Reviewing the financial health of your business on a regular basis helps you see clearly how it is performing and plan with better certainty and confidence. Here are the key steps.
1. Cashflow & Liquidity Review
Reviewing your cash flow for the next three to six months is the first place to start when monitoring the financial health of a business. Start with bank reconciliations and ensure all transactions match your accounting software. Check any outstanding payments to and from the business and look at your funding needs in terms of overdraft, credit lines, and tax options.
Why it’s important:
- Prevents cash shortages during off-peak periods
- Ensures decisions for investment, hiring or dividends are based on accurate data
- Cashflow stress is the #1 cause of small-business failure in NZ
2. Debtors (Accounts Receivable) Review
The next step is to run an aged receivables report. This will enable you to follow up late payees and decide to write off debts that are genuinely unrecoverable (and may be tax-deductible if written off before year-end).
Why it’s important:
- Improves working capital and liquidity
- Reduces tax — you don’t pay income tax on bad debts that are properly written off
- Helps you detect problematic customers before the new year
3. Creditors (Accounts Payable) Review
Ensure that you have paid all of your bills by reconciling supplier statements. Try to pay bills more strategically (for example, some may need to be paid before year-end for tax purposes).
Why it’s important:
- Ensures expenses are recorded in the correct financial year
- Prevents disputes with suppliers
- Helps optimise cash outflow for tax planning
4. Payroll & Employment Obligations
The next step is to review your payroll process and accuracy. Check annual leave balances & correct holiday pay calculations. Ensure PAYE, KiwiSaver, and ESCT reconciliations are accurate and review employment agreements & pay rates. Also, be sure to check contractor vs employee classifications.
Why it’s important:
- Payroll compliance is heavily enforced in NZ
- Incorrect leave entitlements can be expensive to fix
- Avoids employee disputes and legal risk
5. Income & Expense Review (Tax Planning)
Make sure all business expenses are included (including home-office, mileage, and software) for your review. Prepay expenses where beneficial under NZ prepayment rules, and accrue expenses incurred but not yet invoiced. Also, review major one-off income items.
Why it’s important:
- Ensures you claim all legitimate deductions
- Can significantly reduce taxable income
- Supports accurate forecasting for provisional tax
6. Review Provisional Tax Position
Compare estimates vs actual performance and decide whether to use the standard uplift or estimate method. Also, assess whether tax pooling could reduce interest and penalties
Why it’s important:
- Avoids large surprise tax bills or penalties
- Helps manage cash more effectively
- Aligns tax payments with real profitability
7. Strategic Performance Review
Compare actuals vs budget for the current and prior year. Measure profitability by product/service and check your cost structure and pricing strategy. Also, try to identify what worked — and what didn’t — over the past year.
Why it’s important:
- Sets you up for better decision-making next year
- Helps identify opportunities for efficiency or expansion
- Enables measurable goal-setting
These simple steps will help you keep your finger on the pulse of your business and give more certainty in your decision-making. For more assistance, just get in touch with your local Advantage Business Advisor for a complimentary chat.