CFO On Call is thrilled to announce Rangan Vaithi as the newest addition to our partnership team in NSW

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Rangan is an esteemed senior executive boasting an impressive career spanning over two decades within the dynamic realms of finance and business transformation.

His journey is characterized by an unwavering dedication to operational excellence, a relentless pursuit of automation, and a talent for orchestrating transformative change within organizations.

With extensive experience, Rangan has adeptly navigated finance landscapes, spearheading finance transformation projects, systems implementations, and business governance initiatives. His knack for identifying and implementing critical changes has consistently propelled organizations towards enhanced efficiency and success.

Rangan’s expertise extends across various sectors including Software as a Service (SaaS), Technology Companies, Project Management, Education (both B2B and B2C), Health, Engineering/Construction, and Manufacturing/Supply Chain. His versatility and deep understanding of finance, business, and technology management enable him to excel in diverse environments.

In his role as CFO On Call, Rangan leverages his wealth of experience to provide Virtual CFO services, Cash Flow Management, Business Growth Planning, Financial insights and BI dashboard reporting, and more. His strategic leadership skills and ability to cultivate strong relationships at the CXO and Board levels position him to facilitate positive transformations for businesses.

Amidst current economic conditions, small and medium-sized businesses across Australia are facing significant challenges in maintaining sustainable business models. Rangan’s extensive experience in driving revenue, profit optimization strategies, and cash flow improvements proves invaluable in assisting SMEs to navigate these challenges effectively.

To build sustainable business models, Rangan emphasizes focusing on key areas including consistent revenue growth, profitability and margin expansion, scalability, diversified customer base, recurring revenue streams, operational efficiency, and effective management. By prioritizing these factors, businesses can enhance their appeal to investors and achieve higher valuation multiples.

Rangan’s insights are further enriched by his contributions through various blogs on topics such as BI tools & Dashboards, Profit maximization strategies for SMEs, and the power of Chatbots, all available as free downloadable eBook’s. His guidance is indispensable for businesses aiming to adapt and thrive in today’s challenging environment.

 

Discover the Power of an Hour with Rangan

BOOK A FREE CHAT WITH RANGAN

 

 

We’re excited to announce a special offer from Aaron, a valued addition to our team of Virtual CFOs in Victoria.

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We’re excited to announce a special offer from Aaron, a valued addition to our team of Virtual CFOs in Victoria.

Aaron is extending a unique opportunity through the e-book,  ‘‘Managing Your Business Through Rapid Growth’.

 

Aaron specializes in assisting companies to create value through various strategic financial approaches, including:

      • Overcoming growth challenges
      • Strategic growth planning and forecasting
      • Managing Cash Flow to achieve sustainable growth
      • Finance acquisition to fund growth
      • Systemisation to handle growth
      • Management reporting to ensure growth plans are on track
      • Project and product costing to ensure profitability
      • Feasibility studies to support investment 
      • Establish cash flow focussed contracts
      • Mitigating and minimizing growth risk

 

Aaron believes strongly in doing the necessary work up front to ensure the profitability of a job or project.  Some important items Aaron has in place before contracting and commencing are:

    • A robust well supported financial model, that converts to a project forecasting and financial management tool, ensuring desired results are closely monitored and achieved
    • Cash flow considerations in tender and contractual negotiations to minimise working capital requirements
    • Risk mitigation and management strategies established to avoid costly errors
    • Project/job cost controls to avoid cost overruns and improve profitability.

 

BOOK A FREE CHAT WITH Aaron

 

At the professional services firm that Aaron was recently working with, the organization required expansion and technology innovation for market competitiveness.

Aaron worked with the leadership teams in delivering a capability transformation, and thereby introduced a secure custom video interpreting platform, as well as overhauled the entire HR and financial management systems.  This helped achieve both off and on-shoring efficiency in respect of HR teams, structures and talent deployment, enabled a first-to-market product launch, and established a foundation for informed decision-making and future growth in respect of ERP and financial reporting requirements.

Aaron has a philosophy of ‘value creation’.  Two of Aaron’s favourite tools for this are ‘sensitivity analysis’ and ‘scenario modelling’, which Aaron uses before deciding on a significant purchase or business path forward.  This way the most ideal pathway can be chosen and the risks can be understood upfront and managed along the way. 

Aaron was also previously CFO of a 75-year-old, 3rd generation owned and operated company that was facing significant financial distress on the back of its transition from an automotive manufacturing and supply business to a high end, defence and aerospace manufacturer, and required HR and financial restructuring for both its sustainability, as well as its growth and development into this new sector.  On the back of extensive restructuring activities in both HR, lending platforms and facilities, as well as new cashflow friendly financing arrangements, it ultimately led to an increase in efficiency, performance management, and helped to implement cost-saving initiatives throughout the organisation.  Within 12 months of implementing these necessary changes, the company boasted enhanced financial stability, secure capital for expansion, and assisted in significantly reducing operational costs.

 

To learn more about how Aaron is helping businesses download the eBook ‘‘Managing Your Business Through Rapid Growth’ 

 

 

BOOK A FREE CHAT WITH Aaron

How Activity-Based Costing Can Improve Profitability?

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In today’s competitive business landscape, understanding and managing costs effectively is paramount for enhancing profitability. One strategic approach that has proved effective is activity-based costing (ABC), a method that assigns company expenses to products and services based on their consumption of resources.

But what is ABC really, and how can it make a difference in your operations? In this blog, we’ll explore what ABC is and how activity-based costing can improve profitability.

What is activity-based costing?

Activity-based costing or ABC is used to more accurately assign costs to products and services. Unlike traditional costing methods, which broadly allocate overhead costs based on volume metrics such as labour hours or machine usage, ABC focuses on the activities that incur costs. By identifying and evaluating these activities, companies can understand how and where resources are consumed, leading to more precise cost assignments.

This method involves several key steps, including identifying the major activities that take place in an organisation, assigning costs to these activities and allocating these costs to products or services based on their consumption. The result is a more accurate picture of profitability by product, service, customer or channel, enabling businesses to make informed strategic decisions.

How activity-based costing can improve profitability — five core benefits

Here are five key ways ABC can boost profitability within your business:

  • Enhanced cost control — By providing a detailed breakdown of costs associated with specific activities, ABC enables businesses to identify areas of high expenditure and potential inefficiencies. This detailed insight allows for targeted cost-reduction strategies, such as process improvement or renegotiation with suppliers.
  • Informed pricing strategies — With a clearer understanding of the costs incurred by different products or services, companies can set prices more effectively. This tactic ensures pricing strategies are aligned with the actual costs, potentially increasing profit margins.
  • Improved decision-making — ABC offers a data-driven foundation for decision-making. By understanding the cost drivers and their impact on overall costs, businesses can prioritise investments, discontinue unprofitable products or adjust resource allocation to maximise profitability.
  • Customer and product profitability analysis — Not all customers or products are equally profitable. ABC helps identify which products generate the most profit and which may not be worth the investment. This can lead to a more strategic approach to customer relationships and product portfolios.
  • Strategic resource allocation — By highlighting the most resource-intensive activities, ABC guides companies in allocating resources more effectively, ensuring that efforts and investments are directed towards the most profitable areas of the business.

Final thoughts on implementing ABC in your business

Adopting ABC requires a shift towards a data-driven culture, where decisions are based on detailed analysis rather than intuition. It involves identifying key activities, determining the cost drivers and applying this methodology consistently across the organisation. While implementing ABC can be complex, its insights are invaluable for strategic planning and operational efficiency.

Maximise your business’s earnings by partnering with CFO On Call

As businesses strive for efficiency and profitability in a competitive market, adopting ABC can be a pivotal step towards achieving those goals — and the team at CFO On Call can help you achieve this and more. CFO On Call specialises in providing expert financial services that align perfectly with the goals of ABC. Our team of experienced CFOs can guide your business through the ABC implementation process, ensuring you gain deep insights into your costs and profitability.

Coming on board with CFO On Call exposes your business to unmatched expertise to help you make informed strategic decisions, optimise your pricing strategies and ultimately, drive your business towards greater financial success. To learn more about our services, please contact us today.

Introducing our newest addition to the team Aaron Hubka

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CFO On Call is thrilled to announce Aaron Hubka as the newest addition to our partnership team in Victoria.

With an illustrious career spanning senior and C-suite roles across various industries including manufacturing, construction, finance, IT, defence, and aerospace,  Aaron brings a wealth of knowledge and experience to the CFO On Call family. His expertise in driving commercial success through innovative financial leadership is unmatched, making him a valuable asset to any organization seeking to enhance its sustainability and
operational efficiency.

Aaron’s role at CFO On Call will leverage his extensive experience to offer services such as Virtual CFO Services, Cash Flow Management, Business Growth Planning, and much more. His ability to establish strong relationships at the CXO and Board levels, coupled with his strategic leadership skills, ensures he is well-equipped to facilitate positive transformations for businesses.

In the wake of recent bankruptcies and forced administrations, small to medium enterprises in the manufacturing and construction sectors in Australia, and particularly in Victoria, face significant challenges.

To survive and thrive in this competitive landscape, these businesses need to focus on several key strategies:

    • Innovation and Diversification: Exploring new markets and diversifying product lines can help mitigate risks associated with dependency on a single sector or customer base.
    • Leveraging Technology: Adopting advanced manufacturing technologies and digital tools can improve efficiency, reduce costs, and enhance product quality.
    • Skilled Labour and Training: Addressing the skilled labour shortage by investing in training and development programs, and exploring alternative hiring strategies, such as apprenticeships or partnerships with educational institutions.
    • Financial Management and Forecasting: Implementing robust cash flow management and forecasting practices to improve financial health and sustainability.
    • Strategic Partnerships: Forming strategic partnerships with other businesses or government bodies can provide access to new markets, technologies, and financial resources.
    • Market Research and Customer Engagement: Continuously engaging with customers and conducting market research to understand evolving needs and trends, enabling quicker adaptation to market changes.
    • Regulatory Compliance and Sustainability: Ensuring compliance with all relevant regulations and adopting sustainable practices to meet the increasing demand for environmentally friendly products and services.
    • Competing with Multinationals: SMEs need to identify their unique value propositions and leverage local market knowledge and agility to compete effectively against multinational corporations involved in large infrastructure projects.

 

By focusing on these strategies, SMEs operating in Victoria’s manufacturing and construction markets can navigate the current landscape, maintain sustainability, and pivot successfully into new products and services.  Aaron’s insight will be instrumental, and his guidance will be crucial for businesses looking to be agile and adapt in this challenging environment.

 

For further details on Aaron Hubka’s background and the services offered by CFO On Call, please click below:

 

Discover the Power of an Hour with Aaron Hubka

BOOK A FREE CHAT WITH Aaron

 

 

What Is A Business Valuation & How To Go About One?

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For business owners, a true business valuation is crucial for making informed decisions about growth, investment and even potential exit strategies. The valuation of businesses is the process of determining the economic worth of a business, providing owners with a comprehensive understanding of their company’s financial standing.

In this blog, we’ll explore why a business owner would want to value their business, how to valuate a business and how to get a business valuation from a credible source.

Four common reasons to request a business valuation

As no two businesses run the same, the reasons why a business may seek out a business valuation can differ. We’ve listed some common reasons for business valuations below:

  • Selling a business — One of the primary reasons a business owner may seek a business valuation is when they consider selling their business. Knowing the accurate value of the company allows the owner to set a realistic asking price, which is essential for attracting potential buyers and ensuring a successful sale.
  • Merger or acquisition — In the case of a merger or acquisition, understanding the value of both companies involved is crucial for negotiating fair terms. A business valuation helps determine the share exchange ratio and ensures a balanced agreement.
  • To obtain financing — Whether seeking a loan or bringing in new investors, a comprehensive business valuation provides credibility to the business’s financial health and prospects. Lenders and investors need assurance that their funds are being invested in a prosperous asset.
  • Internal decision makingBusiness valuation is not only useful for external purposes but also for internal decision-making. Understanding the company’s worth allows owners to make strategic decisions, such as expanding operations, diversifying product lines, cash flow management or improving existing processes.

How do business valuations work? The three key methods of valuation. 

The business valuation method used may vary depending on the industry, company size, purpose of the valuation and available financial data. Here are the three most common ways to valuate a business:

  • Asset-based valuation — This method calculates the business’s value based on its tangible and intangible assets. Tangible assets include equipment, property and inventory, while intangible assets encompass intellectual property, goodwill and brand value. The total value of these assets, minus liabilities, provides the company’s net asset value.
  • Market-based valuation — This method involves comparing the business to similar companies in the market that have been recently sold or are publicly traded. This method relies on market multiples, such as the price-to-earnings (P/E) ratio, to estimate the value of the business.
  • Income-based valuation — This approach focuses on the company’s earning potential. The two main methods within this category are the capitalisation of earnings method, which divides the expected earnings by the capitalisation rate and the discounted cash flow (DCF) method, which calculates the present value of future cash flows.

How much does a business valuation cost? There is no easy answer to this, as the cost of a business valuation can vary as it significantly depends on several factors. It’s also worth noting that there is no fixed price for a valuation. Generally, business valuations are a customised service tailored to a business’s individual needs.

So, who does business valuations? While many options are available, if you’re looking for unmatched industry expertise, why not work with the professionals at CFO On Call?

CFO On Call — your trusted consultant for accurate business valuations

CFO On Call is a leading financial consulting firm specialising in assisting businesses with various financial aspects, including business valuation and exit strategy planning. We work with highly skilled valuation analysts with extensive experience assessing businesses across various industries.

Accurate business valuation is a complex process that requires careful planning. Let us simplify the process. Speak to the experts at CFO On Call today to get started.

Our Guide To The Relationship Between Your CFO & CEO

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Navigating the complexities of business leadership often hinges on the dynamic between two key figures: the Chief Financial Officer (CFO) and the Chief Executive Officer (CEO). At CFO On-Call, we’ve seen firsthand how the relationship between the CFO and the CEO can make or break a company’s success, especially in small and medium-sized enterprises. Let’s explore why this partnership is so crucial and what it means for your business.

Important aspects of the CEO and CFO relationship for any organisation:

  • Strategic alignment — The CEO is the visionary who dreams big and sets goals that define the company’s path. The CFO, on the other hand, grounds these visions in financial reality. They ensure that the CEO’s ambitions are feasible and offer insights into financial viability and sustainability. They help make the company’s objectives achievable within their financial means.

The bottom line: the relationship between the CFO and the CEO requires a balancing act of ambition and realism, where financial constraints are weighed against strategic goals.

  • Financial insight — A CFO’s expertise extends beyond traditional accounting, as they have a nuanced understanding of how financial decisions will impact the company’s overall health and growth. This includes forecasting future financial trends, managing budgets effectively and interpreting complex market data. On the other hand, using the CFO’s insights, the CEO can identify lucrative opportunities and potential risks, positioning the company to capitalise on market changes.

The CEO and CFO relationship is a constant back-and-forth of insight. By providing detailed financial reports and analysis, the CFO empowers the CEO with the data necessary to make informed strategic decisions.

  • Governance and risk management — The relationship between the CFO and the CEO needs to be grounded in good governance and risk management. Their combined understanding of regulatory requirements, financial reporting standards and internal controls is essential in maintaining compliance and fiscal responsibility. Their shared role in governance is about creating a framework within which the company can safely innovate and grow.
  • Effective communication — The strength of the CEO and CFO relationship relies heavily on clear and consistent communication. This communication must be bidirectional — the CFO provides candid feedback and insights and the CEO is receptive to this input, and vice versa. This level of transparency ensures that both leaders are consistently aligned in their goals, strategies and expectations. As a result, they can foster a collaborative environment that benefits the entire organisation.
  • Adaptability — In a business landscape that is constantly evolving, the ability to adapt is crucial. The CEO and CFO relationship involves navigating these changes, with the CFO providing financial analysis and projections that inform the CEO’s strategic decisions. Whether it’s adapting to new technologies, shifting market dynamics or evolving customer needs, the CFO can help assess the potential impacts of these changes and plan accordingly.
  • Shared financial responsibility — The CEO and CFO relationship entails sharing responsibility for the company’s financial health. While the CEO focuses on the company’s growth and strategic direction, the CFO monitors and analyses the financial sustainability of these plans. The CFO’s role is to provide strategic financial advice, which helps the CEO make decisions that align with the company’s financial goals.

Build a strong CEO and CFO relationship with CFO On-Call

The CEO and CFO relationship is essential in driving a business forward. At CFO On-Call, we enhance this dynamic with our comprehensive virtual CFO services, which include Interim CFO, Temporary CFO, Cash Flow Management, Sales & Profit Improvement and Cash Flow Forecasting.

Whether you’re running a construction business or a tech company, we can help you foster a stronger CEO and CFO relationship with the right leaders at the helm. Ready to take the first step towards a more resilient and successful business? Contact our team today for a personalised consultation.

$20K per quarter being wasted – Business owner’s shocking discovery!

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$20K per quarter being wasted – Business owner’s shocking discovery!

 

A combination of suppliers being overpaid and paid too quickly, customers paying too slowly and GST being handled incorrectly came to a total of $20K in wasted cash flow!

 

Lucky for the business owner, this was uncovered by one of our CFO On Call people, who also discovered:

    • The Balance Sheet was wrong (unhelpful if you’re applying for finance/leases, selling a business etc.)
    • GST was unbalanced i.e. transactions had been incorrectly posted to the control account meaning overpayment of GST.
    • Reporting wasn’t right – business owners were getting the wrong picture of performance.
    • General Ledger set up incorrectly – causing issues with reporting
    • Accountants being given the wrong information for tax reporting – causing overpayment of tax
    • Things being done inefficiently – wasting money and time
    • No organisation of who was doing what – causing confusion and stress
    • Too much complexity – simplicity saves time and headaches!

 

And what did it cost to get an in-depth and insightful review like that?

 

The CFO completed this comprehensive review for the business owner in just one day at a cost of just $2K.  That’s a ROI of 40 times what they paid!  Not to mention the cost of interest on overdraft, now less than necessary.  Also the stress of cash flow headaches… Now non-existent.  They spoke with their operations manager and bookkeeper to unearth these issues, both of whom were delighted with the outcome.

 

If you’d like a review of your accounts, get in touch today and one of our CFOs will be happy to bring along their magnifying glass to unearth wastage and opportunities for better efficiency and more accurate reporting in your accounts.

 

Click here to book your review!!

How to maximise the value of your business

Understanding The Differences: Interim CFO Vs Virtual CFO

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Every day, start-ups and new businesses develop fresh and exciting ideas. But in order for these ideas to flourish and transform into successful ventures, detailed financial management is imperative. This concept prompts many businesses to engage with the expertise of a chief financial officer (CFO) and ask the question, should they opt for an interim CFO or a virtual CFO?

In this blog, we’ll explore how the interim vs virtual CFO debate stacks up across four major sectors so that you can make the right decision for your business.

Interim Vs Virtual CFO — understanding the basics

Before delving into the differences, it’s essential to comprehend the fundamental disparities between an interim CFO and a virtual CFO. An interim CFO is typically engaged for a temporary period, often to fill a gap or manage a specific project. On the other hand, a virtual CFO operates remotely, providing ongoing financial guidance and support without the need for a physical presence at the company’s location.

Interim Vs Virtual CFO — which one’s best for your business?

Now that we understand the difference between a virtual and interim CFO, let’s explore what kind of assistance they can provide your business across four factors.

  • The size and revenue of your company

The size and revenue of a company play a pivotal role in determining the suitability of an interim or virtual CFO. For smaller businesses with limited resources, a virtual CFO can be a cost-effective solution, as they provide essential financial expertise without the hefty price tag associated with a full-time executive. In comparison, larger companies with complex financial structures or undergoing significant changes may benefit from the targeted expertise of an interim CFO, who can provide specialised insights during critical phases.

  • Scope of work

If your business demands strategic financial management on an ongoing basis, a virtual CFO is well-equipped to provide continuous support. They can assist in developing financial strategies, forecasting and ensuring long-term financial health. On the other hand, if your company requires a CFO for a specific project or to navigate a temporary financial challenge, an interim CFO might be the more suitable choice, as they can focus intensively on the immediate needs of the business.

  • Security level

Maintaining optimal security within your organisation is crucial in today’s business environment, with hackers and fraudulent activity becoming increasingly common. An interim CFO working on-site may have direct access to sensitive information, which could be a consideration for companies prioritising in-house security. Virtual CFOs, operating remotely, rely on secure digital communication channels and cloud-based systems.

  • Specialised knowledge and experience

The level of specialised experience required is another key determinant for business owners. Interim CFOs often possess specific skills tailored to address immediate challenges, while virtual CFOs are more focused on providing ongoing, comprehensive financial guidance. It’s important to consider the nature of your business and whether you require specialised expertise for a defined period or continuous support to navigate the complexities of long-term financial planning.

Choose CFO On Call for your virtual CFO and Interim CFO needs — contact us to learn more

When it comes to bringing your ideas to life, don’t skimp on the experts who can give your business the upper hand. With a team of seasoned financial experts, CFO On Call offers tailored CFO solutions to meet the diverse needs of startups and growing businesses.

Whether it’s ongoing financial management or addressing specific challenges, CFO On Call provides a comprehensive suite of services to ensure the financial success of your business. Learn more about how CFO On Call can elevate your business’s ideas and ambitions by contacting us today.

How To Improve Profitability In Construction

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The construction industry is a vital sector that shapes the urban landscape and drives economic growth. So, why do many construction businesses struggle to turn a profit?

Before we answer how to improve profitability in construction, it’s important to first investigate the project-based nature of the business. Without projects in the pipeline, companies fail to generate a sustainable revenue stream. Newer construction companies may also find it difficult to compete for projects with established names. Naturally, clients prefer companies with experience in the type of project they want, be it in the private or public sector.

Additionally, the low-bid culture in construction forces companies to make inaccurate estimates. Businesses try to come up with attractive bids for clients at the cost of profit. This intense competition puts lots of pressure on businesses to deliberately cut costs, inadequately prepare for risks and inefficiently manage projects.

So, how to improve profitability in construction, a notoriously competitive industry — is it even possible? While we don’t offer easy, get-rich-quick schemes, we have a few sustainable strategies that may help.

How to improve profitability in construction: 3 long-term strategies

1. Improve financial management

  • Make realistic project estimations: Precision in estimating project costs is the foundation of sound financial management in construction. Use historical data, conduct comprehensive site assessments and consult with experienced estimators. All of these can help you come up with accurate, realistic and profitable project estimates.
  • Control costs effectively: Implement effective cost control measures to maintain profitability. Monitor project expenses meticulously, identify cost-saving opportunities and establish strategies to mitigate budget overruns.
  • Improve cash flow: You can’t ignore cash flow when looking at how to improve profitability in construction. Projects typically have long payment cycles that affect the company’s ability to cover expenses and invest in their growth. To combat those challenges, negotiate favourable payment terms with suppliers, subcontractors and clients to sustain a healthy cash flow. Then, institute efficient invoicing and payment collection processes. 

2. Enhance operational efficiency

  • Improve project management practices: Standardising processes across projects can significantly boost operational efficiency. Develop standardised workflows and procedures to streamline project execution. Also, consider leveraging project management software and methodologies to facilitate effective communication, project tracking and collaboration among team members. Embrace solutions that automate routine tasks, such as sending invoices, reducing the likelihood of errors and delays.

3. Boost revenue generation

  • Implement value-based pricing: Rather than relying solely on cost-plus pricing models, assess the unique value your construction services bring to clients. Price your services based on your perceived value and the benefits you deliver, allowing for more competitive yet profitable pricing. Implementing value-based pricing is one answer to the nagging ‘how to improve profitability in construction’ question. 
  • Diversify revenue streams: Explore opportunities in adjacent markets or offer complementary services that align with your core competencies. This not only broadens your client base but also mitigates risks associated with depending on specific project types or clients. 
  • Build strong client relationships: When considering how to improve profitability in construction, think about the relationships you have with clients. These are key to your sustained growth, as satisfied clients can refer you to others or rehire you in the future for another project. Prioritise client satisfaction by delivering quality projects on time. Additionally, communicating proactively, resolving issues promptly and being approachable can result in a positive experience for your clients. 

Improve the profitability of your construction business — reach out to CFO On Call

Wondering how to improve profitability in construction? Learn to implement these strategies with expert guidance by CFO On Call, home to virtual CFOs in Australia and New Zealand. Our CFO services in construction range from temporary or interim CFOs to cash flow forecasting, management and profit planning — all are designed to help you sustain the growth of your construction business.

Get in touch with us to claim your free consultation. Move beyond surviving to thriving in a competitive landscape with CFO On Call.

The Secret to Avoiding Business Losses

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Achieving Profitability: Understanding Your Break-Even Point.

 

In the world of business, the ultimate goal isn’t just to stay afloat but to thrive and turn a profit. To achieve this, one of the fundamental keys to success is understanding your break-even point. Let’s unravel this essential concept and explore how it can propel your business towards profitability.

 

Break-Even Point: The Foundation of Profitability

The break-even point is the magic number every business owner should be acquainted with. It represents the level of sales you need to achieve to cover all your costs and end up with neither profit nor loss. While the primary aim of any business is to make a profit, knowing your break-even point is the first step towards financial success.

 

The Anatomy of Break-Even

Your break-even point is influenced by two primary factors: fixed costs and variable costs.

Fixed Costs: These are the expenses that remain constant, regardless of your sales volume. Think rent, administrative wages, telephone bills, and other steadfast financial commitments.

Variable Costs: On the flip side, variable costs are directly tied to making a sale. For product-based businesses, this includes the cost of goods, shipping, and packaging. For service providers, it encompasses labour and materials used for each job.

 

Calculating Gross Margin

Once you’ve dissected your variable costs for each product or job, the next step is calculating your gross margin. This figure represents the difference between the selling price and the total cost of getting your product or service ready for sale. For example, if your product costs $40 to make and you sell it for $100, your gross margin is 60%.

 

Understanding Fixed Costs

Now, it’s time to figure out your fixed costs. Let’s say these stand at $30,000 per month. To determine your break-even sales, divide your fixed costs ($30,000) by your gross margin (60%). The result is $50,000, which is the amount of total monthly sales required to break even.

If your average product sale is $100, you can further break this down to units. Divide the total break-even sales figure of $50,000 by your average sale price of $100, and you’ll find that you need to sell 500 units per month to break even. In simpler terms, selling 500 units at $100 each will cover your expenses.

 

Setting Profit Targets

Now that you’re well-versed in your break-even point, you can use it as the foundation for setting your profitability targets. For instance, for every unit sold above the break-even volume of 500 units, you’ll earn a $60 profit – the gross margin per unit.

If your goal is to make $6,000 in profit, a simple calculation shows that you need to sell an additional 100 units. This knowledge empowers you to set achievable targets and work strategically towards your desired profit.

 

Discover Your Break-Even Point

Want to determine your business’s specific break-even point? We’ve got you covered with a FREE calculator that simplifies the process. Take the guesswork out of your financial strategy and gain the insights you need to steer your business toward profitability.

Understanding your break-even point is the secret to avoiding business losses and achieving lasting profitability. Don’t let this essential concept remain a mystery – use it as a compass to guide your business to financial success.

Ready to embark on your journey to financial success? Access our FREE calculator and start making informed decisions for your business today.

 

Breakeven Calculator

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Discover Your Break-Even Point

Want to determine your business’s specific break-even point? We’ve got you covered with a FREE calculator that simplifies the process. Take the guesswork out of your financial strategy and gain the insights you need to steer your business toward profitability.

Understanding your break-even point is the secret to avoiding business losses and achieving lasting profitability. Don’t let this essential concept remain a mystery – use it as a compass to guide your business to financial success.

Ready to embark on your journey to financial success? Access our FREE calculator and start making informed decisions for your business today.

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The 6 tools businesses need to get their finances in shape

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Good financial management doesn’t happen by accident, it requires organization and systemization, but it doesn’t need to be too complicated. 

Here are some simple tools to help you get organized:

 

  1.   Accounting software

With the accessibility of cloud-based systems that are linked to bank accounts, it’s easier than ever to keep track of all your financial transactions.

You need to keep track of transactions for the tax office, lenders, but most importantly for yourself, as a business owner.  A reliable and well set up system will provide you with information to ensure:

    • You pay everyone the right amounts, including staff, suppliers, business owners, lenders, tax office etc.
    • You know where you are making and losing money e.g. which products/services are most/least profitable, where you are going over/under budget on expenses, when costs are rising and margins being squeezed and it’s time to review pricing.
    • You get paid by your customers on time, by reporting who owes what and for how long.  You can also send out statements/reminders easily to slow payers.

 

  1.   A Budget

This is without doubt the most important tool in any business.  If you go ahead and get on with business without a budget you are flying blind!

A budget is your financial roadmap that keeps you on track every month.  It sets out how much you plan to sell, what your sales will cost and what will be your expenses and profit at the end.

Once you’ve developed a budget it needs to be entered into your accounting system, so that you can report monthly on actual versus budget.   By doing this monthly you can see where things are on/off track and fix them quickly to avoid further unnecessary losses.

 

  1.   A Cashflow Forecast

If a budget is the most important tool, a cash flow forecast is definitely the next.

Achieving your sales and profit target is great, however if you don’t handle the cash side properly your business is at risk of failure due to lack of cash.

A cashflow forecast sets out in black and white when you expect the cash to come in and go out of your business.  By forecasting, you are pre-armed with knowledge that you can act upon. 

For example if things don’t go exactly according to plan and cash looks tight for the future you can ramp up your sales efforts, inject cash into the business from loans, shareholders, sale of assets, speed up payments from customers, speed up finishing jobs so they can be invoiced, sell off slow moving or obsolete stock to free up cash. 

On the outgoings side you can reduce expenses, slow up payment to suppliers, arrange to pay off tax debts, delay payments to shareholders etc.

 

  1.   Monthly Financial Management Checklist

The easiest way to ensure your financial management stays on track is to follow a simple checklist. 

This would include e.g. Monthly reports such as Profit and Loss Report, Balance Sheet, Cashflow Forecast, Outstanding Customer Amounts, Outstanding Supplier Amounts, Job Management, Stock Management, Detailed Sales Report by customer, product, division etc. 

Also include:

    • Reconciliation and payment of suppliers, taxes, superannuation etc.
    • Reconciliation and follow up of customer amounts owed
    • Reconciliation of bank accounts, credit cards etc
    • Monthly accounting entries for non cash transactions such as depreciation of assets and amortization of large amounts due such as yearly insurance (break it down into monthly amounts)
    • Tax returns such as GST/VAT and staff payroll taxes due
    • Reconciliation of Work in Progress and Stock on hand
    • Reconciliation of intercompany loans/accounts and suspense accounts
    • Foreign Exchange transactions – accounting for losses/gains

 

  1.   A Spreadsheet System

A spreadsheet is a great tool for calculating things like:

    • Pricing – you can gather up all your direct costs then add on a margin to work out price.  Conversely if you need to adhere to a price you can deduct a margin and work out how much you have available for cost of the item.
    • Markup – once you know your cost you can add on a markup to achieve your desired margin.
    • Breakeven – this is a very important number to understand.  It’s the sales you need to make to cover your running expenses after direct costs of the product/service.
    • Anything really that you want to work out to ensure you’re on the right track.

 

  1.   A Logical Brain!

Businesses run on ‘gut feel’ can sometimes succeed, however those run with good logical thought processes are much more likely to prosper.  Selling things you love is great, but if you’re not charging the right price and running things efficiently and cost effectively you will really struggle to make a good enough profit for all your efforts. 

It’s so easy to use a ‘thumb suck’ to decide on a price or try to match competitors.  If you aren’t absolutely sure of your true cost you could be not charging enough and eventually go out of business due to lack of profit. 

Taking some time to do some proper analysis before you get started can save you lots of headaches and agony down the track.  It may seem like a boring and unnecessary step when you just want to get on with the exciting stuff of selling and making things, but it will save you lots of money if you pause to ensure you’re on the right track at the beginning.

If you’re not a natural left brain logical thinker (many entrepreneurs are right brain creative) do yourself a favour and find someone who can guide you and keep you on the right track.  They could be a great resource and ‘sounding board’ for your fantastic ideas to ensure they are profitable!

 

For more information on financial management for your business download our FREE eBook ’11 Steps to Business Numbers Made Easy’

Mapping Out a Better Financial Future For Your Business

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Would you like clarity over your business numbers?

Watch this video for useful insights:

  • Into mapping out a better financial future for your business
  • If you’d like to predict profitability and cash flow accurately
  • Learn how to set up your business for financial success using a ‘Financial Roadmap’
  • You want better clarity over your profitability and cash flow
  • You want to sleep better at night!
  • You want to grow your business with confidence that the numbers ‘stack up’
  • You want to provide confidence to lenders/investors for your business

How to Be a ‘Lean Mean Fighting Machine’ and Survive Uncertain Times

- Latest News

Whether you’re a new business looking to secure sustainability, profitability, and longevity, or a seasoned player navigating the ever-changing landscape of digital disruption, one thing is clear: change is your ally.

In this blog, we’ll delve into strategies to help you not only embrace change but thrive in the face of lower-cost competitors.

 

  1. Five Key Areas of Business Begin by assessing your business in five key areas:
      • Your offering to the market
      • Your marketing and sales strategies
      • Operational and financial processes
      • Staff management
      • Customer service

Your offering, whether a product or service, is the core of your business. Understand how it’s evolving and how changes may impact your business.

 

2. Embrace Efficient Systems Investing in systems may seem daunting, but it’s a vital step towards efficiency. Consider the return on investment for each system you implement. For instance, saving a few hours of service staff admin time can significantly boost revenue. Streamline tasks and consider using online systems for various aspects of your business, from manuals to project management.

 

3. Key Performance Indicators (KPIs) Systems make it easier to capture and report on KPIs, which are essential for tracking your business’s health. Identify leading KPIs that measure activities contributing to results. Break down KPIs for each key area of your business, such as product/service, marketing, sales, operations, staff, and customer service.

 

4. Cost Management Digital disruption has empowered smaller competitors with lower cost bases. To stay competitive, you may need to reduce costs. Consider changing your business model, optimizing expenses, and embracing flexibility. Transitioning to virtual assistants, part-time staff, and flexible work arrangements can cut fixed costs.

 

5. Achieving Longevity – monitor activities and trends constantly. When you see a downward trend, address it promptly. Encourage team discussions for constant improvement. Advocate group discussions, utilise tools like Slack, and stay informed about industry changes through magazines, blogs, events, associations, and networking.

 

6. SWOT Analysis and Action Plans.  Regular SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis can guide your business. Create action plans to capitalise on strengths, address weaknesses, seize opportunities, and mitigate threats. Include your team in brainstorming sessions; they often offer valuable insights.

 

Embrace Change and Leadership.  Be ready to make tough decisions and lead your business through change. Downsizing, upsizing, and automation are part of a business’s lifecycle. Combining your experience with modern approaches ensures you can compete effectively against newcomers.

 

In today’s rapidly evolving business landscape, the willingness to adapt and innovate is your greatest asset. So, don’t just survive; thrive, be that ‘Lean Mean Fighting Machine,’ and outshine your low-cost competitors.

 

For more ways to improve your business cash flow download our eBook ‘How to be a lean mean fighting machine and survive uncertain times’