When you are doing business during the tough times, know your cash break-even point and the reserves you have to sustain losses while you implement your action plan.
Understand the cause and effect of strategies and the interaction. Successful clients with PINNACLE know and understand their business so well and how it truly ticks, therefore they grow in difficult times. For example, as a retailer if I implement a strategy to discount my prices to grow my market share, do I truly understand what it will cost the business and whether I can sustain the losses and cash required to fund that strategy?
So a new discount campaign may kill the business if other strategies are overlooked, such as buying better, better cost control, managing debtors and inventory management.
In both good and difficult times, many small and medium sized businesses sit on excess inventory and that eats up too much cash by having the stock sit on your shelves, instead of the cash sit in your bank.
Use the Pareto rule of 80:20, to focus on high-value goods first when you work through your inventory, or stock keeping units or SKU’s.
SKU’s are identifiers many businesses use to track each billable product and service, and you don’t need to be a large business to have this kind of tool that allows you to use this forecasting software, which when linked to procurement and production planning, can reduce inventory and release cash for other business growth activities.
Finally, how well are you forecasting your cash flow? This has to be a discipline built into every finance process because cash, and not accounting profit, is the ultimate barometer of success in your business.
With thanks, My Business – Sydney Morning Herald, 14/02/2009.
