05/03/2014 - 09:04

Helicopter view plots course

05/03/2014 - 09:04

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How is 2014 going for you so far? Did you come back to work after Xmas feeling refreshed and energised, with plans to start afresh and create better financial performance in 2014?

Rapid turnaround of stock means your customers are happy, and your business is not out of pocket for long.

How is 2014 going for you so far? Did you come back to work after Xmas feeling refreshed and energised, with plans to start afresh and create better financial performance in 2014?

Did you use the New Year as an opportunity to take a helicopter view of your business and formulate a business growth plan to achieve better profit, cash flow and efficiency?

If the usual stuff took over, don’t despair, there is still time to do a review and plan a better result.

Here are the key factors we would recommend you review for small business growth.

• Income – what can you do to improve it? 

What are your KPIs affecting income? Can you capitalise on modern marketing methods such as digital marketing? What are the key drivers to achieve sales numbers in your business? 

Imagine you are away from your business for several months – what are the five or six key numbers you would want to know to ensure things are on track?

• Pricing – have you reviewed it recently

How does it compare with your competition? How does your product/service compare with theirs?  Some customers may be prepared to pay more for better quality. If your product/service is better, tell the market. A small price increase can have a massive impact on your bottom line (sometimes much bigger than increased sales volume).

• Cost of goods (COGs) – what are they and how are they different from overheads? 

COGs are the costs directly associated with your product/service, such as service labour and materials, product purchase, freight inwards, customs etc. 

How can they be more cost effective and efficient?  Think productivity. A small percentage decrease in COGs can have a massive impact on your bottom line (sometimes much bigger than increased sales volume).

• Gross profit – the result of your income less COGs. 

Check out yours compared with others in your industry by percentage. Percentage is the easiest and most accurate way to do the comparison.

• Overheads – always a good place to find savings, efficiencies and modern ways of doing things. 

There could be tens of thousands of dollars in savings lurking here. A budget entered into your accounting system will go a long way to ensuring these don’t get out of hand.

• Net profit – the result of your gross profit less overheads. 

Check out how yours compares with those in your industry by percentage. Are you getting a good enough return for your efforts?

• Accounts receivable.

 There are many factors affecting how long customers take to pay – from how/when you invoice them to how/when they pay up. Find ways to speed it up.

• Accounts payable.

On the other side of the ledger, look at how you can find ways to stretch your terms with suppliers without damaging relations. Improve terms in your favour. Take advantage of the maximum terms offered by suppliers – don’t pay early unless you’re offered incentive to do so. 

Perhaps shop around for better terms with other suppliers. If you are a good customer, your current suppliers might be more amenable to longer terms.

• Work in progress.

This includes jobs in progress that haven’t been invoiced to customers yet, including labour and materials. 

A sure way to improve cash flow is to find ways to speed up finishing jobs, so they can be invoiced.

This will also reduce rework and any excuses for customers not to pay for finished work.

Improve profit on jobs with focus on labour productivity and materials management. Have a look at your staff utilisation and recovery rates.  Ask yourself ‘Am I selling all the hours I am paying for?’ What is the opportunity cost of inefficient practices that take up time of billable staff?

• Stock management.

Think of stock as dollar bills piled up on the stock room floor. You want it sitting there for as little time as possible i.e. enough for customers’ needs, but not too much to suck up precious cash. Can you set up processes to reduce the time stock sits in stock?

Sue Hirst is a director at CAD Partners (CFO On-Call), financial and business advisers.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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