect business.
To avoid laying off staff where possible, while maintaining a positive working capital, you’ll need to rethink your business’ cost base for the year ahead. You may also have to start thinking about some of the tough choices that you’ll have to make.
Talk to suppliers
This follows on from rethinking your cost base. This is because supplier relationships can have a huge impact on how efficiently your business operates, and its profitability. Now is the time to sit down and review all suppliers and go back to your favoured suppliers to see if you can arrange a more attractive deal for 2021.
And, it's not only about price - payment terms, quality of stock, and return policies are all important factors that shouldn't be overlooked. When speaking to your suppliers, it's important to remember that they want your business too. Therefore, it’s a good idea to negotiate firmly. You might be pleasantly surprised with the outcome.
Review your customers
The “80/20 rule” is useful when thinking about your customers. It's common for any business that 80% of your profits come from 20% of your customers. It's also often true that 80% of the headaches come from 20% of your customers.
It might be difficult to turn down business, particularly in trying times, but not all customers are good customers. Sometimes you just need to save yourself the headache and tell people “no”. If you have customers who regularly aren’t paying invoices, or are generally just more trouble than they’re worth, it may be time to cut them loose.
Equally, you should always be looking for ways to sell your good customers more. Also, look hard at what makes them valuable to your business, and actively try to find more customers like them.
Review Expenses
It's good practice for all business owners to review outgoings regularly, and the end of the year is a perfect time. A detailed look through expenses can help you trim some fat, while improving the accuracy of your forecasts for 2021.
If you can save just a percent or two on your biggest expenses, it will make a big difference to your profits. And a line-by-line review of all expenses will almost always find things that can be tightened up.
In the Balance
It’s time to put your numbers under the microscope. Review and scrutinise your balance sheet, P&L, and cash flow reports - and be brutal. If your cash flow or profit is less than you expected, then do the digging that's required to get to the root cause. Only once you’ve done this will you know the best course of action to take to remedy it.
It's important to identify what went well, what needs addressing and where things can be improved. If you haven’t moved your accounting to an online accounting service provider, such as Xero, it might be a good idea to make the move. Cloud-based accounting software is easy to use and can give you a clear, precise and timely snapshot of your finances.
Track your invoices and improve your cash flow
The end of the year is a good time to review your aged debtors and hit the phones to get your invoices paid. It's nice to start the year with your accounts receivable in good shape so get on top of it now so you don't have to worry about it on your holidays.
By tracking your cash flow in 2020 and then looking at your 2021 forecasts, you’ll have a better understanding of what you can actually achieve in the new year. And if it looks like there might be periods of tight cash flow, now is the time for putting contingencies in place so you aren't caught short.
Budget 2021
A major reason small businesses fail is the lack of cash flow planning. You may have an amazing product or service, but if your business does not have access to cash when you need it, the risk of failing is high. Plan and maintain a budget that’s realistic, accurate and up-to-date with projections for income and any expenses that can occur in the new year. Good financial management is the key to success.
Now is the time to take the lessons and experiences, both positive and negative from this year, build on them and turn them into future growth and opportunities.
In Part 2 of this series, we’ll have a few more to-do ideas for you to think about before the year is out. If you'd like to discuss invoice finance options for your business, such as an invoice discounting or invoice factoring arrangement, please call us on 1300 760 205, or email us at [email protected].
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].