good practice checklist small business

8/22/2019 Good Practice Checklist Small Business

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Good practice checklistor small business


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CPA Australia Ltd (CPA Australia) is one o the worlds largest accounting bodies with more than 139,000 members o the nancial, accounting and business proession in 114 countries.

For inormation about CPA Australia, visit our website cpaaustralia.com.au

First published 2011CPA Australia Ltd

ACN 008 392 452Level 20, 28 Freshwater PlaceSouthbank Vic 3006

Australia

ISBN 978-1-921742-13-2

Legal notice

Copyright CPA Australia Ltd (ABN 64 008 392 452) (CPA Australia), 2012. All rights reserved.

Save and except or third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory toCPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, Level 20, 28 Freshwater Place, Southbank,

Victoria 3006 Australia..

CPA Australia has used reasonable care and skill in compiling the content o this material. However, CPA Australia and the editors make no warranty as to the accuracy orcompleteness o any inormation in these materials. No part o these materials are intended to be advice, whether legal or proessional. Further, as laws change requently, you areadvised to undertake your own research or to seek proessional advice to keep abreast o any reorms and developments in the law.

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Contents

Introduction 2

Using the checklist 2

Checklist 3

Financial tasks 3

Strategic nancial tasks 6

Strategic management tasks 8

Regulatory requirements: lodging returns and orms 11

Personal aairs o business owner 12

Conclusion 13

Acknowledgement

CPA Australia would like to thank the ollowing members or their

contribution to this checklist:

Jan Barned CPA

Financial Management Trainer

Trevor Beckingham FCPA

Company Secretary

Brisco Butler Automotive Services

Mike Sewell FCPA

Director

Market Gap Investments

Dale Wilcox FCPA

GM Finance and Corparate

Advanced Personal Management

Michael Wilson FCPA

Director

Wilson Business Services


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Introduction

The end o the nancial year is a good t ime to review your business. It gives you the opportunity to rule o the past yearand start aresh. However, do not all into the trap o rushing through the review o the current nancial year; make sure

you learn lessons rom it, avoid making the same mistakes and persist with successul strategies. Good business practice

is not just about getting your house in order, it is about setting up your business or the challenges and opportunities it will

ace in the uture.

Good business practice adds value to a business, in both good times and tough times. A business that ollows good practice

benets in many ways, such as:

the business is more likely to be protable, have better cash fow and operate with less nancial risk

the business may be easier to sell in the uture, and possibly at a better price

the business may nd it easier to access external nance, including bank nance, i needed

CPA Australia has developed this checklist to highlight good business practices that small businesses should undertake at

all times.

Implementing good business practice involves identiying the critical tasks that must be done to keep a business in good

shape, and having the discipline to ensure that those tasks are carried out consistently and regularly. Good business practice

calls or an annual review at least;betterbusiness practice will see you reviewing critical areas quarterly, or even monthly.

I you undertake the tasks detailed in this checklist regularly, the end o the nancial year should not create undue pressure

or your business and you will be more likely to have the quality inormation you need to manage and grow your business,

whatever conditions you ace.

A checklist like this cannot be denitive. This checklist is intended to start you thinking about the specic actions needed to

put your business on the right track and keep it there.

I you need assistance with any part o this checklist, please contact your CPA. I you do not have a CPA, you can nd one at

cpaaustralia.com.au/ndacpa

Using the checklist

Below are some suggested ways to build relevant aspects o this checklist into your business practices:

Use the checklist as part o the agenda in your regular sta meetings and allocate tasks so everyone knows what element

o the checklist each person is responsible or. Ask or regular reports on each task.

Write the checklist tasks into your calendar so that you are reminded o requirements at the appropriate times.

Build tasks rom the checklist into the job descriptions and key perormance indicators o relevant sta.


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Checklist

Activity Person

responsible

Due date /

regularity

Some actions to consider

Install nancialsotware

With newupdates

Ask your sotware vendor to list what nancialstatements and reports the sotware can produce.

Use the nancial sotware to produce regular

nancial statements and reports.

Ask whether your nancial sotware is Standard

Business Reporting (SBR) compliant or BAS and

other reporting.

Enter all data promptly,

and with accurate

transaction dates

Ongoing Regularly check data entry or quality.

I possible, separate cash handling rom data

entry to minimise potential or raud.

Where possible, cut and paste inormation

rom downloaded bank statements to reduce

handling and transcription errors.

Regularly review

working capital items,

including:

Stock balances and

reconcile to physical

stocktake

Every six months Dispose o old/slow moving stock.

Write o excess stock.

Review purchasing policies to prevent

over-spending on stock.

Work-in-progress

(or construction rms,

proessional practices,

etc.)

At least quarterly Bill clients regularly or at key milestones.

Regularly review work-in-progress or

bottlenecks.

Financial tasksTasks necessary to prepare nancial statements should be perormed regularly. Waiting until the end o the nancial year

(or even when your quarterly Business Activity Statement (BAS) is due) to undertake many o these tasks will put you under

pressure and may reduce the quality, and thereore useulness, o nancial data. Delaying nancial tasks can also deny you

regular nancial inormation, such as cash fow statements, which can be critical to helping you manage the everyday ebb

and fow o your business. It is also important to note that a number o returns and orms have to be completed very soon

ater the close o the nancial year, so you can do without the extra pressure caused by delayed action.

The nancial tasks below are necessary to produce nancial statements, such as prot and loss statements and balance

sheets. Such nancial statements give you a wealth o inormation that is critical in helping you understand how your

business is perorming and in highlighting possible areas or improvement. The ollowing CPA Australias publications

Achieving Financial Success (cpaaustralia.com.au/nancialsuccess), Business Evaluation Guide (cpaaustralia.com.au/evaluationguide), Improving Business Performance (cpaaustralia.com.au/improvingperormance), Dashboard

Reporting Guide (cpaaustralia.com.au/dashboardreporting)and Tips for Tough Times (cpaaustralia.com.au/

businesstips) each have inormation on how to read and use nancial statements. Simply saying,

I dont understand theres enough cash in the bank today is a recipe or business ailure.

To prepare your nancial statements, the ollowing tasks should be undertaken. Spaces are provided or you to insert

inormation relevant to your business:


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Activity PersonresponsibleDue date /regularity


Debtors At least quarterly Invoice as soon as your good or service

is delivered.

Consider reerring bad debts to collection agents.

Undertake a credit check o new debtors.

Renegotiate trading terms with consistently

slow payers.

Contact slow payers early.

Reconcile payments promptly and regularly toidentiy and resolve discrepencies.

Reconcile major

accounts, including:

Bank and investment

accounts

At least monthly Have two people undertake the reconciliation.

These people should not be the same people

who handle cash.

For high volume cash businesses,

reconcile daily.

Debtors ledger/ageing

report

At least monthly Identiy customers with large outstanding

amounts and ollow up.

Creditors ledger/ageing

report

At least monthly Reconcile suppliers owed money with list o

approved suppliers.

Reconcile payments with other records, such as

purchase orders.

Have someone other than the person who

entered the creditors invoices check what is due

and payable.

Review that payments are in line with trading terms.

Check what bank account payments are being

made to against sta bank account details. Equipment and

xed assets

At least quarterly Do an asset stocktake to ensure you still have

the assets that are on your books.

Identiy obsolete, unusable or written-o assets.

Ask your CPA to adjust balances and/or see i

such assets can be turned into cash.

Dont over-invest in new capital equipment

without an appropriate payback. Speak to your

CPA beore making such an investment.

GST At least quarterly Make adjustments quickly through the next

activity statement.


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Equity accounts

(especially in

partnerships) and

shareholder loans

At least quarterly Operate equity accounts in accordance with

the partnership agreement. Try to avoid large

imbalances in the amounts contributed by or

retained by each partner.

The Australian Taxation Oce (ATO) will match

BAS data with the annual tax return.

Review payroll system,

including:

Annual leave

entitlements

Quarterly Encourage sta to take leave regularly avoid a

large build-up o entitlements.

Long-service leave

entitlements

Quarterly Consider a reserve to und leave liability.

Superannuation Monthly Comply with legislation regarding requency o

payment, choice o und and reporting to sta.

PAYG (PAYE)

withholding

Monthly Ensure employee declarations, logbooks, etc. are

up to date.

Fringe benets tax Quarterly

Payroll tax (payable to

the state governments)

Monthly

Paid parental leave Quarterly I you have an employee who is about to givebirth or has given birth, visit the Australian

Governments Family Assistance website or

inormation on your obligations under the

governments Paid Parental Leave scheme

(http://www.amilyassist.gov.au/payments/

amily-assistance-payments/paid-parental-

leave-scheme/).

Translate oreign

exchange gains / losses

Year-end Use oreign exchange rates rom an ocial

source, such as the Australian Taxation Oce.

Speak to your CPA about how you

can manage your oreign exchange risk.(cpaaustralia.com.au/oreignexchangerisk)

Market valuation o

certain assets

Year-end Involve your accountant, or a specialist valuer,

as required.

Review orward orders Quarterly Review orward orders as it will help you plan

or any short-term need to expand your business.

Prepare:

Prot and loss

statement

Monthly or

quarterly

The prot and loss statement, balance sheet and

cash fow statement can show emerging problems

in time or corrective actions. Your CPA can assist

with preparation.

balance sheet

cash fow statement
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Strategic nancial tasksFinancial tasks do not end with the balance sheet. There are other nancial tasks that are critical in determining the uture

direction o your business.

Activity Person

responsible

Due date /

regularity


Set targets or nancial

perormance

At least annually Work with your CPA to help set targets relevant to

your industry and your business.

Incorporate targets into your strategic plan, key

perormance indicators and budgets.

Review and analyse

nancial statements

At least annually;

preerably

quarterly or

monthly

Compare key ratios rom your nancial

statements, such as working capital ratio, stock

turnover ratio or prot per employee, to averages

in your industry. Your CPA may be able to help

you get access to such industry averages.

Compare perormance against nancial targets

and past perormance.

For more guidance, see CPA Australias Business

Evaluation Guide (cpaaustralia.com.au/

evaluationguide) or speak to your CPA.

Review actualperormance against

budget

Monthly Undertake variance analysis (ask yoursel: Whatcaused any gap between budget and actual? How

can we overcome this problem?).

Undertake sensitivity

analysis

Annually Ask yoursel: What i sales dropped 15 or 20 per

cent? Or you lost a major customer? Or a major

supplier stopped selling to you? What i your best

sales sta resigned? Factor answers to such

questions into your budget orecasts and risk

management strategies.

Set sales or production

targets

Ongoing Undertake a break-even analysis to determine what

you need to sell beore you make a prot.

Prepare prot andloss budget

Annually Make sure your budget refects your strategic andnancial targets.

Incorporate any ndings rom the variance

analysis o the last budget, sensitivity analysis and

the break-even analysis.

Ensure that budget estimates are realistic and

have not been massaged to t a desired result.


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Prepare cash fow

orecast

At least annually Have your cash fow orecast show the projected

cash fows or each month in the 12-month

period. Such orecasts should be updated at

least monthly.

Address any uture cash shortages, or example,

by increasing cash sales, collecting outstanding

debts, through reducing expenses or external

nance (such as an overdrat acility).

I you decide to seek external nance or any

purpose, go to your lender as soon as possible.

Review and update cash

fow orecast in light o

actual results

Monthly Update cash fow orecast to refect actual events

and monitor ongoing cash positions.

Review bank loans, leases,

credit cards or other

nance, ensuring you:

Review interest rates on

your loans

Annually Look at what other lenders are oering and

consider whether you should switch lenders. I

considering switching, consider the terms other

lenders can oer, not just the interest rate.

Provide nancial

statements and budgets

to lenders

Annually/or as

required

Comply with repayment

schedules

Ongoing

Review debt covenants/

terms and conditions

Ongoing Notiy your bank immediately i you are in breach

o a covenant. I you are uncertain o your

covenants, ask your bank.


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Strategic management tasksLate in each nancial year is a good time to get your planning, budgeting and operational procedures up-to-date. Doing this lets

you hit the ground running at the start o the new nancial year. I there are signicant changes in your business, it is suggested

that such reviews be undertaken more regularly.

Activity Person

responsible

Due date /

regularity


Create or update your

strategic plan

Owner and

key sta

Three-year

horizon, updated

annually

Have a strategic plan or the owners, as well

as or the business. This ensures the business

complements the owners needs.

Take time to review lessons learned rom thecurrent year and incorporate those lessons into

your strategic plan.

Consider the opportunities o selling your

products and services online.

Review employment

arrangements,

ensuring you:

Conduct perormance

reviews

Team leaders At least annually Dont wait until the ormal eedback process.

Provide regular eedback to sta.

Consider incentivesystems or commission-

based pay

Owner andkey sta At least annually

Make incentive systems simple, pay promptlyand link the incentives to the controllable success

actors or each role.

Consider only paying commission when you have

received cash rom the sale and paying higher

commissions or sales o higher margin products

and services.

Get sta to sign an

employment agreement

(including provisions or

condentiality obligations

and ownership ointellectual property)

Owner Commencement

o employment

Obtain legal advice to ensure employment

agreements comply with the law.

Consider i restraint

o trade contracts are

needed or key sta

Commencement

o employment

Obtain legal advice to ensure applicable contracts

are enorceable and advisable.

Review sales contracts

and customers

terms o trade

Annually Determine whether your sales contracts protect

your business. In the current environment you could

protect your business by: shortening the terms

o trade; implementing credit limits; and seeking

personal guarantees and security.


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Review suppliers

contracts or terms

o trade

Annually Negotiate a lengthening o your terms o trade.

Review how goods are supplied to you (so that it

better meets your needs).

See i you can reduce the minimum quantity you

can order.

Review payment discounts to see i early payment

is benecial. It may put unnecessary stress on

your cash fow.

See i buying in bulk meets your needs and does

not result in extra storage costs or wastage.

Consolidate ordering, or example buying once a

month rather than once a week.

Consider the implications o the Personal

Properties Securities Act 2009. It might require

updating your invoices and/or registering your

interest in certain goods that you sell.

As a risk management measure, identiy

alternative suppliers o critical items.

Review nancial

commitments, such as:

Speak to your CPA about what other orms o

nancing may be relevant to your business.

Oce leases Annually Exercise options to renew your lease i your

current premises meets your needs, i not, begin

planning a move.

Equipment leases Annually Understand ownership/payout arrangements at

end-o-lease and potential tax consequences.

Securities over assets Annually Make sure you know which o your assets is

security or which loan and that, where a loan no

longer exists, the security is removed.

Establish, update orreview your Policy

Manual, ensuring you:

A solid policy manual has the potential to makeyour business more valuable and easier to run in

your absence.

Document your

processes

Annually Use your policy manual or training and quality

assurance purposes.

Allocate specic tasks Annually Separate record-keeping duties rom duties

involving the handling o cash and other assets to

minimise the risk o raud or thet by employees.

Consider raud risk Annually Speak to your CPA about establishing

appropriate internal controls. See CPA Australias

Employee Fraud Guide (cpaaustralia.com.au/

employeeraud). Review sta authority to

spend money

Annually For smaller businesses consider authorising all

payments yoursel or a short period as part o a

cost reduction and quality assurance exercise.


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Inorm and educate sta

about your policies

As new sta are

appointed

Conduct random spot checks to both ensure

compliance with your policies and to reduce the

risk o raud.

Review allocated tasks Annually Check that allocations are still relevant and

appropriate.

Review and update IT

systems, ensuring:

You have the licences

you need to use your

sotware

Annually Ensure current versions o sotware are being

used, there are no unauthorised copies and the

number o users your licence covers is sucientor your needs.

Back-ups are perormed

requently and held osite

Daily / weekly Test whether your sta know how to restore the

back-ups and that the back-ups work.

Sta training needs

are met

Annually Appoint a champion or each sotware product to

enhance internal transer o practical knowledge.

Disaster recovery plan

documentation has

been reviewed and

updated

Annually Consider how to operate your business i there

was a disruption to the supply o electricity, gas,

water, internet etc.

Ensure sta contact details are up to date.

Review your intellectualproperty by:

Documenting

procedures on how your

intellectual property is

used in your business

Annually Speak to your lawyer to see i your intellectual

property is adequately covered.

Renewing trading

names (including

trademarks and

business names) and

domain names

Annually

Review your insurances,including:

Types o policy required Annually Does your insurance cover match your needs,

or instance insurance covering assets, business

interruption, loss o attraction, lie insurance,

income replacement, etc?

The amount o cover

in place

Annually Avoid under and over-insurance.


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Seek ways o using

less resources in the

business:

Annually Seek inormation rom a number o sources,

including your industry association, on how you

can reduce your use o electricity, gas and water

and reduce waste.

Energy eciency will be a key to reducing the

impact o the carbon tax.

Using local suppliers i possible.

Eliminating unproductive steps or processes.

Review any outstandinglegal disputes

Owner andsolicitor

At least quarterly Keep disputes moving along. Consider viable waysto settle disputes promptly.

Determine whether you

undertake activities

(such as exporting) that

may be eligible or a

government grant

Annually Speak to your industry association or CPA about

what grants, i any, you may be eligible or and the

eligibility requirements.

Carbon tax

Long-term contracts Consider whether you have to wear the costs

or pass them on. Can your supplier pass on the

costs to you?

Electricity Consider conducting a ull energy audit or

savings, particularly i you are a heavy user.

Pricing Determine what impact the tax will have on your

overheads and determine whether you want to

pass them on to clients.

Be wary o making claims about the carbon

tax, particularly on pricing. Make sure you have

evidence to back up the claim.

Asset purchases Incorporate the carbon price and possible

incentives into your investment decisions.

Promotion

Promote anything you do to reduce youremissions. Customers and potential customers

may be interested.


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Regulatory requirements: lodging returns and ormsKeeping up-to-date with the lodgement and payment o your statutory obligations is considered an important measure o the

nancial health o your business by banks and other creditors. Thereore, diarising the lodgement and payment due dates or

each o the requirements below is recommended.

Regulatory requirement Person

responsible

Due date Payment date Some actions to consider

Income tax return Provide inormation, including nancial

statements, to your CPA or review;

highlight large or unusual transactions.

Business Activity

Statement (BAS or IAS)

I you have diculties with your BAS

or IAS, ask your CPA to complete it or

engage a bookkeeper recommended

by your CPA.

Australian Securities

and Investments

Commission annual

report (companies only)

Ask your CPA to prepare these.

PAYG withholding

payment summary

annual report

Perorm a test reconciliation in the

month beore year-end to highlight any

processing problems.

PAYG statements (group

certicate) or employees

14 July Reconcile totals to your accounts rst.

Payroll tax Speak to your CPA i youre unsure

whether youre over the threshold or

payroll tax.

Workers compensation

insurance

Determine your projected wages

and salaries or the year.

Find out i there are any exclusions

and, i so, whether they are

adequately covered in another way.

Superannuation

payments

Pay monthly.

Fringe benets tax return Even i not lodging a return, ensure

that no relevant transactions are

missed and that any employee

contributions that should be made are

made.

Solvency declaration

or companies only

Does not need

to be lodged

Sta salaries and

awards conditions

Review sta salaries and conditions to

ensure compliance with awards (whereappropriate) and other legal requirements.

Government grants I you are in receipt o government

grants, ensure you meet your

obligations under the grant.


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Personal aairs o the business ownerThe end o the nancial year is also an important time to make sure your personal aairs are in order. Involve your CPA

or legal adviser as required.

Activity Person

responsible

Due date /

regularity


Ensure trust

distributions are

properly made

At least annually There have been considerable changes to the tax

treatment o trusts. These changes could expose

you to large unoreseen tax bills. Speak to your CPA

about your trust.

Undertake tax planning Annually(beore year-end)

Year-end presents a number o tax planningopportunities and risks. Speak to your CPA about

tax planning opportunities.

Dont invest in any year-end tax planning schemes

until you speak to your CPA.

Review your loan

agreement with your

business

Annually Given the ATO is auditing this area, speak to

your CPA about whether your shareholder loan

agreement complies with the law and that the

company unds received by shareholders and their

associates is correctly treated or tax purposes.

Review your will,

particularly i there hasbeen a change in your

circumstances

Your lawyer Annually

Review the structures

you have in place to

protect your personal

assets

Your lawyer Annually This area o law is constantly evolving. Thereore,

to be sae, you should review the eectiveness o

your business structures and your asset protection

strategies.


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Good business practices will help ensure your business is well run. A well-run business will help place your business in thebest possible position to respond to whatever trading conditions you ace, and help you move your business in the direction

you want it to go.

Whatever the state o your business, look or services or products that are not earning their keep low sales might be the

indicator; requent problems with product support might be another. Your nancial system should be able to tell you whether

there is little or no gross prot rom a product, or the product might tie up too much working capital relative to its prot level.

Once you know the source o the problem, see whether it can be corrected or whether you should consider no longer selling

that product or service.

Structural changes are best made in the good times, because personnel perorming roles during good times can be more

easily redeployed elsewhere or greater prot. However, i you need to make structural changes in less-robust times, then

communicate openly with the aected people; make sure you treat them with dignity and pay them any entitlements.

Whether your business is strong, weak or patchy, this checklist will help you make the most o any situation and eel more

in control o your business.

Conclusion

good practice checklist small business

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