Over the past three weeks I have introduced the concept of benchmarking, which allows you to analyse your business against your competitors. Benchmarking takes financial figures from your accounting system and converts them into ratios, which allows you to compare your results to those of your competitors. These figures are usually expressed as a percentage of sales or profits, before abnormal items are taken into account.
Benchmarking is working ‘on’ your business rather than ‘in’ your business.
With this concept in mind, this week’s tip is all about improving your cash flow through effective financial controls.
Essentially, there are 6 finance-related areas to regularly examine in your business:
Increase sales – everything starts with a sale. Without a sale there’s no business –it’s that simple. Remember, the 5%/5%/5% principle – 5% increase in sales, 5% decrease in cost of sales and 5% decrease in overheads. Multiply it out, you’ll be amazed by its effect on the bottom line.
Cut costs – review the basic fabric of your business, can we recycle to save money and reduce waste, can we reduce our lighting costs, minimise telephone, photocopying and other administration related expenses. Can we save 5% per month or quarter. Measure it to manage it.
Monitor cash levels – do you have sufficient finance or cash to continue operations for the next 6 months? Do you know your break-even point? Review cashflow and consult with your lenders. Cash is king. Profit is great, but never run out of cash.
Implement procedures for Debt control – customers and staff have to be educated to understand and follow a clear system of payment and collection. Three of the most basic requirements – send your invoice immediately upon delivery of the goods or services, set strict deadlines for payment, (7 – 14 days is the best), and use a no-fuss invoice and hassle-free payment system.
Implement processes for Credit control – take advantage of your own credit accounts with suppliers and avoid making early payments where they are not required. However, it’s important to stay in favour with your suppliers in case you really need to stretch your payments at some stage. Look at pay by month options for major expenses, e.g insurance.
Review your financial position every week – this report should provide you with at least the following information –
Sales to date and sales for the week,
Expenses to date and expenses for the week,
Current bank account position,
Current accounts receivable, and
Current accounts payable.
Running a lean business is what small business people do. Freedom is often the reason you get into business in the first place. So run a very lean business and take advantage of your manoeuvrability.
Over the next two weeks, we will continue to look at factors that impact on your cash flow, factors such as planning and management within your small or medium-sized business.
"Just a short note to tell you how we are travelling; We have had our busiest ever summer. This month we took over $100,000 plus accounts. The number sounds good, but more to the point our GP (Gross Profit) is up where it should be.Our accountant rang last week, (shriek), he has just completed last years tax for us. His words were along the line of ”of all the businesses he deals with, he has never seen a business turn around like ours”. Neridah and I attribute this to your time and persistence with us. Thank you." - Trevor and Neridah Cains, Murwillumbah Mowers & Chainsaws.
"Phil, I want to thank you and convey my gratitude for the excellent standard of professional development and service that you have afforded to my staff and me over the past 8 years. The professional Executive Coaching that you have provided to me has been instrumental in both my personal and professional development and I can say without hesitation that your contributions have greatly shaped and aided my achievements of the organisations that I have worked for. The introduction of the PINNACLE’s professional services has certainly provided a strong return on investment and this has led to a positive flow-on effect in relation to the quality of our services." - John Jensen, Executive General Manager, Community Services at House With No Steps
"Whether Phil is providing Executive Coaching to senior managers, facilitating team or leadership development, Phil demonstrates the highest standards of professionalism in his approach, delivery and follow through of the individual projects. Hs ability to deliver an individually tailored solution to any business challenge we presented him with has been an asset to our organisation. He was able to develop a unique understanding of the project brief and deliver a professional outcome that often exceeded our expectations. As a leader of an organisation employing approximately 400 staff and caring for over 700 clients I benefited greatly from his expert and professional guidance." - Anne Leeson, Regional Director, UnitingCare Ageing – North Coast Region
"Phil facilitated the design and development of our strategic business plan with our management team to take us out of the small business syndrome into a medium business mentality. With Phil facilitating the process it ensured a quality process as he kept our business planning team on track and provided clear direction. Phil provided a very much needed sounding board as his past experiences allowed him to look at the issues pragmatically, making our team look at real issues both from left of field and right in front of us, that are often too easily missed." - Matthew Denehy, Managing Director, Eagle Insurance Brokers
"Since I have been working with Phil, I have set actions with time frames in place for everything I do in my business...he holds me accountable for them, and I have learnt so much and grown so much as a result of this. I now feel in control of my business and feel confident I can succeed with growing my business and opening another store." - Sarah, Surf wear fashion retailer.
"Enlightening and Empowering. I have learnt that I know a very small portion of what I need to know and that this is the biggest threat to my financial security.... that business isn’t rocket science and the answers to any difficulties are readily available if you are wise enough to listen and brave enough to re-invent yourself, with the assistance of your coach. Thanks Phil." - Tania, Retail Music Store Owner
"Phil’s input and support as an external consultant with NORTEC since 2010, has ranged from extended individual executive coaching assignments; team based executive leadership development programs; panel involvement in recruitment and selection processes to broad based organisational development initiatives. The diversity of these assignments for NORTEC is testament to both his effectiveness and broad base of knowledge and experience he offers his clients. Phil’s structured and accountable approach, combined with his highly effective facilitation skills and contemporary management knowledge, ensures clarity in terms of respective accountabilities in the client : consultant relationship and realisation of tangible return-on-investment and value for his clients." - Paul Bennett, Chief Executive Officer, NORTEC Employment and Training Ltd.