It has been a rough year, but now is the time to move forward with confidence and start planning for a better 2021, says Justin Mastores, partner at accounting firm Rees Group.

Confidence is starting to increase in the business community again, Mastores says, so take that confidence and let it propel you into planning mode because “the head in the sand mentality is not the way to get ahead next year”.

Get an accurate read on your cash flow

Having cash reserves going into 2021 is really important, Mastores says.

“For example, a business that has run its cash reserves down to near zero – they might have [kept afloat] with some government incentives – could now go to a lender and say, ‘I need a $50k buffer so I’m not stressing out about cash flow management going into next year.'”

Put clear strategies in place to manage how you’re paid, he adds. For example, if you’re a service-based business, instead of just asking for a deposit and a final payment, you could ask for progress payments.

Anesley Clarke, owner of Melbourne-based sustainable furniture store B2C Furniture, says good cash flow management comes down to having a robust, cloud-based accounting platform in place. He also has a financial controller and trusted external accountant, but that’s no reason to steer clear of your finances, he adds.

“If you’re a small business owner, you have to monitor your cash flow on a daily basis. You cannot hand all that to your accountant, because it’s very hard for an accountant to understand the marketing side of the business, for example, and the two very much go hand in hand.”

Be optimistic, but realistic

Your budget projections for 2021 shouldn’t be based on your last few weeks of sales, says Mastores.

“I have one client whose sales have been up by 200% in the last three weeks.” While this is fantastic news, it’s not wise to think of this as your 2021 baseline.

“Plan your budget for the worst-case scenario next year. Go back to what you sold in January 2020 and also look at the same period in 2019 and [with that information in hand] take a conservative approach.”

Clarke agrees. “If we get 70% of our budget assumptions correct, we’re really happy. You never hit a 100%, but you can put some margin in for that 30% error.”

Don’t forget to budget for the capital expenditure you’ll need for 2021, Mastores adds.

“Is there a new shop fit that you need? Or a new asset that you require? Because the government has an incentive to be able to write off the full value of [eligible business] assets [up to any value]. So you could buy a new vehicle [for your business], for example, and write that off at tax time.”

(Read more about the government’s instant asset write-off scheme here).

Make data-backed business decisions

Clarke encourages business owners to take the time to learn about the data behind their products/services – this helps you to estimate your future sales and plan accordingly.

“We know that ‘single bed’ is searched 14,000 times a month on Google. If our marketing [approach] gains 10% of that keyword, which is 1,400 times, we know we could potentially convert 5% of that into a sale. Our business approach is very data driven,” says Clarke.

“I’m usually a conservative guy, but if you have that predictability, it gives you confidence. Our plan in 2021 is to open a showroom in Sydney because we know [from the data] that 30% of our products are sold to Sydney.”

Have a rainy-day fund

Mastores suggests setting aside cash at the start of the year to ensure you have a healthy rainy-day fund; something you can draw from if you land on tough times.

Clarke always has three months’ worth of cash stored away and even though he has ambitious growth plans, he won’t touch this because, as he says, you need to balance your growth objectives with your safety net.

Mastores adds: “If you know you’re spending $50k a month on expenditure, have somewhere between $100,000 and $150,000 as a buffer just in case things don’t go the way that you expect them to go at the start of 2021.”

Invest for growth

Setting yourself up with a rainy day fund is a smart idea, but it’s equally as smart to invest in areas of your business that will generate more funds down the line.

Mastores says software is an important one.

“If you’re not fully on the cloud – there are a lot of businesses that still have a server running in a backroom somewhere – you need to be.”

You’ve also got to be strategic about your people resources, he adds.

“Be smart about how you’re hiring people. Instead of just saying, ‘Susan left and I want to hire John.’ Consider if a consultant could help instead. It might cost you a little bit more on a day rate, but you have the ability to ramp it up or down depending upon how your workflow is at the time.”

In 2020, Clarke strategically invested in the digital side of his business. He’s put money into the business’s web capabilities and high-quality photoshoots for his products because since COVID-19 a whopping 90% of his sales are coming in through the website, compared to around 39% beforehand. So this will be a focal point for him in 2021.

What else should you keep in mind?

Clarke and Mastores share their final New Year business financial tips:

• Do your research about the various government incentives available in your state.
• Remember JobKeeper is taxable, says Mastores.
• When securing a deposit for your work, Mastores suggests aiming for 50% of the total amount.
• If you can’t afford to pay your BAS or your Installment Activity Statement, still lodge it, says Mastores. “You’re better off lodging and negotiating [repayments] with the ATO. This way you stay on top of your lodgement requirements and avoid being penalised.”
• Incentivise clients to pay invoices early with a small discount.