If you’re reading this within three months of the end of the Financial Year, your timing’s immaculate!
But…we really want to discuss your plans for ‘Beginning of Financial Year’. Your BOFY.
Here’s a checklist of what to focus on to ensure sustained and improved profits this year:
1. Sales/Gross Profit
- Review sales and gross profit by product, service, customer, region, division etc. to determine which ones you should be focusing on this year. Perhaps there are some you should ditch that are dragging things down.
- Consider new opportunities available due to changing business conditions. Be a survivor of ‘Digital Disruption’ not a victim. If you aren’t comfortable with online/digital marketing get some help in this area.
- Unless your business appeals to those only over say 65 you must get it together online. Run a Strategic Planning session with your team or find someone to facilitate it for you. Brainstorm ways you can achieve sustainable sales improvements.
- Closely review your business costs e.g. are there ways you could achieve supplies more cost effectively and efficiently?
- Reviewing labour hours is a massive opportunity to achieve better productivity in a service business. Look very closely at everyone’s productivity level i.e. how many hours they’re working. Are you able to bill them to customers?
- Small changes in work practices can have massive impact on profitability. Ask yourself Am I selling all the hours I’m paying for?
- Spend time researching your industry association and industry publications to learn of new efficient ways of doing things to save time and money.
- Answer these questions honestly:
- How long since you increased your prices?
- Have you been too worried you will lose customers if you do this?
- Can you continue to suck up the margin squeeze created by increased costs, without increasing your prices?
- How much more is your overhead this year, compared to the previous two years?
- If you’re being squeezed by competitors you must fight back by lowering your costs to compete or by explaining to the market why they should pay more for your better product/service.
- You need to make the ‘invisible visible’ by describing what you do that makes your offering so much better, longer lasting or whatever is your ‘point of difference’.
4. Overheads/Net Profit
- Closely review all your overheads and ask yourself these questions:
- Why are we spending this money? How does it contribute to the business and our profitability?
- Should we stop spending on this item? Is there a more cost effective alternative or better way of achieving this?
- Should we seek an alternative supplier – if only to get current supplier to ‘sharpen their pencil’ on costs? It really pays sometimes to create an environment of competition among suppliers. Don’t underestimate your value as a customer to them.
5. Customer Payments
- How does the average number of days it takes us to get paid by our customers compare to the terms we offer? Not many business owners really understand and/or appreciate the massive difference between these two numbers and the horrendous impact it can have on cash flow if the difference is large.
- Work it out and set yourself a goal to reduce this number. (See our E Book ‘7 Key Numbers that Drive Profit and Cash Flow’)
6. Supplier Payments
- How does the average number of days it takes you to pay suppliers compare to the terms they offer you?
- If you’re not taking advantage of every day of the terms offered you could be creating unnecessary cash flow squeeze.
- It really pays to seek better terms from suppliers – particularly if you’re a big customer and they have plenty of competition for your custom.
7. Stock Management
- How much stock do you really need to keep on hand at any given point? Think of stock sitting in your stockroom as dollars piled up on the floor that could be used for other things e.g. marketing to get the stuff out of the door quicker.
- It’s so easy to get sucked into buying things in bulk to get discounts, but if the stuff is going to sit around sucking up precious cash, you might be better to buy in smaller quantities. Consider ways to minimize the amount of stock.
8. Job Management
- How much money do you have tied up at any one time in jobs in progress? Try to find ways to speed up the time it takes to get payment on jobs e.g. through a deposit, progressive invoicing etc. A good job management system can really help you to keep track of jobs, create efficiencies and get jobs finished quicker.
Set a plan this year to focus on these key aspects of your financial control to achieve better profit and cash flow.
Here’s to a great BOFY!
If you would like some pragmatic tips on ways you can improve, feel free to download our E Book ‘9 Smart Strategies To Set Your Financial Roadmap’