The RBA does not determine your business’s finances – you do
The Reserve Bank held the cash rate at 3.5% this past week, leaving a lot of business owners none the wiser as to the future state of the economy. But in your own business, you get to decide the value of money as it performs for and within your enterprise. There are eight key segments worth considering:
Spending: When you look at your business, what are you spending on? What are your costs and do all of them contribute to creating revenues? Ask this: if I stopped this expenditure right now, what would happen to my business?
Saving: Many businesses put cash to one side to ensure they can pay essential costs. How much is your savings earning you? Many business owners stash cash in a legacy cheque account, and it may be paying zero interest. Yet there are high-interest rate accounts out there and the money is on-call. Make you money work.
Borrowing: One of the easiest ways to lose money from your business is to pay too much for debt. Whether it’s an overdraft, a term loan, equipment leases or corporate credit cards, have you fallen into a set-and-forget mindset with your finance? Do regular health checks of your debt, or get a finance broker to do it for you.
Repaying: At the end of a finance facility, do you know the most cost-effective way to go forward? Do you know all of your options and how much they will cost you? Sometimes it’s better to roll over a facility and other times it’s better to pay out a loan as fast as you can. You should know what value you get from debt before taking it, and set your repayment strategy accordingly.
Protecting: How do you protect your revenues? There are lot of interesting business insurances, but you have to know to ask for them. It’s worth engaging a broker and seeing what he or she would put in place – the entire rationale for running a business is to create revenues, and if you lose them, you have no business.
Investing: Whether you take out dividends to invest personally or the business buys commercial property, it’s worth thinking about how to make surplus funds work smart, and it’s always worth consulting an expert. This is how I think about it: those investment funds should work as hard as you worked to earn them in the first place.
Tax efficiency: You can’t run a business without dealing with the ATO. And you are taxed according to your legal structure or status. I advise business owners to stay close to their accountants and to make sure that they are paying the right amount of tax.
Budget: Your business budget is not just a road map, but it’s also your official statement about what is critical and what is merely a wish list. It assigns a value to money. If you feel you’ve lost your way with budgeting, engage an expert. It’s your money – value it!
Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.