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Tip No. 1: Collect your debts

If you need to offer credit to your customers make sure that you ask for any outstanding amounts to be paid by a certain date and follow up with regular demands for payment backed by a debt collection strategy. Your initial invoice should have the credit terms clearly shown and this needs to be given to the client at the time of the transaction.

Modern computer programs allow you to send invoices with emails so there is no excuse for not keeping your customers informed that they owe you money. Keep a monthly report of aged debtors that shows who owes what over 30 day, 60 day and 90 day periods and use this information to set yourself a target of no more that 20% of debt being over 30 days.

Tip No 2: Watch your cashflow

Think of your business as a bucket of liquid funds with cash coming in through taps of cash fees, collections of debt, additional funding and cash going out through holes from payment of bills, purchase of equipment, Payroll and owner's drawings.

It is important to anticipate future demands on your cash from tax liabilities, business growth and day to day expenses. A cashflow budget will highlight periods of negative cashflow.

Tip No. 3: Reconcile your Bank Accounts

By doing a reconciliation you are checking your own internal records against those of the external records of the bank. Errors can occur and it is best to discover these as soon as possible. It is normal practice to reconcile your bank deposits and cash payments at least monthly and it is strongly suggested that this should also be done for credit cards, loan accounts and clearing accounts.

All transactions should be traced back to an original document and the figures checked to see that they are not only accurate but also that the entry has been made for the correct date and against the correct ledger account.

Tip No. 4: Be aware of your GST liability

Proper records need to be kept of GST collected and GST credits that are claimed as part of the BAS reporting process. Unless some cash reserve is provided for it is easy for the GST component of a businesses sales to be used for other payments.

There are also some traps such as the need to charge GST on the sale of assets and to make sure that suppliers who you have claimed a GST credit for are actually registered for the GST. This can easily be checked by going to the web site www.abr.gov.au. Unless you are registered for a cash BAS you may be required to pay GST on the total invoiced price of a job even though it may not be paid for some months ahead.

Tip No. 5: Control your Drawings

Businesses need working capital to maintain cash reserves to cover the cost of operations. If the business owner keeps taking excess cash from the business for their own private needs this will deplete the businesses capacity to pay its way. Set up a strict budget for the amount of money the owner needs to draw out of the business each week and avoid the temptation to take advances on business profits.

Remember that money taken out of a sole trader or partnership business by the owner will appear in the Balance Sheet not the Profit and Loss and this may make the business profits look better than they should be. Avoid using the business bank, credit card and petty cash accounts for private or personal use and try to stick within the budget that has been set.

Tip No. 6: Get a Point of Reference for Expenses

The purpose of collecting financial information is to measure it against something.

Ask yourself the questions:

• What was it last period?

• What is it this month?

• What was the budget?

Budgets need to be reviewed regularly and adjusted if circumstances change. It is suggested that each month a certain expense be selected to see if it can be kept within the budget that has been set. If there is a significant variation from the budget then corrective action should be taken.

Remember to also adopt budgets for revenue areas as well and make sure you allow for seasonal variations.

Tip No. 7: Know your Breakeven Point

Every business has to spend money in order to make money. Those expenses that have to be paid whether the business opens it's doors or not are known as fixed costs, while those costs that increase and decrease with business sales activity are known as variable costs.

By dividing total sales by variable costs you can come up with the margin made per hour, per item or per service and when this is compared to the businesses fixed costs a measure can be made of how many units (hours, items or services) are necessary to cover these costs or to "break even".

Your industry should have certain expected break-even points or "bench marks" that you can measure your business against.

Tip No. 8: Manage your Inventory Levels

The time it takes to convert an item purchased to a sale can have a significant impact on a businesses productivity and cashflow. There is a general rule that 20% of a businesses inventory will contribute to 80% of it's profit, which means that you have to keep a close watch on how much stock is being held and quickly it is converted into sales revenue.

Tip No. 9: Keep Accurate and Timely Payroll Records

If you employ staff then there are a number of obligations on the employer to withhold and pay income tax, work cover, superannuation, various types of leave and allowances.

There are a number of privacy issues that need to be observed to safeguard employees rights and make sure that accurate records are being kept of their entitlements. Your staff are your most important asset and it is important that they are looked after and rewarded for their efforts.

Tip No. 10: Make Technology Work for Your Business

Computers allow you to enter information once and then use this information in many different ways. Accounting programs are sophisticated data bases that take financial transaction information and interlink this with other information to provide financial reports that managers can use to steer their business.

Other technologies such as the Internet and emails now allow invoices to be sent as attachments and Accountants, Bookkeepers and Business Owners can share information and electronically receive and make payments. Increasingly electronic transactions should automate the data entry required and reduce the amount of errors while increasing the volume of information available to make business decisions.

If you would like to discuss how any of these tips can help you, please do not hesitate to call.