While the financial year in Australia is about to end on 30th June, the ramifications of COVID-19 are still being experienced by many businesses. Now is a good time to think strategically about plans for both emerging from the crisis, and strengthen business to withstand any future crises.
Here’s a checklist of what to focus on to ensure sustained and improved profit and cash flow in the new financial 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 ‘COVID19’ 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 75, 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?
- 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 their working are you able to bill to customers?
- Small changes in work practices can have a 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 suppliers to ‘sharpen their pencil’ on costs?
- What have we learnt through coping with the COVID19 situation? Are there changes that were cost effective we could continue or absorb into future business operations. For example staff working from home can create big savings on premises and power costs.
- It really pays sometimes to create an environment of competition amongst suppliers. Don’t underestimate your value as a customer to them.
5. Customer Payments
- How does the average number of days it takes you to get paid by your customers compare to the terms you 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.
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 minimise the amount of stock.
- In view of the COVID19 situation, ‘just in time stock management’, may need a rethink, to ensure enough stock is available should there be future supply chain interruptions.
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.
What are the next steps?
Set a plan next financial year to focus on these key aspects of your financial control to achieve better profit and cash flow.
If you would like to learn more about this subject, plus other useful business financial management tips, check out ‘Business Financial Toolkit’