October might still feel a little way off, but now is the perfect time to start preparing your business for Q4.
The final three months of the year can be incredibly busy. Depending on your business, you might have Christmas sales to prepare for, additional stock to buy, staff holidays to manage, quieter trading periods to cover or year-end targets you’re hoping to achieve.
The last thing you want is to arrive in October and realise you don’t really know where the business stands.
A little preparation now can make a big difference.
Here are seven practical things you can do to get your bookkeeping organised, understand your numbers and head into Q4 with greater confidence.
1. Start with where your business is today
Before you plan the next few months, you need a clear picture of what’s happening in the business right now.
That doesn’t mean staring at your bank balance and deciding things look OK.
Your bank balance is only one part of the picture.
Take some time to look at your Profit and Loss report. In plain English, this shows the money your business has made and spent over a particular period.
Look at:
- your sales
- your direct costs
- your overheads
- your profit
- how those figures compare with previous months
- whether anything looks noticeably higher or lower than expected.
You don’t have to become an accountant to understand your reports.
You simply need to start asking questions about what the numbers are telling you.
2. Look ahead at your Q4 cash flow
A profitable business can still experience cash flow problems.
Why?
Because profit and cash in the bank aren’t the same thing.
You might have made a sale, for example, but if your customer isn’t going to pay that invoice for another 30 or 60 days, that money isn’t available to pay this month’s bills.
That’s why now is a good time to create or update your cash flow forecast for October, November and December.
Think about the money you expect to come in and the money you know will need to go out.
Include things such as:
- customer payments
- wages
- supplier bills
- rent and utilities
- VAT and other tax payments
- loan repayments
- software subscriptions
- additional Christmas or seasonal costs
- stock purchases
- planned equipment or business investments.
Don’t worry about predicting every penny perfectly. The purpose is to give yourself an early warning of periods where cash could become tighter.
If you spot a possible gap in September, you’ve got time to do something about it.
If you spot it three days before payroll is due, your options are rather more limited.
3. Check who owes you money
This is one of the simplest Q4 preparation jobs – and one that can make an immediate difference.
Who owes your business money?
In accounting language, these customers are sometimes called your debtors. I prefer the much simpler description: people who haven’t paid you yet.
Have a look at your outstanding invoices.
Are there invoices that are already overdue? Are there customers who regularly pay late? Is there anything sitting there because nobody has followed it up?
Getting on top of outstanding invoices can put the business in a much stronger position before Q4 begins.
It is also worth reviewing your invoicing process.
Are invoices being raised promptly? Are your payment terms clear? Do you have a regular process for chasing overdue accounts?
Small improvements here can make managing your cash much easier.
4. Work out what Q4 is likely to cost you
Q4 doesn’t look the same for every business.
A retailer might need significantly more stock ahead of Christmas.
A service business might see work slow down as customers disappear for Christmas holidays.
Another business might have bonuses, Christmas parties, annual subscriptions or additional marketing costs coming up.
Think about your business.
What normally happens between October and December?
Look at last year’s figures if they’re available and identify any seasonal patterns.
Then ask yourself:
What’s different this year?
Perhaps you’ve taken on another member of staff. Maybe your rent has increased. Perhaps you’re planning a bigger Christmas marketing campaign.
Knowing about these costs now means you can include them in your planning instead of being surprised by them later.
5. Review your spending
Preparing for Q4 isn’t only about increasing sales.
It’s also a useful opportunity to look at where your money is going.
Go through your regular business expenses and ask:
- Are we still using this?
- Is this subscription giving us value?
- Are we paying twice for software that does the same thing?
- Have supplier costs increased?
- Are there expenses that have quietly crept up during the year?
I’m not suggesting you start cancelling everything in sight.
The aim is to understand what you’re spending and make deliberate decisions about it.
Those forgotten £20, £50 and £100 monthly subscriptions can soon add up.
6. Make sure your Xero data is up to date
Your reports are only useful if the information behind them is accurate.
Before relying on Xero to help you make Q4 decisions, make sure the bookkeeping is up to date.
Check that:
- bank transactions are reconciled
- sales invoices have been entered correctly
- supplier bills are recorded
- outstanding invoices are genuine
- transactions are being allocated to the correct accounts
- your VAT information is up to date, where applicable.
If you’ve been putting the bookkeeping off for a few weeks – or months – now is a good opportunity to catch up.
You don’t want to spend October trying to work out what happened back in May.
7. Use your numbers to make a Q4 plan
Once you’ve got accurate information, you can start making decisions.
Perhaps your numbers show that you’ve got room to invest in a Q4 marketing campaign.
Perhaps they tell you to be cautious about a large purchase.
Maybe you’ve discovered that customers are taking longer to pay than you realised.
Or perhaps you’re doing much better than you thought!
This is where accounting software becomes far more useful than simply being somewhere to record transactions for your accountant.
Your numbers can help you run your business.
Xero gives you access to reports including your Profit and Loss and Balance Sheet, and your bookkeeping data can help you understand what’s happening in the business and plan ahead.
The important thing is knowing where to look and understanding what you’re seeing.
Don’t wait until October to think about Q4
A strong Q4 doesn’t start on 1 October.
It starts with preparation.
Use September to tidy your bookkeeping, review your cash position, chase outstanding invoices, understand upcoming costs and look carefully at what your business numbers are telling you.
You don’t need complicated spreadsheets or accounting jargon.
You need accurate information and the confidence to use it.
And if you’re using Xero but aren’t quite sure how to get the information you need, RixGreen can help.
We provide practical, jargon-free Xero training, bookkeeping support and Xero Health Checks, helping you understand your own business numbers rather than simply hoping everything is OK.
Want to head into Q4 knowing exactly where your business stands? Get in touch with RixGreen and let’s make sure your Xero is giving you the information you need.
Photo by Marissa Grootes on Unsplash