8 ways to grow your business

- Business Growth

If you want to grow your business, it pays dividends to do it in an organised way.  Growth without planning has seen the downfall of many a good business.

A great way to start planning is to do a SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats).  It’s a great opportunity to get your team together and have a brainstorming session.

Your objective is to determine:

Strengths – what are they and how can you leverage on them and make them visible to the market?

Weaknesses – what are they and how can you improve them and create a culture of constant improvement?

Opportunities – consider what they are and how you can realistically take advantage of them.

Threats – consider what they are, their impact in the long and short term and how you can mitigate them.

Here are some questions to kick off with:

Product/Service

  • Is yours a product/service of today and tomorrow or yesterday? i.e. are there threats to your business, such as government legislation changes or ‘Digital Disruption’.
  • Who are your competitors and how are they changing?
  • Does your product/service provide a solution to a problem that has limited lifespan?
  • Is it a luxury item that is affected by consumer confidence in a particular market?
  • Is it a necessity item or grudge purchase?
  • Are there opportunities for your team to have input into product/service development?
  • Are there opportunities for you to offer new products/services using your current resources e.g. people, know-how, equipment, real estate etc.

                              

Marketing and Sales

  • Does your team understand the business Vision, Mission and Customer Proposition?
  • What is your market position e.g. cheap and cheerful or best quality with appropriate price tag?
  • Who/where is the market for your product/service?
  • Where do they ‘hang out’? e.g. physical places or online?
  • What is the most cost effective way of engaging with customers?
  • Do you have an opportunity to sell other items to existing customers?
  • Do you have opportunities to open in new markets/regions?
  • Do you know how to engage with customers and how to explain your ‘value proposition’?
  • Do you know what your ‘Unique Selling Proposition’ is and how to differentiate yourself from competitors? e.g. do you ‘make the invisible visible’?
  • How much competition do you have and how does that affect your sales price?
  • Can you leverage off existing customers to get more like them e.g. testimonials/referrals?
  • Do you have a formal sales process and is it understood by those in sales?
  • Does your sales team meet and share ideas?
  • Do you measure effectiveness of marketing methods and ‘return on investment’ of marketing spend?
  • Do you measure sales conversion rates – by salesperson, lead source etc?

 

Operations and Finance

  • Do you have well defined operating procedures that are transparent to all staff?  To eliminate risk of employee absence/departure impact on operations.
  • Are your systems well documented and backed up to avoid loss and business interruption in the event of adverse occurrence?  Could ‘cloud commerce’ help you to achieve cost savings and efficiencies?
  • Are avenues in place for staff to offer input into improvements?  E.g. suggestions box/team meetings?
  • Do you have a budget and cash flow projection?
  • Do you know your ‘break-even- sales figure?
  • Do you regularly and accurately report on gross profit
    • Overall?
    • By product/service category/type?
    • By customer/customer type?
    • By region/division/branch?
  • Do you regularly and accurately report on net profit?
  • Could you achieve better prices from suppliers?
  • Is your business able to meet its short-term financial commitments?
  • Do you analyse your business financial performance regularly and take appropriate action?
  • Are you accessing the best finance options?
  • Do you measure and report on Key Performance Indicators (KPIs) for all areas of business performance?
  • Do you have a Quality Assurance system?
  • Are your tax, superannuation and ASIC obligations up to date?
  • Is there government assistance you could take advantage of e.g. Grants, R&D Incentives?
  • Is your corporate structure set up right?  e.g. should you consider setting up a company, partnership, trust?
  • Are your business premises secure e.g. do you have a current lease in place?

 

Human Resources

  • Do you have an ‘Organisational Chart’ setting out all major tasks within the organisation and who is responsible for them?
  • Does each team member have a properly documented ‘Job Description’, covering all the tasks in your ‘Organisational Chart’?
  • Do you have a system for effectively hiring, managing and firing team members?
  • Do you have a compliant WH&S management system and are you aware of the penalties for non-compliance?

 

Customer Service

  • Do you measure customer satisfaction?
  • Do you have an effective Customer Relationship Management system in place?
  • Do you categorise your customers e.g. A, B and C and focus attention on the A’s and upgrade or ‘move on’ B’s and C’s?
  • Do you have a complaints handling policy/process in place?

The next step is to prioritise your actions based on your answers in line with ‘return on investment’ of projects and your capacity to implement them.

Systems = Sanity

- Cash Flow Management and Forecasting

Many business owners struggle with doing everything in their business e.g. paying bills, day to day management, getting products and services ready, selling and managing staff etc.

A major challenge for any business owner is how to get others to help run the business, so that it doesn’t completely take over your life.  You can look over everybody’s shoulder all of the time, do most things yourself… or you can invest in systems to free yourself and make life easier for staff… as well as yourself.

In order to set up a system you have to get the knowledge out of your head and into a format that staff can understand and follow.  You need to identify what are the most critical actions in your business, who is responsible for them and how they should be done.  Once you know these things, you can share this information with others and begin to do less of them yourself.  Obviously staff needs to be trained and monitored in these actions, but a little time invested in this direction, will pay big dividends down the track.

Running a business successfully is a bit like following a recipe.  There is a  saying  “If you can read you can cook!”  Systems in your business are as important as the products and services you sell.  If you don’t give your customer a variety of products to choose from and a quality product then they will go somewhere else.  Look at your business operations in the same way.  Each of these products becomes a quality product and sometimes even a unique product.  This only happens by following a ‘recipe’.  Your ‘recipe’ for success is actually having systems, making sure they are functional and using, and constantly improving them.  If you have systems in place your key staff can replicate easily the critical actions.  This will give you the opportunity to have a break when you want and know the business will perform in the same way as if you were there.  If you don’t have systems you will always be a slave to your business, and this is not a healthy way to live.

If you have any thoughts about expanding your business or increasing the number of outlets, then it is critical that you have systems in place.  If you have more than one outlet you can’t cut yourself into two or three.  When your product is good you need to ensure you replicate that each time you make the product. You need to do the same with your business.  Things that are replicated are easier for your staff to follow.  This helps greatly with staff retention.  Staff who feel secure with the systems they are operating under have much less stress.  One example is ‘Point of Sale’ – POS is sometimes the last thing that is considered, whereas it should be the first, because it is the most important from a customer’s perspective.  This can easily be systemized for sales staff, so that they know the which products go into the optimum position. You as the business owner know this, but your untrained staff may not, so you need a system to ensure this is understood and action taken as per the system.

Systems stop you, the business owner, from having to be the bad guy/girl all the time.  When something isn’t being done as per the system you can simply say “This is the way we do it here and this is the system.”  It leaves no doubt in the mind of staff about the way things need to be done.  This is why McDonalds is so successful. They have systems and they say “This is the way we do it here.”  Systems also create an environment for improvement.  It gives staff the opportunity to contribute new ideas and see them incorporated into the system – another motivator and retainer of good staff.

Systems can take many forms e.g. manuals or a web based method.  Web based methods for many business processes are popular today.  They enable owners to run a business remotely when necessary e.g. when on holidays or even just from home.  If a staff member has a question you don’t have to scurry back to the shop to explain the answer.  If you have a web based system you can simply direct them over the phone to the relevant information and talk them through it.  These types of systems are not as expensive as you might think. What price do you put on your own sanity and health?

Any type of system must include a reporting function.  This enables the business owner to see the results in order to take corrective action quickly, and make constant improvements.

Another benefit of having systems in place is in added value to your business.  If you wish to one day sell your business and retire, having systems is much more attractive to a buyer than a business that runs from inside the owner’s head.

Why does my lender need a business plan?

- Business Growth

You may think to yourself…“I know my business and it’s potential – why do I need to have a business plan?  It won’t make any difference to write it down”!

The problem with this thinking is that a lender/investor can’t get inside your head and have a full understanding of all your ideas and thoughts.  They need to be confident you’ve thought of everything and have a clear picture of your goals, aspirations and potential pitfalls.  

This is why you need to get it out of your head and down on paper.  

In the process of putting together a Business Plan, you will smooth out the process of building your business and engaging others to help you build it.  

Benefits of a Business Plan

  1. Provides a clear roadmap for business development and growth for you and your team (which might currently be just you, but think of the future).
  2. Helps you to secure finance/investment to grow.
  3. Creates strategies to achieve your goals.
  4. Helps you to avoid pitfalls you may not have considered.
  5. Helps you to prioritise actions for maximum efficiency.

What a Business Plan should include

  1. Details about the business such as name, structure, ABN, ACN, location, date started, owner experience.
  2. Information about your products and services, market position, unique selling proposition, anticipated demand, pricing strategy, value proposition, growth potential, R&D plans, intellectual property strategy.
  3. Research of the market for your product/service, your marketing strategy, customer demographics, key customers, customer management, competitors, advertising, sales.
  4. Your vision, goals and mission.
  5. Finances, insurances, risk management, legal considerations, payment methods, credit policy, finance required, start up costs, budgets for Profit and Loss and Balance Sheet, Cash flow forecast, Break-even analysis.
  6. Operational plans e.g. production, suppliers, plant and equipment, inventory, technology, communications, quality control, affiliations, environmental impacts, community impact and engagement, distribution etc.
  7. SWOT Analysis i.e. your strengths, weaknesses, opportunities and threats.
  8. Staff plans including Organisation Chart, recruitment plans, training programs and skills retention strategies.

Producing a Business Plan is a great opportunity to work with others to help you develop your ideas and bounce ideas off each other.  They could be your current team or a Business Advisor.  If you want to grow your business this is a great time to start building a trusted team around you for the future.

Once your plan is done you also need an implementation program for the strategies in your plan.  This will mean prioritising the tasks e.g. you may need to do some market research before heading off and developing a product that you’re not sure anyone will buy.  Once you’re confident there’s a market, you need to work out what it will cost to deliver the product/service before setting a price, as well as researching competitors’ pricing and so on…

Whilst a Business Plan is needed for a loan application, it also serves as a source of inspiration for yourself and your team, to build a picture in your minds of the type of business you want to build into the future.  

As well as an exciting vision of the future for you and your team, a Business Plan needs to be used as a current working document and visited regularly as an overarching ‘Action Plan’ for your business.

The business growth side may seem like the best part for you … but the financial side of things is the most important for lenders and investors.

Profit and Cash flow are the lifeblood flowing through the veins of the business and if they dry up, you won’t be able to survive and reach your goals and aspirations.  This is often overlooked in the excitement of getting a new project off the ground.  

It pays big dividends to get some help with this aspect, from someone who really understands the ‘big picture’ financial issues surrounding business start up and ongoing management.

 

You don’t have to reinvent the wheel, as we have a template Business Plan available for you to use.  Contact us for a copy!

Five Myths about Business Growth

- Business Growth

Bigger is better!

When people think about business growth, they often focus on sales.  If you look at industry benchmarks though, you’ll find businesses in higher sales brackets aren’t always the most profitable.  We see businesses with modest turnover that achieve good profits.  As soon as a business grows, overheads can get out of hand and the extra sales get eaten up and profit is worse than before.  The question is what do you want to grow and why?  Sales growth without corresponding increase in profit is a waste of time and causes headaches for business owners.

There is an old saying that’s still true today

Sales are vanity – Profit is sanity and Cash is king!

Solution:

To achieve growth in profit and sales, you need a plan to keep things on track.  A budget is a great way to do this.

  • Set sales targets with marketing and sales plans to support them.
  • Set cost targets – you may be able to get better pricing when purchasing volumes increase and achieve better gross profit.
  • Set overhead targets – consider extra resources required to deliver increased sales and have operations plans to support growth.
  • Report on Profit and Loss monthly with a comparison to budget, so that you can quickly see if things are off track and fix them immediately.

 

Growth will solve cash flow problems.

This is probably the biggest and most dangerous myth of all!  Why?  When you make a sale you need cash to fund that sale i.e. you need to pay for

  • Goods or work on projects
  • Overheads to run business
  • Credit for customers paying on terms
  • Stock waiting to be sold

If you need cash to fund sales, it follows that the more sales you make the more cash you’ll need.  Business Growth without considering this fact brings many businesses undone.  They go ahead and agree to big contracts or sales without considering funding to achieve growth.

Solution:

  • Prepare a detailed cash flow projection including extra sales and corresponding cash flow requirements.
  • Speed up collections from customers on terms.
  • Ask customers for deposits
  • Seek longer credit terms from suppliers or time payments to suppliers to be after receipts from customers.
  • Borrow from a lender e.g. Bank
  • Equity – sell shares to provide extra capital
  • Be prepared to inject some of your own funds

 

Staff will love it!

Growth creates great opportunities for staff to progress their careers.  If resources aren’t properly considered though and plans put in place to handle growth, it can cause more headaches for the business owner by creating unhappy staff, who have pressure and stress.

Solution:

  • Plan for growth and factor in what resources will be required
  • Communicate with staff and involve them in growth plans.  This is a great way to get ‘buy in’ and get them excited about plans.
  • Set targets (KPIs) with staff to ensure you aren’t taking on extra resources without achieving targets and profit.
  • Provide incentives to achieve growth targets.  Money isn’t the only incentive – recognition can be a good motivator.

 Build it and they will come!

We see it often – massive fit-outs of business premises, fortunes spent on new equipment etc.  Business owners get excited about creating a fantastic product or service, but forget to tell the market!  Sales don’t grow quickly enough to fund the extra costs outlaid and cash flow squeeze becomes an issue. Marketing is often not the strong point of business owners and they don’t have the funds to employ a marketing person.

Solution:

  • Budget for sales required to cover costs of fit-outs, extra equipment etc.  Workout a ‘break-even’ point and make this your minimum targeted sales to cover costs.
  • Have a marketing plan and let your market know of your new product or service.
  • Employ outsourced marketing help if you can’t afford to employ someone.  Marketing is not a ‘cost’ it is an investment in building your brand.

 

I can cope!

Business owners often fall into ‘The Founder Trap’ (a term coined by author of the E Myth Michael Gerber).  It’s when a business owner thinks they are the only person that can do things and doesn’t trust anyone else to help.  The problem with this attitude is that other aspects of your life suffer e.g. your sanity, your health, your home life etc.  When you start off in business it’s obvious that you have to be ‘jack/jill of all trades’ and do anything.  When you decide to grow though, you need to take a completely different view of things.  You need to become a business manager and not just a ‘doer’.

Solution:

  • Build a picture of what your business will look like when it has grown.
  • Prepare an ‘Organisational Chart’ setting out all the tasks that need to be performed and who will do them.
  • Write up job descriptions for the people who will be involved.
  • Consider what systems will be needed to create efficiencies.
  • Gain skills or outside help in HR management.  Employing people doesn’t make your life easier – it’s a whole new skill you need to master.

CFO On-Call works with business owners to achieve successful growth.

The below guides you through the exact questions to ask yourself and your team, so you focus on improved profit, cash flow and efficiency.

For more detailed information on business growth, please feel free to contact us

 

 

Are you spreading yourself too thinly?

- Latest News

Speak to any business owner and they will tell you there aren’t enough hours in the day and the ‘To Do’ list never gets any shorter.

The question is ‘How to manage the daunting task of managing all aspects of the business?’  

Trying to ‘keep all the balls in the air at once’ can be a tough task.  Many SMEs reel from one crisis to the next with no real plan or system for managing the business.  

This can be a very stressful way to work for both the business owner and staff.

One of the most useful concepts I have learnt in my time in business, is the simple breakdown of what goes on in most businesses, whether they be big or small.  

Most businesses have five distinct areas being:

  1. Products/Services
  2. Marketing & Sales
  3. Operations & Finance
  4. Human Resources
  5. Customer Service

If you can think of your business in this way, it helps to break down the amount of time and focus you place on each area.  

Typically focus changes on each of the five areas, but if you can develop a systematic way to manage all five areas, life can be much less stressful.

A good place to begin is documenting all of the tasks required under each of these headings.  This can be a great place to start to develop job descriptions for everyone involved in the business, including the business owner.  It helps to ensure nothing falls between the cracks.  

If you’re new to business it can be tempting to focus attention on the ‘Operations’ side of things.  The danger if you do this, is that if you don’t do the marketing and selling you won’t have anything to operate on!  Obviously there is no point marketing and selling something you can’t deliver, so it’s important to work on Operations at the same time.  

The trick is to plan the amount of time to work on each area.

Human Resources is an area often sadly neglected by SMEs.  

There just aren’t enough resources and time to do the job properly.  Unhappy staff can have a very detrimental impact on business.  Happy staff create happy customers.  Happy and motivated staff stay in their jobs for longer – saving money on constant recruitment and retraining.  

Staff with clear objectives and job descriptions are a valuable asset of any business.  If you are looking to sell your business, well trained and supportive staff can increase the sale price.  They can also give the business owner freedom from the business.  

If you have good systems in place, everyone knows what they need to do, how to do it, when to do it, how critical it is and can report to management on performance.

Financial control, is one of the least understood and neglected areas in small business.  

Many SMEs leave it up to the accountant at the end of the year and get a rude shock when they discover they have either lost money or have a tax bill they can’t afford.  

It’s critical to measure profit and cash-flow monthly in any business.

Do you know which products and services are profitable and which are not?  If you are working hard to market and sell them, you need to know if all the effort is worthwhile.  Some SMEs argue that it’s all too hard and time consuming to implement measures and the cost outweighs the benefit.  

If you are absolutely certain that you aren’t losing money in certain areas of the business this is a reasonable argument, but it’s rarely the case.  If you can’t invest the time to implement business wide measurement, at least do ‘spot checks’ occasionally.  

For example if you are in a service or job based industry select one job and keep a track of all the costs involved in that job, including labour and materials.  At the end of the job compare it against your budget or quote, to see if you really did make money, or if it’s worth considering different ways of quoting or different types of jobs.

Another very valuable measure in a service based business is to check the number of hours you are paying to staff compared to those you are selling to customers.  See if there is a gap and find out what the gap was.    If it’s admin related, it might be worth employing a part time admin person to take the load off income earning staff, whose extra billable time could far outweigh the cost of the admin person.  This is the start of good financial control and the resulting benefits can far outweigh the cost of specialist help.  

As business owners we need to have a good handle on each of the five areas.  We may be specialists in one or more of the five areas.  It would be quite rare though to specialise in all five.  The solution then, is to surround yourself with others who specialise. If your business is small, cost may be prohibitive to employ a specialist in each area.  

The answer is to outsource i.e. retain the services of a specialist who can advise on these areas.  For example, an outsourced CFO. There are plenty of businesses around who specialise in the areas of marketing, sales, financial control and human resources.  You could try googling them to see what comes up.  You may find a goldmine of useful information that can help and take the burden off your shoulders.

There is an ‘opportunity cost’ of trying to do everything yourself, both on your sanity and potential lost business.  The time you are spending on non income earning activities could be costing the business money.  If you want to grow your business you can’t possibly perform all of these tasks yourself and do them all well.

As you can see there is a lot involved and if you can set yourself a programme for calmly and proactively handling each of the five areas, your business should run smoothly.

 

 

Industry thought-leaders pave the way to getting clients

- Latest News

You would have seen how the digital landscape is affecting nearly every business. Some business advisors may stagnate and not position themselves for it well, but smart CFO consultants are changing the way the market sees them.

Our approach at CFO On-Call is to place ourselves as ‘thought-leaders’ in the market. This has the valuable effect of changing the client/CFO dynamic, often before a CFO On-Call Partner gets to speak to a potential client.

For more than 20 years, CFO On-Call articles on financial control have been published in trade, industry and business magazines and in the last fifteen years on websites. These articles, when seen by readers online and in print, create an impression of established knowledge, which reflects immediately on the potential client/CFO relationship.

CFO On-Call’s point of difference? All is written in plain English that business people can immediately understand.

This article “The ten key numbers for a better result this year” appeared in print in a sign industry magazine and a sizable sign maker is now a regular client.

Where a potential client has to choose between a known-quantity, and an unknown one, they of course go for the person that’s associated with the articles they’ve read or brand they’ve heard of.

For more than twenty years CFO On-Call has been published in, on average, twenty or so industry print magazines a month and has tens of thousands blog and article readers.

Sharing our knowledge in this way with the marketplace, just enough to get them interested, to know of, or to have the CFO On-Call brand in the back of their minds, is what gets us a start to help the client in a Virtual CFO capacity, or in person.

If CFO consulting is still on your radar it’s time to contact CFO On-Call. Speak to Rosie Copp on 1300 36 24 36 in Australia or 0800 180 400 from NZ.

Click Here to Send an Expression of Interest

11 Ways business owners could get better financial advice

- Business Growth

11 Ways business owners could get better financial advice

Sue Hirst, Director – CFO On-Call

 

The accounting profession has traditionally focused attention on the tax and compliance side of business.  Some accountants are offering day to day financial management advice, but they are few and far between.  Most practising accountants have never worked in a commercial situation i.e. been responsible for the profitability and cash flow management for a business (apart from their own), so how well does that equip them to give advice (in ‘plain English’) to SMEs?

What SMEs need is someone who can really roll their sleeves up and get into the nitty gritty with them.  When I say nitty gritty I mean:

  1. Working out the true cost of a product/service, so the business owner knows what price to charge to ensure a profit, how much room for manoeuvre on discounting and competitive pricing.
  2. Understanding all the overheads of a business and including them in a budget, so they can be monitored monthly to ensure they don’t get out of hand and eat up all the profits.
  3. Working out the best finance options for a business.  Every business is different and therefore has different finance needs.  Some have equipment that can be leased or hired, some have high profit margins and therefore can absorb high finance costs, whereas some have low margins and need to be very careful that finance costs don’t eat up all their profit.
  4. Driving management of the internal factors affecting cash flow management e.g. Accounts Receivables, Accounts Payables, Stock/WIP, Taxes, Loans etc.
  5. Setting KPIs (both leading and lagging) to ensure targets are met.  For example if a business owner knows their sales conversion rate is say 50%, they need to ensure they are generating twice the number of sales leads to achieve their sales target.
  6. Ensuring SME owners can read and understand the financial reports and what story they are telling about the performance of their business.  For example looking at just dollar results is not as useful as looking at reports containing percentages. Percentages make it easier to see how things are going relative to the sales figure, which may be going up and down each month.
  7. Helping SMEs to analyse feasibility of new ideas.  What may sound like a fantastic opportunity, may not create much extra profit on the bottom line if not structured and priced right.
  8. Helping SMEs to systemise their business, so they can occasionally take leave from it and create more business value by making it more easily transferrable to new owners.
  9. Helping SME owners to pay themselves properly and structuring pay/dividends, so they are sustainable for the business and tax effective.
  10. Acting as a ‘sounding board’ and trusted CFO advisor to listen and answer any questions a business owner has about the financial impact of decisions.
  11. Providing all of the above in a cost effective way and ensuring a high ‘value proposition’ to SMEs so the benefit they gain far outweighs the cost of the service provided.

 

If the above sounds like you or you’d like someone like this and want to learn more about high quality financial advice contact us

10 tips about cash flow forecasting

- Cash Flow Management and Forecasting

Guest post for CFO on Call written by Float

Think it’s impossible to predict the future? With cash flow forecasting, think again.

Here are the top 10 things you need to know about cash flow forecasting and how it can help your business.

  1. A cash flow forecast shows how much will be in the bank each day, week or month.

Cash flow represents the money going into and out of a company’s bank account over time. Projecting this cash flow tells you what your future bank balance will be at the end of each time period, enabling your business to plan accordingly.

  1. A cash flow forecast is different than a budget, but both are integral for business success.

A budget maps out the income and expenses a business is expecting usually on a monthly basis, while a cash flow forecast shows exactly when the cash will enter and leave a business’s bank account. While they serve different purposes, both a budget and a cash flow forecast are critical to ensure the funds you need to grow your business are available at the right time.

  1. A cash flow forecast helps businesses take advantage of cash surpluses.

A cash flow forecast can reveal when your business will have excess cash on hand and help you decide how to take advantage of this sitting cash, such as by reinvesting it in the business or taking a dividend.

  1. Cash flow forecasting helps businesses avoid future cash deficits.

Knowing how much money your business will have in the bank will draw attention to times when cash will be running low, helping you make important decisions such as whether to take out a loan or whether to cut costs for that time period to compensate.

  1. A cash flow forecast draws on the past to more accurately predict future cash movements.

Simply looking at the past won’t tell you how your business will perform. However, using historic trends and averages in your company’s cash flow can increase the accuracy of your cash flow forecast and bring your estimates in line with actuals.

  1. Answer future ‘what if’ questions with different cash flow scenarios.

Within a cash flow forecast, you can play around with different scenarios which allow you to estimate the impact decisions like hiring a new employee, buying a new printer, or moving offices will have on your bank balance.

  1. A cash flow forecast is an effective way of communicating information to stakeholders.

A cash flow forecast provides an accurate picture of a company’s financial situation at a given point in time. This information can be compiled into a report and provided to a range of stakeholders including board members, external advisers, and clients.

  1. You can create a cash flow forecast yourself in a spreadsheet or use an add on for Xero to do all the heavy lifting for you.

There are countless cash flow forecasting templates for spreadsheets that are available online through an easy Google search. However, forecasting with a spreadsheet is prone to human error as it requires constant number-crunching.

Luckily, there are add ons like Float that import your company’s financial information directly from Xero to create a user-friendly cash flow forecast — free from the headaches of a spreadsheet.

  1. Other Xero add ons can help you get paid on time to contribute to an even more accurate forecast.

There are over 500 Xero add ons that can help you run your business. Chaser automatically sends invoices and reminders to clients who have yet to pay, increasing your chances of getting paid on time. Practice Ignition facilitates the process of engaging and charging a client by automating on-boarding, proposal generation, engagement letters, and recurring invoices.

Check out the Xero marketplace for more information.

  1. A clear plan for your future cash situation is critical for business success.

Whether you want to attract outside investment to facilitate growth or take significant drawings, a cash flow forecast gives you the tools you need to plan for your business’s future.

How to measure profitability in a service based business

- Business Growth

A great target to improve  profit in a service business is to apply the 3x model.

Put simply, the 3x model is: Revenue earned from charging staff time should be equal or greater than 3 times salaries paid.

3x model

For example if you pay salaries to staff of $450,000. Revenue earned for services provided by staff should be at least $1.35m (which is $450,000 x 3). This could be considered as the revenue ‘target’ or budget for the firm.

Here’s an example:
  • Industry: IT consultancy (IT network services)
  • Salary: $60,000 pa (excluding superannuation)
  • Chargeable rate: $120 per hour (excluding GST)
  • Hours at work pa: 52 weeks less 4 (annual leave) less 2 (public holidays) less 1 (personal) leave) x 40 hours per week = 1,800
  • Productivity: 80% (meaning 20% of time at work is spent on tasks that are non billable)

The revenue equation is therefore:

Expected revenue from staff  = 1,800 x 120 x 80%  = $172,800

Our 3x model suggests revenue should be 3 times salary, which equals $60,000 x 3 = $180,000

The business income statement should look like this:

  • Revenue (income) $3x (3 times salaries)
  • Cost of Goods $1x (salaries)
  • Gross Profit $2x (66.7% gross margin)
  • Overheads $1x (for efficient firms)
  • Net operating profit $1x (profit target)

Performance measurements using the 3x model should be done using an ‘isolationist’ approach. That is, for each period being measured (month; quarter etc.), the performance measurements should be ‘isolated’ to work completed during that period only.

The major benefit in this isolationist approach is that useful comparisons and analysis becomes possible and very useful (apples to apples).

This sounds simple enough and it is, except when the work done during the specific period is not all billed in that period. What is left is known as ‘Work in Progress’ (WIP).

In a service business, WIP is the billable hours worked up to a point in time, that have not been billed. It is an asset of the business and should be shown in the Balance Sheet. The movement in the value of WIP from one period to the next is accounted for on the Income Statement.

The ‘ageing’ of WIP should be under constant review. A client is unlikely to pay for work that was completed 12 months ago. Business who assess their performance during a period, without understanding and accounting for WIP, often become confused at the volatility of their performance.

When looking at the results of the 3x model the following questions should be asked:
  • What was the revenue multiple (to salaries) for the firm as a whole?
  • Which staff, were above and below the firm’s score?
  • What were the reasons for differences between individuals (productivity, write offs/downs, quotation over-runs etc.)?
  • What was the overheads multiple? What was the 3 month average of the overheads multiple? Which overheads were higher than expected?
  • What WIP is older than 3 months and why hasn’t it been invoiced prior?
Examples of reasons for lack of performance:

Quoting inadequacies

  • Not enough thought given to quotations re the actual work required to deliver.
  • Lack of understanding between quote givers and service deliverers.
  • Projects not ‘de-briefed’ sufficiently. Not enough ‘after-the-fact analysis’ of what transpired relative to what was expected.
  • Client’s expectations from scope different to service provider’s.

Write offs/downs

  • Billable tasks written off/down due to perceived lack of value provided.
  • Low time tasks written off due to perceived lack of value e.g. administrative work.

Productivity

  • Staff billable hours less than peers. Often due to systemic issues such as lack of defined job description.
  • Expectations not clearly communicated.

Systems to handle management of the above may seem expensive, but probably cost a lot less than the extra profit from improved productivity.

If you would like to learn more about this subject, plus other useful business financial management tips, check out ‘Business Financial Toolkit’

BUSINESS FINANCIAL TOOLKIT

 

Cost Savings in the Cloud

- Cash Flow Management and Forecasting

By Sue Hirst

An issue facing business owners is the management of costs – especially labour.

Labour efficiency is a vital necessity for some to stay in business.  Anything you can do to help staff be more efficient, will have a big impact on profit and sustainability.

Systems are the key to efficiency.  Systems aren’t a new phenomenon, but what is new, is the delivery of business management systems in the ‘cloud’.

The ‘cloud’ has revolutionised the delivery of systems, once only within the reach of big business with big budgets.  The ‘cloud’ has blasted the barriers to entry for innovative newcomers to the business management scene.

Cloud ready systems are:

  • Job management/time tracking
  • Accounting/bookkeeping
  • E commerce
  • Workforce management (especially mobile)
  • Point of Sale
  • Events management
  • Bookings management
  • Expenses management
  • Stock management
  • Invoicing/debt collection
  • Human Resources management
  • Content management
  • Booking systems
  • Customer Resource Mgt.
  • Business reporting
  • Share portfolio management

This is by no means an exhaustive list and you can bet there are people developing industry specific efficiency systems as you’re reading this right now!

The ‘cloud’ has opened up fantastic opportunities for innovators to recognise a niche market or need, and develop a solution without the huge implementation costs.

This translates into cost effective solutions for businesses.

Imagine the time/cost saving of customers being able to go online and make their own bookings.  Airlines have been doing it for quite a while now!  This would leave staff free to spend time doing other more proactive tasks, such as marketing or product/service improvements.

Human resource management is a minefield and a big issue these days, with the huge amount of legislation and compliance involved.  There are cost effective systems available now to guide you through the whole process of hiring, managing and firing.  A ‘cloud’ based system to get it right could cost as little as $49 per month!

One example I recently heard of was a bookkeeper who was working part time for a business doing the books on a desktop software system.  By changing to a cloud system, and setting up many efficiencies, due to its ability to link automatically to the bank account, she saved five hours a month!

A typical bookkeeper would charge a minimum of say $50 per hour, so that’s a saving of $3,000 per year!  Compare that to the subscription cost of the software, which is only $600 a year.

A great benefit of ‘cloud’ systems is accessibility from anywhere.  As a business owner you may not always be at the business premises when you want to access information.  With a ‘cloud’ system you can simply log in from wherever you are in the world, to keep informed and in control of what’s happening.

Saving service staff from having to visit an office to provide job details or fill in timesheets can be a massive cost saving.  Imagine a business with say 10 service staff on the road, who are charged out at $100 per hour for 48 weeks of the year.

If they could save say 30 minutes a day of travel/reporting time, that could potentially save the business $120,000 per annum

i.e. $100 x .5 x 5 x 48 x 10 = $120,000 saving or extra billings

‘Cloud’ systems are also designed to link to each other, so you get the added efficiency of not having to double handle information.  They can simply dynamically transfer data.

Once you start to link systems you can come up with a very powerful business management reporting opportunity.

Think of this!  What if you could see at a glance all your KPIs (Key Performance Indicators), of all the key areas of business management, such as Marketing, Sales, Operations, Finance, HR, Customer Service how powerful that would be.

You, as a business owner, could look at one dashboard in ‘real time’ to see exactly how the business is performing.

Obviously systems are only as good as the ‘set-up’, the quality of information fed into them and the relevant business management reports produced.  It’s well worthwhile investing in Outsourced CFO Services ensuring they’re set up right in the beginning, with the aim in mind of what you want to get out of them, including the critical business management reports to help improve your business.

Why keep it in the Cloud?

- Latest News

By Sue Hirst, Director of CFO On-Call

The ‘Cloud’ is a term for describing online software delivery and data housing. Until recent years, most business owners have used software and kept data on their computer hard disk.

Software updates had to be downloaded and data had to be backed up and a copy kept off-site for security purposes. Data had to be transferred between bookkeepers, businesses and accountants.

There is now a better way – via the Cloud.

Cloud Commerce provides the ability to work on live data anywhere, anytime. Staff can work from home at midnight if it suits them; advisors can fix up issues that SMEs raise, without having to travel to get the ‘true’ data and reduce the risks associated with loss of access to files and apps.

Most of us have been banking in the Cloud for many years now and Cloud Commerce is now the ‘norm’.

The pros of Cloud Commerce far outweigh the cons. Some people worry about the security of their data and about the Internet going down.

Having data on computer hard disks is less secure than having it in the Cloud!

Most cloud commerce organisations use extremely reputable and use secure servers for housing systems and data.

In most cases, the internet is reliable and rarely malfunctions, when it does, it’s generally for hours rather than days. We are on a path to greater Internet speed every day.

What should you be looking for in an online accounting system?

Here are some questions to ask:

  • Is it provided by a reputable and solid organisation? Who is involved?
  • Where is the system and data housed and is it safe?
  • If it’s free, how much will it cost to retrieve data if you chose to move to another system?
  • How is support delivered?
  • Is there a local presence or is it a ‘faceless’ Internet page?
  • Does it create greater efficiencies than desktop software, such as automatic bank feeds to reduce bookkeeping data entry time?
  • What functions does it include?
  • Does it handle local taxes and compliance?
  • Is it scalable with ‘Add-Ons’ such as Inventory, Job Management, CRM, Payroll, E-commerce, etc.?
  • How much training is available for users and how do I access it?
  • Are there a good number of advisors who work with the system?
  • Will it create efficiencies working with your Accountant and will it reduce their fees?

The smart model for cloud commerce is to build a robust general accounting engine and allow for seamless integration of add-ons. This follows the ‘best of breed’ theme and means each provider can focus on and provide the very best solution using their know-how.

Add-ons such as Inventory management, Job management, E-commerce, CRM, Mobile workforce management would be very difficult for one provider to develop effectively.

Here’s a typical business using desktop software scenario:

The bookkeeper enters all transactions and has to perform bank reconciliations, check each bank transaction from a bank statement against the accounting system and tick them off.

Pretty much all of the Cloud Accounting systems have bank feeds, which means they are linked to the bank account and entries are automatically fed into the system.

The system recognises the amount of the bank transaction and matches up with its own transactions. All the bookkeeper has to do is click the OK button.

Some systems also have system-to-system transactions, i.e. if a supplier and customer are working on the same system, purchase orders and invoices can be automatically received into each system without the need for a bookkeeper to enter them.

The time and cost saving of this repetition can far outweigh the monthly subscription fee of an online accounting system.

Probably the biggest benefit of online software is the ability for business owners and CFO advisors to have real time access to vital financial information.

Is your accounting slowing your business growth?

- Business Growth

Your business accounts may not be a very sexy subject … at least when you are up to your ears in running, managing and problem-solving … but a poor set of out-dated accounts will really hold you back, when you need to borrow, and the bank manager is asking for current accounts, cash-flows and projections.

The banks had a hell of a fright with the ‘Credit Crunch’ and are so much more demanding. They insist you have current information for them to assess, before lending money, or extending an overdraft.  Typically they want to see:

  • Budgets
  • Forecasts
  • Cash flows
  • Recent financials
  • Copies of business contracts
  • Any information supporting future income projections

Gone are the days when the last couple of tax returns would suffice to get a business loan.

In years past, accounts may have mostly been prepared for tax purposes. As a business owner, you may have felt you had a good enough handle on how the business was going throughout the year, without the need for good financial reports on demand.

You may have been happy to wait until the accounts were done for tax purposes, to find out if you had made a profit or loss and had a tax bill due.

The point is, if you need funding for business growth or survival, you will need good current accounts, at least up to the last quarter.

I have seen many times where the books were being done, but the quality of the data entry, has severely compromised the quality of the information output.  Obviously if the transactions are not entered correctly, your reports from accounting software will be very misleading.

To give such a set of accounts to a bank, with incorrect treatment of transactions, the bankers will question the ability of the business owner to manage their own money, let alone that of the bank’s.

How do you get your accounts in shape for both management reporting and borrowing purposes?

Bookkeeping

  • Firstly your basic bookkeeping needs to be good quality and accurate.
  • Your Chart of Accounts needs to be set up right from the start.  This is the accounts that you set up in your accounting software to categorise expenses and so forth.
  • Have ‘Direct Costs’ been allocated to the correct accounts or have they been allocated to an expense account or overheads?  This can have a big impact on the gross profit shown in the Profit and Loss Statement.  If the bank check against industry benchmarks your results could be way out of line.
  • Some reconciliation may need to be done to ensure it all makes sense e.g. is the total of your Accounts Receivables report the same as the figure shown in the Balance Sheet?
  • Does the bank account reconcile or has it been fudged? This means have entries been entered in the past to make it balance?
  • Has the GST been properly reconciled and have you paid or been refunded the correct amounts?
  • The accounts may need to be reviewed by someone other than the bookkeeper, if you aren’t 100% sure of the bookkeeper’s skills and qualifications.

Your Accountant

  • If you don’t have an in-house or outsourced CFO you will need to approach your accountant.
  • They will need information from you regarding the last couple of years accounts, if they aren’t already available.
  • They will need information about the current year results from your accounting software and your bookkeeper.
  • They will need to sit down with you and come up with the projections for how you think the business will perform in the next year or two.
  • They will need to get information from you to produce a Cash flow report, so the bank can see your cash position in the future.

As you can see there is quite a lot of work to prepare for a lending application.  Getting it right though can pay big dividends, if you want to assure the bank of your financial control management.  Good information will set you apart from the others, who roll in with numbers on scrappy bits of paper, hastily prepared with dubious accuracy.

Your Grey Hair Is An Asset To Us!

- Cash Flow Management and Forecasting

By Sue Hirst – Director, CFO On-Call

I recently met with an accountant in his early 50s who said he felt like he was ‘over the hill’ for many people looking to recruit an accountant.

I’m sure this isn’t news to you if you’re in this age bracket and job searching.

It made me think that, what may be seen as a liability to some, is actually a great asset to us at CFO On Call.

What we offer to the SME market, is the knowledge and experience of people who’ve worked in commerce (often for many years).  Our people have gained extremely valuable knowledge about what makes business tick and how to improve profit, cash flow, business value and stakeholder satisfaction.

If you would like your grey hair to be a ‘door opener’ instead of ‘door closer’ why not consider becoming a CFO Consultant?  Help SMEs grow their business – using all that experience you have with someone that will greatly appreciate it. Send us an Expression of Interest via the link below to learn more.

http://cfooncall.com.au/become-a-partner/

How to Reduce Operating Expenses In Business

- Business Growth

by Sue Hirst – CFO On-Call

‘Overheads’ will not be a new term to most Business Owners.  You see them each month or year when you print out a Profit and Loss report from your accounting system.  Some accounting systems by default calls Overheads ‘Expenses’.

It’s a listing of what you have spent money on over a period e.g. Bank Charges, Rent, Salaries etc.  These expenses are different to Cost of Sales in that COS mostly only happen when you sell something, whereas Overheads occur whether you sell anything or not.

‘Overheads %’ is a percentage, rather than just a number.  A total of expenses is a useful figure for the Taxman to determine tax deductibility and it is also part of the equation in determining profitability i.e. Gross Profit – Overheads = Net Profit.

A percentage is a more meaningful indicator of financial health for a business owner/manager, because it measures Overheads in relation to Revenue.  e.g. if you have Revenue of $1,000,000 and Overheads of $800,000 this looks OK, because it means you made a $200,000 profit.

How to increase profit margin

If your Revenue is $2,000,000 and your Overheads are $1,800,000, this may still look OK because again it means you made a $200,000 profit.

If you were measuring Overheads %, the first scenario shows a result of 80%, whereas the second scenario shows a result of 90%.  This means you have more expenses relatively in the second scenario, even though you are making the same amount of profit.

The point is, that it’s taking up more resources to make the same amount of profit in the second scenario and undoubtedly more headaches for the business owner.

Perhaps it would be better to decide on an acceptable Overheads % and strive for that, rather than just focusing on Revenue and ending up with less profit for more headaches.

The aim in business is to make more profit with the resources you have. Aiming for efficiencies and economies of scale should be the objective i.e. making more money with the same amount of resources.  This is what makes a business more profitable and more valuable.

If Overheads % is an important indicator of financial health how can you improve it?

The place to begin, is knowing what your Overheads are.  For every accounting period you need to know what your Overheads will be, so that you can budget and project what your profit and cash position will be.

Planning Overheads is generally part of budgeting and forecasting.  I have often heard business owners say they can’t do a budget because they have no idea what they will sell in the future.

This may be true, but most business owners have a fair idea of their overheads e.g. Rent, Salaries etc.  This is a great place to begin budgeting, because once you know your Overheads and Costs you are then in a position to determine how much Revenue you need to cover both.

This is called Break-even i.e. the amount you need to sell to make neither a profit nor a loss.  Once you know your Break-even point, you can then plan what you need to do to make a profit or avoid a loss.

Once you know your Overheads you can enter them into whatever accounting system you are using as a Budget.  It’s a good idea to enter them for each month, so that when it gets to the end of each month you can compare your actual results to the budget.

This will enable you to see very quickly where variances are occurring and take quick action to correct the situation or alter the budget if you’ve miscalculated.

Managing Overheads is one of the absolute keys to business financial survival.  

Once you have a budget that’s great but what next?  As well as measuring the variance between budget and actual monthly, what else can you do to manage Overheads?

Purchase Orders!

A Purchase Order is a simple document that all staff must complete prior to spending any of the company’s money.  This is then handed to a director who authorises it prior to the order being placed.   Sounds like a simple concept doesn’t it?  So why don’t all businesses do it?

Not having a Purchase Order system in place is like giving staff an open credit card.

You as business owner are usually in the best position to know your financial position, as well as many other important factors in the business operations.  For example a staff member may not know that something they are about to order will shortly become obsolete, whereas you may know that.

If they just go ahead and order it you get stuck with it.  If they had asked you to sign a Purchase Order you could have avoided the wastage.  It may sound like a bit of a pain but believe me it’s worth it.  I have saved our business many $thousands this way.

Once staff get the message they can’t just spend the company’s money at will, it’s amazing how much more careful they will be.  This simple tactic can have a huge impact on the Overheads % result and ultimately the value of your business.

This is just one tactic for managing Overheads, there are many others.