Insight Trends & Actions Checklist

What to look for & actions the client should consider

To help you get the most out of the performance insights that Aider provides, use this reference guide and checklist to help you:

• Understand the insight - what it is and how it affects your client’s business
• Learn what to look for - indicators to look for and analyze 
• Consider actions to suggest - things your client can do to improve financial performance

CASH FLOW

The three cash flow insights should be considered together to assess the risks and determine appropriate actions.

 

What to look out for:

• Identify the causes of low cash flow forecasts by examining factors such as declining sales, increased expenses, delayed customer payments, or unexpected cash outflows from previous periods.
• Analyse expense management to identify opportunities for cost reduction or optimization without compromising essential operations.
• Assess working capital management, including accounts receivable, accounts payable, and inventory, and recommend strategies to improve cash flow through better cash conversion cycles and efficient management.
• Collaborate with the client to develop customized strategies for enhancing cash flow, such as accelerating collections, negotiating payment terms, implementing regular Cash Flow Estimates and Trend checks, securing additional financing, or adjusting pricing and product mix.

Actions to take:

Short-term solutions to improve cash flow position:

• Accelerate accounts receivable collections by implementing stricter payment terms and proactive follow-ups.
• Negotiate extended payment terms with creditors and suppliers to reduce/extend cash outflows.
• Optimize inventory management by reducing excess stock and improving inventory turnover.
• Control expenses by reviewing and cutting discretionary spending, renegotiating contracts, and seeking cost-saving alternatives.
• Explore financing options such as securing a line of credit, factoring receivables, or seeking investment to inject immediate cash into the business.

Longer-term solutions to improve cash flow position:

• Develop and implement a comprehensive cash flow management plan that includes regular monitoring, forecasting, and proactive decision-making to ensure sustainable positive cash flow.
• Focus on growing revenue streams by diversifying products or services, expanding target markets, and implementing effective marketing and sales strategies.
• Improve operational efficiency by streamlining processes, optimizing resource allocation, and leveraging technology to reduce costs and increase productivity.

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 What to look out for:

• Low invoices for the current month vs. the average
• Last month and current month invoices showing declining trend
• Are there invoices in draft?
• Are there invoices waiting to be created?

Actions to take:

Short-term solutions to improve Invoicing:

• Look at invoices and draft invoices for any waiting to be sent/authorized.
• Suggest that the client create invoices throughout the month rather than all at the end of the month. This ensures a steady income and avoids running out of cash during the month.
• Understanding how a client performs services and invoices their customers can have a big impact on cash flow, so ensure that the correct terms are created with the invoice.

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What to look out for:

• Irregular spending patterns
• High peaks and troughs
• Are there invoices overdue?
• Are there bills overdue?
• Are there any overdue debts with the tax office?

Actions to take:

Short-term solutions to improve cash flow management:

• Chase up overdue/outstanding invoices. Check the Invoices and Bills Data Compliance alerts for the client in Aider.
• Renegotiate payment terms for key suppliers and possibly customers. Check if partial payments are an option.
• Check which payments and expenses clients should prioritize and which they can delay. E.g. which expenses will have the most negative impact on their business if they are late paying, and which will have the least impact - prioritize this way.
• Check if there are any penalties and interests on debts that would be better to be paid with short-term borrowing options.
• Check what short-term funding options – if needed – will attract the least cost.

Longer-term solutions to improve cash flow management:

• Look at Invoice due dates in Xero. Check if due dates can be spread across the month to better align with spending patterns and to reduce cash flow fluctuations.
• Look at high value customers and suppliers and related spend/receipt dates. Check if terms can be improved to ensure cash is received before bills are paid. 
• Isolate and identify the biggest impacts on cash flow across the Profit and Loss and Balance Sheet reports for the business. Look into setting targets or thresholds for cost reduction.

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TAXES & COMPLIANCE

 

What to look for:

• Irregular bookkeeping patterns and old unreconciled item dates
• Regular reconciliation alerts through GST period
• High volume of unreconciled transactions

Actions to take:

• Set a regular fortnightly cadence for the client to reconcile their accounts.
• If the client struggles with reconciliations, offer bookkeeping services or refer them to a professional bookkeeper. Highlight the benefits of keeping their books up to date – e.g. earlier warning of taxes due, timely financial data to base operational decisions on, etc.

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What to look for:

• High GST forecasts compared to average GST payments
• Irregular GST payment patterns. E.g. Are all expenses being captured in the GST period? (Note that credit card transactions may be processed a few days after the actual transaction date. This may cause GST issues when expenses aren’t claimed in the correct period.)

Actions to take:

• Check if the client is actively transferring money into a savings account for paying taxes. If not, then suggest setting up a monthly amount or % of sales to transfer.
• Check the client’s business bank account(s) balances to see if there’s enough to cover GST payable.
• Check if there’s any overdue debts with the tax office. If yes, check if repayment plans have been set up. Also check if there are short-term finance options that can cover the tax debt at less cost.

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What to look out for:

• Significant (above 20%) increases in income tax YTD and forecasts compared to previous years.
• Irregular Income tax patterns. E.g. Are all expenses being captured in the income tax period? (Note that credit card transactions may be processed a few days after the actual transaction date. This may cause income tax increases when expenses aren’t claimed in the correct tax period.)

Actions to take:

• Check with the client to see if there are any assets in use that are missing from the Balance Sheet.
• Check for fixed assets in the Balance Sheet that are not yet registered. Also run depreciation for the current financial year.
• Check if there are any home office expenses or other expenses incurred by the shareholders/owners that can be claimed by the business to reduce income tax.
• Check if the client is actively transferring money into a savings account for paying taxes. If not, then suggest setting up a monthly amount or % of sales to transfer based on the average income tax rate from last year.
• Check if there’s any overdue debts with the tax office. If yes, check if repayment plans have been set up. Also check if there are short-term finance options that can cover the tax debt at less cost.

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PROFITABILITY

 

What to look out for: 

• Stagnant revenue growth or even decline can indicate issues with the sales process and pipeline.
• Revenue trend is the same as previous years. This may indicate the business may need new customers, products and services; and a change in strategy to grow revenue. 
• Seasonal highs and lows indicate the business may only generate enough revenue in their peak seasons to cover their low seasons. 

Actions to take:

• Review the products and services supplied by the business. Check if they are meeting the demands of their customers.
• Review the prices of products and services. Check if the prices are in line with the market trends and are high enough to cover direct costs and operating expenses.
• Review the sales process with the client. Check if setting up or increasing their online presence and self-service sales pipeline might help improve revenue.
• Review sales channels and brand awareness of their products and services. Check where their sales currently come from, and if there are opportunities to increase the ROI of their marketing investment and sales platforms.
• Review the sales pipeline for the next 3-12 months of sales. Create a plan to engage new and existing customers in the immediate future.
• Set a monthly target for the next few months and review progress each month.

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What to look out for:

• Direct Costs increasing higher than Revenue growth

• Fluctuating monthly Direct Costs. Are all Direct Costs being captured in the period they belong to? I.e. Are all expenses being captured in the correct period? (Note that credit card transactions may be processed a few days after the actual transaction date. This may cause fluctuations in Direct Costs month-to-month.)
• Are all Direct Costs accounts configured correctly in Xero? E.g. Wages and subcontractors can be Direct Costs rather than Operating Expenses for some businesses. Are the expense accounts assigned the correct Account Type in Xero's Chart of Accounts? (Make sure any correction needed is done at the Chart of Accounts level. Changes made via customization of Profit and Loss Report won't be correctly reflected in Aider.)
• Is a large portion of the Direct Costs related to 1 or 2 suppliers? This creates a dependency risk when payment terms can’t be met with a major supplier, and can stop the business’ ability to generate sales. 

Actions to take:

• Check that all Direct Costs are categorized correctly as “Direct Costs” account type in the Chart of Accounts.
• Review monthly Direct Cost fluctuations and investigate dates of transactions and material amounts affecting the monthly totals.
• Explore with the client opportunities to reduce their supplier costs and dependency by looking at other suppliers.
• Check with the client to see if supplier costs can be reduced by shopping around for better pricing and payment terms.
• Check with the client to see if dependency on 1-2 major suppliers can be reduced by diversifying their suppliers.
• Check if negotiating bulk purchase discounts for inventory and supplies make sense. If yes, check what cost-effective financing options are available for such bigger purchases.

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 What to look out for:

• Gross Profit amount that is less than the Operating Expenses total. This means the business can’t cover its fixed costs with the current sales pricing and performance.
• Gross Profit % change is trending downward or stagnant. This could point to pricing issues where costs are rising higher than sales growth.
• Gross profit fluctuations month-to-month and seasonal highs and lows. Sales pricing may need to be increased to cover the low periods.
• Gross Profit / Sales (GP%) is lower than the related industry benchmark. 

Actions to take:

• Review monthly Gross Profit and assess that the business has enough profit to cover Operating Expenses and the owner's wages/drawings (if the owner is not being paid a PAYE/PAYG salary).
• Review industry trends for Gross Profit % (GP/Sales) and compare business performance. 
• Review pricing of products and services. Are cost increases in the market being reflected in their prices?

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 What to look out for:

• OpEx increasing with Revenue. Should some OpEx be categorized as Direct Costs? Fixed costs (excluding wages) typically remain relatively constant rather than rise with Revenue growth.
• OpEx higher than Gross Profit. This indicates Revenue is too low to stay profitable. Is the business still profitable when owner's wages/drawings are also included?
• Fluctuating monthly OpEx. Are all OpEx being captured in the period they belong to? Note that credit card transactions may be processed a few days after the actual transaction date. This may cause fluctuations in OpEx month-to-month.
• Are all expenses account types configured correctly in Xero’s Chart of Accounts? Any OpEx miscategorized as Direct Costs, or vice versa? 

• Are wages a significant part of OpEx? 

• Are subcontractors a significant part of OpEx?

Actions to take:

• Check that all OpEx are categorized correctly using the right account types in the Chart of Accounts. E.g. “Overhead” and “Expense”.
• Review monthly OpEx fluctuations and investigate dates of transactions and material amounts affecting the monthly totals.
• Highlight the top 5 OpEx accounts (5-10 for larger companies) and review their impact on profit. Check if there are opportunities for cost reductions across these accounts. 
• Set targets for the top 5-10 OpEx accounts and present impact on profit with % reduction.
• High or growing OpEx could point to inefficiencies in the operational areas of the business. Check if there are opportunities for capital investment to increase production and reduce the external cost. 
• Review high advertising and marketing expenses. Check if there is good ROI on these customer facing areas of the business. Check if the business has strong brand awareness; effective social media campaign to increase brand awareness and engagement; and/or an effective website or online sales pipeline.
• Check what wages and headcount directly affect the client’s ability to sell products and services. Discuss if this be restructured without affecting Revenue?  
• Check if some contractors can be converted into waged employees to reduce external costs/services.

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What to look out for:

• Key expenses missing in the current year which need to be included in Net Profit calculation.
• Net Profit is less than the estimated cost to cover the business owner's time/salary (if they are not paid under PAYE/PAYG through the business). This means sales prices should be increased to cover the business owner's cost.
• Net Profit % change is trending downward or stagnant. This could point to pricing issues where costs are rising higher than Revenue growth.
• Net Profit fluctuations month-to-month and seasonal highs and lows. Product and service pricing may need to be increased to cover the low periods and capacity reduction for lower costs. 

• Net Profit / Sales (NP%) is lower than the related industry benchmark. 

• Net Profit increases from last year could lead to increased tax payments.

Actions to take:

• Get all expenses up to date for an accurate pre-tax net profit figure. 

• Review monthly Net Profit and assess that the business has enough profit to cover Operating Expenses and the owner's wages/drawings (if the owner is not being paid a PAYE/PAYG salary).
• Review industry trends for Net Profit % (NP / Sales) and compare business performance. 
• Review pricing of products and services. Check that any cost increases are reflected in their pricing.
• Review Net Profit increases and impact on tax. Identifying this early and obstructing the client to save and pay more for tax proactively as opposed to reactively will ensure adequate tax planning. 

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