Posts Categorized: Business improvement & efficiency

When growth is bad (and running out of cash)

The following is a re-post from February 2015.  It has been re-posted as it has been a topic of discussion with a couple of existing clients as well as potential new clients.

With our existing clients, we are planning around how fast they can grow and the issues around including cash flow, cash reserves, need to borrow as well as many other issues including their staffing and training.  We have created a clear picture of what sustainable growth will look like, can measure how we are tracking and are dedicating the necessary resources in a planned roll-out. 

On the other hand, some potential clients have come to us and they have found themselves, as you could say, in a pickle. Sadly with no proper planning they didn’t see it coming.  It has come as a very rude and great shock. Pity their accountants didn’t provide such planning and cash flow assistance.

 

Last week I queried whether your plan will work and touched upon good and bad growth.

Increasing sales is not the answer to everything.  It is not uncommon to see a business solely concentrating on increasing sales fall part if they haven’t ensured the business has the right team and systems in place to support greater turnover.

Worse still, some businesses even fail as they run out of cash due to the increased revenue not being enough to fund greater expenses and the greater amount of money locked up in debtors and stock.

Consider this……

Take a business that doubles its sales from $1,000,000 to $2,000,000 and everything else doubles from:-

  • Cost of goods sold from $700,000
  • Overheads from $175,000
  • Net profit from $75,000 (average tax rate remains at 40%)
  • Debtors from $125,000
  • Stock from $160,000
  • Creditors from $75,000.

Sounds good?

Actually, it’s a disaster.

Why – because the working capital required has doubled from $210,000 to $420,000 whilst the doubling of profit after tax has only generated an extra $150,000 – of which $60,000 will go in tax.  What seems to be a new dawn will actually prove to be a nightmare.  The business owner in such a case might think they are going forward in the right direction but there is something coming awfully big and fast straight at them!

The problem here is that the owner has concentrated on sales and sales alone.  The outcome would be quite different if other key drives such as debtors, stock and creditors turnover were addressed (and for which we have many strategies from our many years of experience and supporting tools).

We were a member of the Principa accountants network (from which this example was generated) as well as other accounting groups that provide tools to assist our clients with cash flow control and planning – and for many other areas as well.

Why not refer to our web page’s article on business improvement potential.  Or better yet, why not ring Alex Stewart and make a time to sit down and have an obligation free meeting to discuss how we can help your business.

So again I ask, will your plan work?

 

 

Improving cash flow

Want to improve your cash flow?

Not much of a question really – of course you do.

For some it is easy as making it easier for your customers.  For those providing a good or a service, it can be as easy as taking payment upon or before delivery.  And for some this can be as easy as using Square, Pay-pal and other such options.

You are asking for payment at the time – and isn’t easier to ask to be paid at the time of the exchange?  You are also making it easier for your customer / patient to pay you.

Want other cash flow tips?  We have hundreds obtained from our experience of working with a wide range of clients form different industries.  Call us.

Receipt Bank – another way to better help you

We are always looking for ways to make your life easier.

Our latest initiative is Receipt Bank, a tool which allows a more automated bookkeeping workflow, solves typical specific compliance problems and serves as a back-up system.  It does so in a most cost effective manner.

Receipt Bank allows you to upload your business receipts, invoices and expenses into your software or provide them to us seamlessly and easily.  You can do so via photo on a mobile app downloaded to your smart phone or via personalised @ Receipt Bank email address.

The twelve main benefits from using Receipt Bank:-

  1. You save time on sending in your paperwork, time that you can spend on your core business services or more time not attending to paperwork.
  2. You can use up to any one or combination of four methods to submit information to Receipt Bank.
  3. The two main methods are taking a photo on your mobile phone or on-forwarding an e-mail.
  4. It is great solution to those who incur lots of costs on the road whether it be coffee meetings or receipts from Bunnings that are paid by cash or credit card.
  5. You limit the number of questions we ask.
  6. You don’t have to forage for receipts from up to 23 months ago.
  7. You save space as there’s no need to retain your physical documents (if you so wish), with all documents easily searchable and securely stored on the cloud.
  8. Or you can still keep those physical records but sleep easy in the knowledge that you have a back-up. Furthermore, you can rest easy knowing that your data is stored securely and encrypted.
  9. You now have real time information flowing into your accounting system, which allows us to provide you with better and more timely insights to improve your business.  Receipt Bank works best with Xero and QuickBooks Online.
  10. No more lost receipts & invoices!  No more paying too much tax or GST because you lost invoices and receipts.
  11. You can access your records from anywhere anytime.
  12. You can also rest easy in the knowledge that you have read only access after your business has ceased operating.

We welcome your call so e can explain the benefits to you – and other ways we can both simply and improve your life.

Cash flow troubles

 

Xero has just released its big data cash flow analysis of it users from January.

Xero in its Small Business Insights has reported that 50.12% of its users were cash flow positive in January. This means that just on every second business consumed more cash than came in during that month.  And that is probably after keeping tight control of the purse strings.

January as we all know is usually the toughest month of the year for most small to medium sized businesses. And with that comes great stress and sleepless nights.

We have tools that will help you track your cash flow and forecast where it is going.

We also have many years of experience of dealing with all sorts of business. We can draw on that wealth of experience to help you improve your cash flow.

Ask us how by calling us to arrange a free meeting.

Cash flow control

 

In Xero’s most recent edition of Small Business Insights, they reported that those businesses with positive cash flow fell in December for the first time in four years.

What this means is that less businesses received more money than they paid out. With cash flow and cash holdings being the life blood of any business, this is of concern.

Business confidence was down in December. Retail sales were weak (but often this should be viewed in conjunction with January retail sales data).

We also have the doubt that comes when the polls say that there will be a change of government at the upcoming election. Last year Budgets tend to be generous but perhaps investors and households are more interested in what Labour’s major tax policies mean to disposable income.  People and markets tend to fear change more than the change itself.  The election can’t come soon enough!

Ask us if you want to find out ways to improve your cash flow.  We also have tools that help you control and predict your cash flow.  WE can even roll out a projection on a daily basis.  Stop losing sleep and ask us!

Cash flow – get paid quicker

Cash flow.  If you want to get paid faster make it easier for your customers.

Provide your customers with a link on an invoice to pay via a payment gateway.

There are many of them such as Paypal, Square and Stripe.  Ask us which is the best solution one for you.

Will these solutions cost you money – yes the will.  But that cost will be covered by giving you the use of sales money earlier and avoid lost time from chasing payment. And don’t start me on bad debts – that will be a future blog.

Cash flow – getting paid quicker

If you want to get paid quicker by your customers make it easy for them. One way to do so is to provide credit card facilities.  Yes, you may be charged merchant fees but that is usually cheaper than the costs incurred in carrying your debtors.

Call us if you would like help with this.

Be careful with industry benchmarks

 

Be careful with industry benchmarks for I have two problems when measuring against industry benchmarks:-

1/.   Are you really comparing apples with apples?

How many businesses make up the benchmark and just how comparable are they to each other and indeed to your own business?

Are they big & small, metropolitan &/or country based, new & old, running the same funding and operational structures and so on.

One can place faith in more common and the more identifiable businesses but otherwise, great care should be taken. Data from well know franchises can reliably be compared against each other, but thereafter, beware.

2/.   I have found over the years that clients who focus on their industry benchmark fall for the trap of thinking that as they ahead or close to a benchmark, that all is OK. Laziness and mediocrity tend to creep in (it reminds me of one of those great lines from Jim Collins seminal book Good to Great – good is the enemy of great).

More successful business owners however are more focused on improving any system and process in their business.

It’s amazing how often little changes have big results (see our blog titled Greater profitability is closer than you may think).

So should you refer to industry benchmarks? The answer is yes but a qualified one. Just make sure you know what you are comparing yourself to and more importantly.  Also, place greater emphasis on improving the processes and systems within your own business. In this regard, it is amazing how some businesses have come to dominate their industry by employing systems and processes from different industries.

The one benchmark though that you should not avoid is any applicable ATO’s small business industry benchmark. Like many accountants, I question how they derive their numbers.  For example, it is a blight upon my profession that many public accountants lazily declare cost of goods sold items within overheads so this must greatly distort the ATO’s gross profit margin numbers. Questionable as these benchmarks are, they can’t be ignored as they are the ATO’s greatest business audit selection method and they target those businesses operating outside the ATO’s industry benchmarks.

We have software that reports on your business’ performance in real time.  Some of the measures are leading indicators so you can understand what will happen next.  We can also play with the key drivers to see what will be the result of making changes to your key drivers.  We welcome the chance to demonstrate this to you in a free meeting.

Cash flow – state actual due date on invoice

Instead of stating terms such as 14 days on an invoice, we suggest stating the actual due date – such as Monday Nov 5.

We have found that other clients that have moved away from number of days to the actual due date have experienced earlier receipts from customers.

How to improve your cash flow

Xero’s latest Business Insights reports that as of August, only 53.5% of businesses were cash flow positive.

That means that almost half of Australian businesses have more money going out the door than in. That is a lot of stress, sleepless nights and extra interest to fund.

Together with our years of experience, our businesses analysis dashboards can reveal where you’re at and what will be the impact of making changes to the business. More to the point, we can show you on a rolling basis what your cash flow will be like in the months ahead.

Sleep easier by giving us a call to discuss your situation and opportunities.