Is a positive tax return hiding bad news in your business?
John is a typical small business owner. He’s just had just had an annual meeting with his new accountant to sign his tax return.
It was rude shock for him.
Not that John had to pay more tax. In fact, he received a large positive tax return. But his joy at this quickly dissolved when his accountant explained:
“This year, you’ve made a loss. In fact, your financial statements show there are some very dangerous things happening to your business.”
John believed that his business was chugging along nicely and the positive tax return added to the feel-good factor for a few moments….
The “hidden” problems in John’s business
John had become distracted by simply “doing his business”, attending to all the day-to-day “stuff” that just happens.
He’d only managed to make a profit in four of the past 12 months.
But he’d stopped looking at key information that could have alerted him to the “hidden” dangers. He wasn’t monitoring his debtors for how much was owed nor how long customers were taking to pay. He hadn’t reviewed the pricing for his sales. The simple fact was that his costs were increasing faster than his sales revenue; his overheads had increased; wages had doubled.
But John had no idea that he was not profitable.
Looking beyond a positive tax return
Fortunately, John’s new accountant had prepared a detailed business health check for his business.
This wasn’t just a set of figures. It highlighted the key indicators for the business in terms of profit, cash flow, efficiency, and solvency. The report also explained what each of these indicators meant.
Together with his accountant, John developed a one-page action plan for his business. John’s an expert in his own area of business; but his accountant is also an expert in the systems and processes needed to work smarter rather than harder, and to grow a business profitably and sustainably.
Most business owners with 10-20 outstanding issues try to solve all of them and do a lousy job. John’s accountant helped him to focus on the top two or three issues.
These are the most important things that he needs to concentrate on right now - the actions that will have the most immediate positive impact. Many of the other action points identified, while important, won’t be as successful or beneficial unless the top three actions are first implemented successfully.
Build the business you really want with your accountant
Hundreds and thousands of businesses have confronted the same issues as your business is confronting - and come up with long-term solutions to them.
You may have a unique mix of problems but the problems themselves are the same. Your accountant and adviser is experienced with these issues and the solutions required. It makes perfect sense to tap into their skills in order to get a better result for your business.
If the only discussion you’re having with your accountant is about taxation, you’re wasting the opportunity to use their skills to help you achieve a more profitable, sustainable and valuable business.
The journey starts with a health check-up
Like for John, this can be the beginning of your journey to a better business. But, unlike John, you don’t have to wait for a positive tax return at tax time to act as your “wake-up” call.
The end point of the journey depends on you. What’s your vision? What does your perfect business look like?
Once you know the answer to these two questions, you can determine the actions you need to take to create the business you want, not the business you currently have.
There will be a gap between the two. How you get from now to where you want to be will form your plan. To increase your chance of success, get help from experienced advisors, ask questions to learn more, commit to implementation, measure how successful you are, and revise your strategy when required.