How To Effectively Communicate Your Strategic Plan To Employees

- Business Growth

As a business leader, you know that having a solid strategic plan is key to achieving your company’s goals and objectives. But it’s not enough to simply have a plan — you also need to effectively communicate your strategic plan to employees to get everyone on board and working towards the same vision. 

In this guide, we’ll cover what a strategic plan is, how to effectively communicate your strategic plan to employees, its key elements and some tips for presenting your plan to your employees.

What is a strategic plan?

A strategic plan outlines a company’s long-term goals, objectives and tactics to achieve them. The common objectives of a strategic plan are:

  • To align the company’s resources and efforts towards achieving its long-term goals and objectives.
  • To provide a framework for decision-making based on the company’s overall vision and mission.
  • To provide a basis for measuring progress and success over time.
  • To facilitate communication and coordination between different departments and stakeholders.

Why is communicating your strategic plan to employees important? 

Any business plan is only effective if everyone in the company is on board with it and actively working towards its goals. That’s why it’s crucial to effectively communicate your strategic vision to your employees. Here are a couple of reasons why:

  • It helps to ensure that everyone is working towards the same goals and objectives, which increases alignment and reduces confusion.
  • It provides employees with clarity and direction, improving motivation and productivity.
  • It fosters a sense of ownership and accountability among employees, who can see how their roles and responsibilities contribute to the company’s overall success.
  • It promotes open communication and transparency, building trust and a stronger sense of teamwork.

Four key elements of your strategic plan 

To effectively communicate your strategic plan to your employees, it’s important to understand its key elements. These include:

  • Mission statement

Your mission statement should define your company’s purpose and what it hopes to achieve long term. It should be clear, concise and memorable and guide all your company’s future activities.

  • Vision statement

Your vision statement should describe what you want your company to look like in the future and should feel aspirational and inspirational. It should also be aligned with your mission statement and reflect your company’s core values.

  • SWOT analysis

A SWOT analysis assesses your company’s strengths, weaknesses, opportunities and threats. It can help you identify areas to improve and potential growth opportunities.

  • Goals and objectives

Your strategic plan should include specific, measurable goals and objectives aligned with your mission and vision statements. These should be broken down into actionable steps with timelines and milestones, and communicated clearly to all employees.

Four tips for communicating your strategic plan to employees

Ensuring your message is heard loud and clear by employees is crucial to the success of your strategic plan. Once your plan is drafted and ready to be presented, try implementing the following tips:

  • Use simple language 

Avoid jargon or technical terms, use simple language everyone can understand and connect with. This helps to ensure everyone is on the same page and can fully engage with the plan efficiently. 

  • Employ visual aids

Visual aids such as charts, graphs, diagrams or infographics can help to simplify complex information and make it more engaging for employees. The key is to motivate your employees through any means possible.

CFO On-Call is your trusted advisor for your next strategic plan

Building an effective strategic plan takes work. From balancing long-term goals and potential hurdles, many businesses may need guidance on where to begin. That’s where CFO On-Call comes in. We provide interim or part-time virtual CFOs services to businesses who need help with commercial direction.

Our highly skilled and qualified team can assist with preparing clear and executable strategies, cash flow management, improving existing internal processes and managing your business performance to drive KPIs.

We’re proud to be the largest on-call or part-time CFO service business in Australia and New Zealand, and we’d be more than happy to assist you with your future business endeavours. For more information about our service or to discuss your future business plans and goals, please contact us today.

Key Profit & Cash Flow Driver, Number. 7: Inventory Days or Work In Progress

- Cash Flow Management and Forecasting

This is the number of days, on average, that goods for sale are sitting in your storeroom, from when they are delivered by suppliers, to when they are shipped out to customers. Where goods have to be paid for before they’ve been sold, it means you have had to spend valuable working capital for the stock sitting there waiting!

 

If you can manage this situation well, and reduce the number of Inventory Days*, it has a big impact on your bank account and working capital situation. It’s very tempting when a salesperson calls and offers you a discount to buy more stock, but try not to be tempted, because it could cost you more than the discount in the long run.

 

Consider the amount of working capital that will be tied up in that stock, compared to the discount being offered. If you are borrowing funds, a bank overdraft say, think of the amount of interest payable on those funds tied up in slow moving stock.

 

 

 

Are you in a service based business? Then “Work in Progress” (WIP) Days is very similar to Inventory Days, in that your ‘stock in trade,’ is the labour and materials you have to sell. Slow WIP days can be just as dangerous to cash-flow and working capital as Inventory Days. Anything you can do to tighten up your WIP and speed up the time work is ready to be invoiced, will pay dividends in your bank account and reduce your interest expense. 

 

Here are eleven (11) ways to reduce the number of days stock sits on the shelf waiting to be sold: 

  1. Stock system. Have a good system for managing stock
  2. Research lead times. Understand customer needs/lead times and forecast sales and requirements.
  3. Re-direct to customers. Get suppliers to deliver direct to customers if possible – avoid holding stock.
  4. Buy for immediate use. Where possible purchase materials for jobs rather than for stock
  5. Because it’s cheap! Don’t ‘impulse’ buy when offered discounts.
  6. Track stock movement. Report regularly on what stock is doing and measure your inventory days to give a target to work at reducing.
  7. Assign responsibility with targets. Make someone responsible for managing it and incentivise them.
  8. Seasons. Take into account ‘seasonality’.
  9. Industry Benchmarks. Check your industry benchmarks to see how you compare.
  10. Neat ‘n Tidy does it. Have a tidy stock room to avoid over-ordering
  11. Are you a stock hoarder? Get rid of obsolete stock, so you can use the funds to buy faster moving lines.

 

We’ve also compiled ten (10) ways to reduce the time jobs are in progress costing you money:

  1. Job management system: Seek out a good quoting/estimating system and measure actual costs against each job, to see which jobs were the most profitable.
  2. Follow up system: Have a system for following up quotes and tenders – the quicker you get started, the quicker you finish. Review operations for efficiency and ask yourself “Am I getting deals over the line quickly?” Create a sense of urgency. 
  3. Just one person: Have one person managing jobs, who has a good understanding of status and progress to ensure jobs get finished. 
  4. Manage labour: Manage resource allocation and track staff/contractor time spent on jobs. Schedule jobs and travel for efficiency.
  5. Cost for variations: Make allowances for variations to material prices on jobs.
  6. QC: Have good quality control to avoid rework and investigate write offs to avoid them in future.
  7. Checklists are vital: How many people do you know who don’t use checklists and even worse rely on memory. Use checklists and templates to maintain standards and improve customer satisfaction.
  8. Allow maintenance time: Keep equipment well maintained to avoid down time.
  9. KPIs: Have ‘Key Performance Indicators’ for jobs such as number of quotes versus jobs won and lost.
  10. Job management system: Use a job management system to keep information easy to access and provide information for improving job profitability.

 

Note: In our QuickCall business example – every single day improvement here would improve cash flow by $2055!

 

*Inventory or Work in Progress Days

This is the number of days, on average, that stock sits in store ready to be sold or jobs are in progress prior to invoicing.

Example Inventory/Work in Progress $     80,000

Direct Costs of Cost of Goods Sold $   700,000

Time Period 365 days

                        80,000 / 700,000 x 365                                  = 42 days

 

If you’re keen to get started improving your Seven Key Numbers right now…

Download our eBook ‘Seven Steps to Stop Cash Flow Chaos’

 

Key Profit & Cash Flow Driver, Number. 6: Accounts Payable Days

- Cash Flow Management and Forecasting

Accounts Payable Days* is the number of days, on average, you are taking to pay your suppliers. This number is just as important as Accounts Receivable Days, as it can also have a big impact on your working capital situation.

Have you noticed how it’s so easy for you or a staff member to oil the “squeaky wheel” and pay the supplier who hassles you most for money (sometimes before it’s due)? It’s also easy to ignore potential better terms to be had from suppliers because you get so focused on revenue.

 

Some small changes to procedures relating to Accounts Payables can pay big dividends in your bank account.

If your business is growing this could be critical cash for funding business growth. We’re not suggesting stringing out suppliers beyond the agreed terms, but we are proposing negotiating better ‘agreed’ terms from suppliers. Paying suppliers too early and wasting credit available could be costing you precious cash flow. 

 

These are eight ways to get the most from your supplier credit terms:

  1. Systemise paying suppliers: Have a routine and stick to it, be disciplined.
  2. Do you pay early: Never pay early unless you are offered a discount. 
  3. Credit cards: Use credit cards to maximise interest free days.
  4. Payment system: Have a system for payments on the due date to ensure you get the benefit of every day’s credit. Don’t just pay everyone on the same day.
  5. COD’s not on: Don’t pay cash on delivery – ask if an account is available. Most businesses will give an account to another business.
  6. Make ONE person responsible: Just one person pays suppliers to avoid overpayments.
  7. Check every invoice: Validate supplier invoices against quotes or purchase orders to ensure you aren’t overpaying for goods or services.
  8. Good relations: Develop good relations with suppliers to enhance supplier negotiation effectiveness. Know how much business you have done with them to assist with negotiations for better terms and pricing.

 

*Accounts Payable Days

This is the number of days, on average, you are taking to pay your suppliers.

Example Accounts Payables $   135,000

Annual Cost of Goods Sold $   700,000

Time Period 365 days

135,000 / 700,000 x 365 = 70 days

 

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

 

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now…

Download our eBook ‘Seven Steps to Stop Cash Flow Chaos Forever’

 

Key Profit & Cash Flow Driver, Number. 5: Accounts Receivable Days

- Cash Flow Management and Forecasting

Also called Debtor Days, this is the number of days on average, your customers are taking to pay invoices. Think ‘cash-flow’ with this key number. Managing this number can have a huge impact on cash flow.

 

If for example your Accounts Receivable Days* is currently 70 days and you can get it down to say 50, you could put tens of thousands of dollars back into your bank account.

 

The way to improve this number is to focus attention on your Accounts Receivable (AR) and debt collection procedures. It’s fine to look at the report out of your accounting system, which lists all the customers and how much they owe you. If your business is growing rapidly you need to know how much AR Days are changing compared to Revenue growth.

 

If it’s not comparable … you will experience a cash flow squeeze … and could run out of working capital.

 

Chasing payment is often one of the least enjoyed jobs in business. Think of it as your money sitting in other people’s bank accounts and collecting it quickly can make a huge difference to your cash flow.

 

Here are nine ways to speed up customer payments:

 

  1. Create a terms of business document: Ensure you have clear and documented terms and your customers understand what they are at the point of sale.

 

  1. Credit Checks: Check who you are doing business with. Are they a potential bad debt?

Run credit checks and assess how they operate if a a business customer. If the account is a large one it doesn’t mean to say the client is solvent. Big companies go bad too and hurt more little ones when they do.

 

  1. Improve customer relations: Have good customer relations to ensure your invoice is a priority.

 

  1. Invoice immediately: Ensure the payment due date is included, so there can be no confusion or excuse. Why wait until the month end to invoice and give customers as much as 30 days more to pay?

 

  1. Manage credit better: Get a credit management system in place. Report regularly on outstanding customer amounts, so that you know who to chase and how hard. Measure who owes what and for how long.

 

  1. Follow up appropriately: Small amounts by email and larger amounts with a telephone call. Have one person in your business that is responsible for doing this. A part-time accounts receivables clerk could pay for themselves, because they collect more and improve the cash flow. Calculate how much.

 

  1. Make it easy: Make it as easy as possible to get paid. Credit card merchant fees could cost a lot less than waiting for a bank transfer for 90 days. Have clear systems and processes in place.

 

  1. Progress Payments: Seek progress payments or deposits if it’s a job that takes a while.

 

  1. Get tough: Don’t write off collectible debts too easily. This happens far too often. There are good debt collectors around.

 

Note: In our QuickCall business example – every 1 day improvement here would add $2934 to the cash flow.

*Accounts Receivable Days

This is the number of days, on average, it takes your customers to pay you.

Example Accounts Receivables $   145,000

Annual Revenue $1,000,000

Time Period 365 days

145,000 / 1,000,000 x 365 = 53 days

 

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

 

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now…

Download our eBook ‘Seven Steps to Stop Cash Flow Chaos Forever’

 

Key Profit & Cash Flow Driver, Number. 4: Overheads Percentage

- Cash Flow Management and Forecasting

Many business owners focus attention on the Overheads in a Profit and Loss (P&L) Statement, but they may not compare them relatively, (by percentage) to the Revenue. This has an impact on the profit. 

 

What is different about the ‘Overheads %*’ is that it 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, 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. 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. It’s much easier to focus on one number being the Overheads % say, rather than getting too bogged down in all the numbers you see on a P & L.  If you don’t have a budget it can be very difficult to know if overheads are reasonable anyway. 

 

A business without a budget is like trying to find a new destination without a roadmap! Yet very few businesses have a budget, which makes it difficult to know how the business performs month by month. So do you need a budget? Ask yourself… are you planning to reach a goal in business… then you definitely need a budget. 

It’s obvious why you would want to decrease your overheads, but it’s sometimes overlooked how big an impact this can have on the bottom line.

 

 

Here are Nine Ways to reduce Overheads:

 

  1. Simply shop around: It’s so easy to ignore potential savings because you don’t have time. The time spent saving on overheads could far outweigh the value of time spent on other things in business. Have a three quotes policy when purchasing any goods or services.

 

  1. Create competition: Shop around for more suppliers for your business. Don’t underestimate your value to suppliers as a customer. Look at what business you’ve done with them over a period and use that knowledge to seek better terms and pricing. If you are a good customer they should want to keep you.

 

  1. Reduce fixed costs: Rather than locking into fixed costs, try to utilise non fixed solutions like outsourcing or sub contract labour. That way you aren’t paying costs during downtime.

 

  1. Don’t pay high skill rates for low skilled work: Get the right people into the right jobs with clear job descriptions that meet the overall objectives of the business. Regularly review staffing levels in line with business development.

 

  1. Use technology: Such as VOIP, Skype, Zoom etc. Could an updated web site save staff time in your business?

 

  1. Have a budget and stick to it: Report on variances between actual and budget each month and investigate. 

 

  1. Review overheads regularly. Have an ‘in depth’ review of overheads several times each year. It’s amazing how savings can be eroded and increases creep back in again.

 

  1. Use ‘Purchase Orders’. Don’t allow staff to spend money unchecked. You could save thousands of dollars by stopping spending that may be done smarter or cheaper before the damage gets done.

 

  1. Break-even Analysis. Understand your overheads, so you know how much you need to sell to cover them.

 

Remember every dollar saved on overheads goes straight to the bottom line! Note: In our QuickCall business example – every 1% saved in Overheads costs would add $3214 to the profit!

*Overheads Percentage%

This is the percentage of Overheads compared to Revenue

Example Revenue $1.000,000

Overheads $   300,000

300,000  1,000,000 x 100 = 30%

 

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

 

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now…

Download our eBook ‘Seven Steps to Stop Cash Flow Chaos Forever’

 

Key Profit & Cash Flow Driver, Number. 3: Cost of Goods Sold %

- Cash Flow Management and Forecasting

Percentages tell you much more about your business than numbers ever could. One business man, who recently sold a sand haulage business told us how the simple concept of focusing on percentages changed his whole future and was in a large part responsible for his success:

“I used to read the numbers my accountant gave me,” said the owner of a $2.8 million dollar business, “and it drove me crazy. I knew we were improving, but I wasn’t sure how well we were managing costs, relative to the growing sales.

“Fortunately I had a good accountant. He suggested he add percentages against all the costs and income on the Profit & Loss, so I’d know if we were up or down at a glance.

 

“It was like someone turned the light on!”

 

“I knew instantly how well one set of figures compared against the previous one without even looking at the numbers.”

“Cost of Goods Sold”, commonly abbreviated to COGS%, simply means the costs you incur to get the product or service to the customer, before taking into account your day-to-day operational costs or overheads.

(They are also called “Direct Costs or Variable Costs.”)

 

This is a really important number as it has a huge impact on your Gross Profit … and an even bigger one on your Net Profit.

 

Many business owners focus a lot of attention on Revenue, but a small reduction in COGS%* can have as much impact on Gross Profit as a large increase in Revenue. Understanding what makes up your COGS, and some negotiation or investigation with suppliers for better prices, can make a big difference.

If you are a service based business, pay attention to work practices and job management, as these can have the same effect on your Gross Profit. This provides an opportunity to investigate differences and tighten up processes. An example of this is knowing:

 

How many labour hours you are selling … compared to those you are paying for! 

 

Too many ‘unbillable hours’ could be costing thousands of dollars when you multiply them by your charge out rate.

Most basic accounting systems have a rudimentary job costing system, but if your business does “jobs” and contracts out labour, then we suggest you get dedicated job-costing software that links with your accounting system.

It seems obvious why you would want to decrease costs in business, but many will not appreciate how big an impact this can have on the bottom line.

 

Every dollar you save on your COGS … goes straight to the bottom line.

 

There are generally two types of costs in business, being Direct Costs or COGS (Cost of Goods Sold) and Indirect Costs or Overheads. COGS are sometimes referred to as COS or Cost of Sales.

The difference between COGS and Overheads is that COGS only occur when you sell something, whereas Overheads occur whether you make a sale or not. For example Rent is an overhead, as this has to be paid whether you make a sale or not, whereas purchase of stock or paying service providers, only occurs when you sell something.

It is important to differentiate between COGS and Overheads, because every business needs to know what its gross profit is. Gross Profit is calculated by subtracting the COGS from the Income figure. 

It’s a vital indicator of business performance for both managers and lenders. Gross Profit is also an important benchmark against which to measure your business… to others in its industry.

 

So what types of costs are classified as COGS?

    1. Purchase of stock to sell
    1. Movement in stock held i.e. what was held at the beginning of an accounting period versus what was held at the end of the period.
    1. Freight costs to get goods into and out of stock.
    1. Labour costs relating to production of a service or product.
    1. Importing costs e.g. duties etc.
    1. Discounts given
    1. Stock adjustments/Stock wastage
    1. Purchase returns and allowances
    1. Raw materials
    1. Manufacturing costs
    1. Packaging
    1. Other costs to get goods or services ready for sale.

 

COGS are often the most sensitive of the ‘Key Financial Numbers’ in relation to both profit and cash flow results.

It’s possible, in some circumstances, to create a larger increase in profit, by reducing COGS by a small percentage, rather than increasing sales by a large one.

This is because when sales grow, generally other numbers grow too, such as COGS and Overheads.

Also an increase in sales creates a need for more ‘working capital’ to fund your suppliers, additional inventory and ‘Work In Progress’ … but a reduction in COGS does not!

The reduction goes straight to your bottom line!

If you’re in a service business don’t think that COGS doesn’t relate to you because you don’t sell products. A factor in COGS for a service business is ‘Work in Progress’ (WIP). Many service businesses have no real methodology for handling WIP or Jobs.

We once asked a contractor:

“How often do you do your invoicing to customers?” and the answer: “When I run out of money!”

Ensure jobs get invoiced out as quickly as possible.

By doing so you’ll speed up payment. There are systems available that easily speed up WIP and jobs, and the resulting improvement in profit and cash flow can be significant.

Budgeting for COGS will help you monitor profitability. COGS can very easily ‘creep up’ without you realising it. 

These increased costs need to be passed onto customers regularly, or they erode profit margins.

Keeping track of such costs may seem like a pain, but the resulting control over margins and profitability, far outweighs the cost of maintaining such control.

 

Here are eight ways to reduce your COGS:

    1. Reduce wastage: Reduce materials used on jobs by managing wastage and write offs. Review ordering methods and introduce systems such as job cost sheets to track goods used on jobs.
    1. Increasing productivity: Maximise efficiency of contractors and staff e.g. check any ‘non chargeable’ time spent. Incentivise staff by sharing the savings. It may be that some work can be outsourced, even overseas. This could free up a more costly person to focus on more chargeable work.
    1. Review and negotiate with suppliers: It’s easy to get into a ‘rut’ and deal with the same old suppliers and do things in the same old way. Technology has opened up all kinds of opportunities to improve efficiency.
    1. Innovate: Look for innovative ways to change the way you perform processes. Research your industry to find out what new ideas are available. Create a ‘one-small-improvement-a-week’ policy.
    1. Industry benchmarks: Check to see what the top performers are achieving. Benchmarks for your industry/business could be available online.
    1. Exchange rates: Lock in good exchange rates with forward cover on foreign currencies.
    1. Manage your margins: Regularly looking at the percentage of Cost of Goods, so that you know when is the right time to renegotiate or look for alternatives.
    1. Use ‘Purchase Orders’: Don’t just allow anyone in the business to spend your money. One piece of paper in the form of a purchase order could save you thousands of dollars. The person ordering goods or services may not know something you know about a change or potential obsolescence.

 

Note: In our QuickCall business example shown earlier – 1% decrease added $9,872 to the bottom line!

*Cost of Goods Sold Percentage%

This is the percentage of Cost of Goods Sold compared to Revenue

Example Revenue $1,000,000

Cost of Goods Sold $   700,000

700,000 / 1,000,000 x 100 = 70%

 

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

 

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now… Download our eBook ‘The Seven Key Numbers that Drive Profit and Cash Flow’

 

Key Profit & Cash Flow Driver, Number. 2: Price Change Percentage %

- Cash Flow Management and Forecasting

Last week we shared information about Key Number 1, being Revenue Growth Percentage.  This week we’re introducing Key Number 2, being Price Change Percentage.

 

This means the percentage increase or decrease of the price, at which you sell your products or services.

In a highly competitive marketplace it’s tempting to sell for the cheapest price possible. This is fine, but let’s state the obvious … if you’re not covering your real costs with the price you’re charging … then you’re not going to make a profit!

A common trap is that many businesses fail to increase prices regularly by small amounts e.g. by the Consumer Price Index (CPI), or where there are increases in transport costs like fuel.

Failing to do this will cause margin squeeze. This means, your gross profit suffers, due to increased costs associated with delivering the goods or services.

Customers get a shock if you are forced to make a sudden large increase, whereas regular small increases are much easier for customers to stomach.

 

Major fast food chains are experts at this. A company rep noticed that the cost of his breakfast was $8.90, when on a previous occasion it was $8.50. That’s a 4.7% price increase.

It was barely noticeable and that person didn’t see it as significant enough to take his business elsewhere for the sake of an extra 40 cents.

This increase is probably quite justified with increased costs to deliver, present, market and sell the product. It’s a good lesson for the rest of us and one way they can maintain profitability and hence viability!

There’s no reason why most other businesses don’t do the same. And it’s not necessary to announce it to the world, as you see some business owners do, with signs such as: “We apologise for the inconvenience but because of increases to our costs and staff wages we have to put up our prices … blah, blah, blah”

 

Don’t fear losing customers by putting up prices. The reality is that you may not lose as many as you think. We say adopt quarterly small increase methods, small, regular and incremental price increases. If you do lose a small number of customers, they may be the most cost conscious anyway and it may not be such a bad thing. Modelling has shown that increased price and reduced overall revenue could, in some circumstances, actually have a positive impact on your bottom line.

 

Discounting Traps

You may be discounting some products or services in order to attract business for other more profitable ones. If you are planning to discount it’s vital to know what impact it will have on your profit and cash flow. Here is a table showing how much more sales volume needs to be achieved to cover the impact of a discount. 

In this table you can see that a 10% discount would reduce our gross profit to $500,000 or 55.56%.

To maintain the same gross profit dollar figure as before we offered a discount, we would need to sell 20% more products or services.

This is important to know, because if increased volume isn’t achieved, the discount is coming straight off the bottom line profit!

 

Seven ways to achieve a Price Increase and when to do it:

  1. Best customer service: Provide the best possible customer service and value compared to your competitors – not all customers buy on price alone.
  2. Promote your POD: Promote the perception of quality and make it your ‘Point of Difference’, make sure your customers know you are different and better. Make the ‘invisible’ ‘visible’.
  3. USP: Emphasise your ‘Unique Selling Proposition’ – Is there something that you do that others don’t? Don’t assume they know just because you do.
  1. Small regular price increases: Do small regular price increases e.g. CPI at end of year and write it into contracts. These are much easier to achieve than big irregular increases.
  2. Track Margins to increase: Connect price increases with supply increases – keep track of your margins to see when to do this.
  3. Know your customers: Ask how they value your product or service. Happy customers should be happy to pay for good quality products and services and appreciate that you have to run a sustainable business.
  4. Sack “C” class customers: This may be a scary one but there may come a time when you need to ‘sack’ some customers. Price focussed, demanding, slow paying customers can take up a huge amount of time and be less profitable than you think. The time you spend on them could be more profitably spent on good customers. If you feel brave and the time is right, it may be time to categorise your customers and focus on the better ones.

 

Note: In our QuickCall business example shown earlier – every 1% increase added $9,160 to the cash flow.

 

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now… Download our eBook ‘The Seven Key Numbers that Drive Profit and Cash Flow’

 

Key Profit & Cash Flow Driver, Number. 1: Revenue Growth Percentage %

- Business Growth

In our previous blog we introduced you to the ‘7 Key Numbers That Drive Profit and Cash Flow’.  Here is more detail about Key Number 1: Revenue Growth Percentage%*

Business owners focus a lot of attention on Revenue.

 

“Let’s make more sales and the profit will look after itself!”

 

Heard that before? Making sales is obviously important … but what is just as important … is what those sales cost you to make and also … what they cost you to fund.

 

As soon as you sell something, and often well beforehand, there are costs involved e.g. goods for sale, freight, labour, overheads etc. It’s critical to know these costs, because if they exceed your price, then obviously you are making a loss and heading for cash-flow problems.

 

This driver is possibly the most important of all the seven, because business growth is often the killer of small businesses. What! Go back a second! It’s because there are many other numbers as well as Revenue that relate to profitability.

 

If the other numbers aren’t well managed, revenue growth will just exacerbate cash-flow issues. If it’s not a good situation … it won’t get better with more sales … but it can get much worse. Revenue Growth is a cause for celebration, but it’s also cause for attention to other ‘Key Drivers’ because more sales can cause cash-flow problems.

 

The age-old question accountants get asked by their business clients is:

“How come I’ve made more sales and profit but I don’t have any more cash?”

 

The answer to this lies in the ‘Cash Flow Cycle’ diagram following. 

The ‘Cash Flow Cycle’ is often not well understood by business owners … until the business starts to grow and they begin to experience a cash flow squeeze. Let’s explain how it works. In the image above you can see a timeline of 365 days.

 

It shows: before you can sell anything you have to buy something i.e. stock or it could be labour and materials.

Depending on your sales cycle i.e. how long the stock sits in store, you may hold onto stock for 60 days.

Depending on the terms you get from suppliers you may have to pay for that stock after 30 days – which means you have 30 days negative cash-flow.

That is you’ve had to pay for it 30 days before you sold it.

 

Depending on your accounts receivable management you could wait 60 days to get paid – which adds another 60 days negative cash-flow.

This adds up to 90 days negative cash-flow!

 

This is your money! You have paid for the stock on day 30. You have sold the goods on day 60 … and then given credit to your customer who has taken 60 days to pay for it.

 

Effectively another party is using your money to fund their business. What this illustration shows is that the money due to you, has been somewhere other than your bank account for 90 days.

That is, it is in the bank account of your supplier and of your customer.

 

This can cause a BIG problem when growth occurs. You now have to buy more stock and find more working capital… and the issue just gets bigger!

 

If a business isn’t working to minimise these things, that is the number of days stock that is held … and then the number of days a customer is taking to pay … then the problem just gets worse when sales grow.

 

Sometimes businesses get so focused on increasing sales that the issues of stock movement and accounts receivable just get ignored, or it’s viewed as not considered worth investing in.

 

This is the reason growth can often kill a profitable business!

A lot happens to cash on its journey from the sale to your bank account. If you are planning to grow your business, obviously it helps to understand this phenomenon and put in place measures to manage it.

 

Ways to manage revenue growth and see where the profit and losses are:

  1. More sales could mean more capital required. Understand the impact of revenue on the other numbers. More sales may mean more working capital is required.

  1. Account for different product/services separately. Don’t lump all revenue into one account in your accounting system. Split it up by product/service groups, divisions, branches etc.

 

Also split the costs related to each, so you can see which ones are profitable and which aren’t.

 

  1. Find what categories make you money. Once you know which categories are profitable and which aren’t, you can work on maximizing the profits and learning from mistakes where losses are occurring.

 

  1. Measure profitability by jobs. Keep track of labour, materials etc. on jobs, so that you can compare to revenue and see which jobs are profitable and which aren’t.

 

By making small but sustainable changes to these numbers… as part of a plan… the results can be amazing!

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

 

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now… Download our eBook ‘The Seven Key Numbers that Drive Profit and Cash Flow’

 

A $100,000 reason to read this!

- Business Growth

Are you interested to see how a business, let’s call it QuickCall Supplies, that turns over $1 Million dollars in total revenue… can add over $100,000 to its cash flow and improve its profit by $60,000… without selling one extra thing and still paying its suppliers in time?

What you’re about to read is genuinely possible and improvements, some similar, some smaller and some better could be made to ALMOST EVERY business in the country!

The secret to good financial control is knowing what to control and by how much. In the posts that follow, over the next few months, you’ll read about the ‘Seven Key Numbers’ and see how each number works in more detail.

In this post, we want to give you an early example and explain how the ‘Seven Key Numbers’ might work in this example business QuickCall Supplies – with a turnover of $1 Million dollars. 

 

The ‘Seven Key Numbers’ is not a new concept. They have been around since Adam was a boy. It’s just that they have never been presented and explained in the way we plan to do in these posts. They apply to all businesses and work to a greater or lesser extent, depending on the business type. In these posts we’re not going to try to explain how they impact all types of business. It’s just sufficient to know that they are almost ALL you need to know to be a good manager and controller of your business finances.

 

With QuickCall Supplies we will make small achievable adjustments, over the course of twelve months, to just five of the seven numbers and calculate what a difference each makes individually and then to the cash flow and bottom line in total.

 

Let’s explain them one by one and assume we’ve discussed and agreed these changes with the business owner of QuickCall Supplies.  Our “map” of the Key Financial Numbers, as applied to this business, comes next and that’s followed by a short explanation of each number. You will see the change planned to the Number in the box on the left and the savings created by that change in the box on the right.

KEY NUMBER No. 1 is REVENUE GROWTH or more sales. In this example that is not going to change to demonstrate that making more sales is not always the answer to better cash flow and profitability.

 

KEY NUMBER No. 2 The next driver is PRICE CHANGE! Let’s say we can put up prices (on average) by 2%. Not much. Costs have risen for us; fuel is more expensive etc so we agree 2%. See the improved cash flow.

Note: Even 1% would be good!

 

KEY NUMBER No. 3 is COST OF GOODS SOLD

%. We’ve agreed that we can decrease this by just $1 in every $100 (1%) negotiating with suppliers on some items.

Note: That’s just 1% – improve this by 2% – double

this number!

 

KEY NUMBER No. 4 We’ve also agreed that we can reduce the OVERHEADS % by considering each line item on our Profit & Loss Statement and will find at least 6% savings. This saving goes straight to the bottom line.

Note: For every 1% improvement add an extra $3214 to profit!

 

KEY NUMBER No. 5 Next we’ll look at improving our ACCOUNTS RECEIVABLE or Debtor Days, as it’s also known. Many small businesses are hurting, because their working capital is being used by their customers, rather than it being in their own bank account. A reduction of just 11 days brings in an extra $32,275!

Note: That is $2934 for every one day improvement here!

 

KEY NUMBER No. 6 ACCOUNTS PAYABLE DAYS – and in this case there is no change.

 

KEY NUMBER No. 7 What about QuickCall Supplies’ stock level? DAYS INVENTORY that’s called. Can they bring that down by just 10 days? If they were a service or jobs based business the equivalent to this would be Work in Progress. That makes a positive difference of another $20,557!

Note: That’s $2055 for every one day improvement!

 

That’s it. In this case we have shown, a BIG improvement in cash flow and profit, by adjusting just FIVE of the Seven Key Numbers… without the business selling one extra dollar of goods… and still paying its suppliers on time

The value now created for this business is that it improves cash-flow by $100,311 and creates additional profit of $60,383.

 

This is valuable cash that the business can use to reward its shareholders and/or for working capital! In your business it may well be that you can’t improve, increase or decrease the same numbers as did QuickCall Supplies*, but it may be that you can improve or adjust other drivers.

*QuickCall Supplies is a purely imaginary business the financial history of which is to illustrate the value of the Key Financial Numbers. It is not related to any client or business known to the authors.

 

By making small but sustainable changes to these numbers … as part of a plan … the results can be amazing!

Look out for our next blog post for more detailed information about each of the Seven Key Numbers and ways to improve them.

If you don’t want to wait for the next blog post and you’re keen to get started improving your Seven Key Numbers right now… Download our eBook ‘The Seven Key Numbers that Drive Profit and Cash Flow’

EasyPark

- Testimonials

I’ve been working with Michael Granek from CFO On Call for a couple of years now and I can’t speak highly enough of his knowledge and expertise especially in regards to budgeting and cashflow. He has helped our business enormously.

Helen Savage

EasyPark, Tech

Bromley Dairy & Pumps

- Testimonials

Since we have had our CFO (Matt) involved in our business, our monthly forecasting & Annual budgets are believable. We also have monthly summaries so we can pick up on anything that needs attention quickly. Our business is more profitable now, we focus on achieving our targets. regards S.B

Steve Bromley, Director

Bromley Dairy & Pumps, Trade

The Importance Of Reviewing Business Strategic Plans

- Business Growth

In today’s rapidly evolving business landscape, the importance of reviewing strategic plans cannot be overstated. As an entrepreneur, business owner or manager, you’re undoubtedly aware that a well-formulated strategic plan is the lifeblood of your organisation. But have you ever stopped to consider how crucial it is to regularly evaluate and optimise this plan? In this blog post, we’ll delve into the necessity of conducting a thorough business strategy review, shedding light on the key aspects that must be considered and their incredible impact on your organisation’s long-term success.

An effective strategic plan review is more than just a box-ticking exercise — it’s an opportunity to reassess your organisation’s direction, recalibrate your goals and ensure your business remains agile in the face of change. As you join us in exploring this critical process, you’ll gain valuable insights into why a regular review of your strategic plan is integral to driving growth and maintaining a competitive edge. So here are compelling reasons to conduct a business strategy review ASAP:

Adapt to market changes and stay competitive

Market trends, consumer behaviour and technological advancements can rapidly transform the landscape, and businesses that fail to keep up are often left behind. Conducting a business strategy review allows you to proactively identify and respond to these changes. By reassessing your organisation’s strengths, weaknesses, opportunities and threats (SWOT analysis), you can pivot your strategy to capitalise on emerging opportunities and mitigate potential risks. This ensures your business remains agile, competitive and ready to seize new growth prospects in an ever-evolving marketplace.

Realign with your organisation’s vision and goals

As your business evolves, it’s crucial to ensure that your strategic plan remains aligned with your organisation’s overarching vision and objectives. The importance of reviewing your strategic plan lies in its ability to help you reassess and reaffirm your company’s purpose, ensuring that all team members are working towards common goals. During a business strategy review, you can evaluate the progress towards your existing objectives and identify any areas that need adjustment. This strategic plan review process enables you to reallocate resources, refine your goals and maintain a clear focus on your organisation’s ultimate mission. By staying true to your vision, you create a strong foundation for sustainable growth and long-term success.

Recognise successes and detect failures

A comprehensive business strategy review offers the invaluable opportunity to take stock of your organisation’s performance. By examining your strategic plan, you can identify areas where your business has excelled and celebrate those accomplishments. Recognising successes not only boosts team morale, but also provides insight into what strategies are working well and can be replicated or scaled up.

Conversely, a strategic plan review also helps you detect failures or underperformance, allowing you to address potential issues before they escalate. Uncovering shortcomings in your current strategy enables you to take corrective action, learn from past mistakes and implement more effective solutions moving forward. This constant improvement process is critical for fostering a resilient and adaptable business ready to thrive in a dynamic marketplace.

Enhance employee engagement and collaboration

A business strategy review isn’t just about the numbers and market analysis — it’s also about your people. Involving your team in the review process can foster a sense of ownership and commitment, driving employee engagement and enhancing collaboration. When employees understand how their roles contribute to the organisation’s broader goals, they are more likely to be motivated and invested in its success.

Furthermore, your team members may possess unique insights and perspectives that can significantly inform and improve your strategic plan. By encouraging open communication and feedback, you create an environment where innovative ideas can flourish, enabling your business to stay ahead of the curve and tackle challenges more effectively. Ultimately, a well-executed business strategy review can unite your team around a shared vision and empower them to drive your organisation’s success together.

Reinvigorate your business strategy with CFO On Call

CFO On Call offers a transformative solution to elevate your financial strategy and drive business growth in today’s competitive market. Our team of highly experienced CFOs takes charge of your economic challenges, freeing you to focus on making money and steering your business forward.

At a fraction of the cost of a full-time CFO, our fixed monthly fee or one-off engagement options provide cost-effective access to top-tier financial expertise. As the largest part-time Financial Control and CFO service in Australia and New Zealand, we deliver forward-thinking financial control and business planning advice tailored to your needs.

Our professionals have extensive local experience, ensuring informed guidance in areas like cash flow management, process improvement and business planning. You may also check out our newest Financial Lightbulb service, which takes you on a process of discovering the best opportunities for your business to seize. With CFO On Call, you’ll unlock the strategic insights needed to optimise your financial strategy and propel your business to new heights.

Invest in your business’s future by partnering with CFO On Call, and experience the lasting impact of a revitalised financial strategy.

If money is flying out the door of your business…

- Cash Flow Management and Forecasting

It’s not always easy to keep track of where all the money goes in your business.

When you look at the amount of sales… then look at the bottom line of the Profit & Loss Report and the bank balance, there’s mostly a big difference.

To help you make sense of it… Here’s a simple picture of where the difference is usually going.

How to Avoid Growing Broke!!

- Business Growth

A question that often arises in growing businesses is “How come I’ve made more profit, but I still have cash flow problems?”

The answer to this question lies in the issue of the ‘Cash-flow Cycle’. 

The ‘Cash-flow Cycle’ is an issue often overlooked by business owners until business starts to grow and they begin to experience ‘cash-flow squeeze’.

Let me explain how it works.  In the diagram below you can see a timeline of 365 days. 

The Diagram Shows:

    • Depending on your sales cycle i.e. how long the stock sits in store, or jobs are in progress, you may not be able to invoice for 60 days.
    • Before you can sell anything you have to buy something on day one i.e. stock, materials or labour on jobs/projects.
    • Depending on the terms you get from suppliers you may have to pay for materials and labour after 30 days – which means you have 30 days negative cash-flow.
    • Depending on your accounts receivable management you could wait 60 days to get paid – which adds another 60 days negative cash-flow.
    • This adds up to 90 days negative cash-flow.

This means your money has been somewhere other than your bank account for 90 days i.e. in the bank account of your supplier, labour staff and your customer.  This is referred to as ‘funding the sale’ or ‘working capital’.  

Why the above causes a problem when growth occurs, is because the issue just gets bigger.  If a business isn’t working to minimize the number of days jobs are in progress and the number of days customers are taking to pay, the problem just gets worse when sales grow.

Sometimes businesses get very focused on increasing sales and the issues of job management and accounts receivable get ignored or are not considered worth investing in.  This is why business growth can often kill what appears to be a profitable business.  

 

To minimize the number of days jobs are in progress you need to eliminate inefficiencies and rework on jobs.  Here are some ways to speed up jobs

    1. Have a good job management system that allows you to track all stages and profitability of jobs. (Also allows you to get quick access to previous job information.)
    2. Have a system for following up quotes – the quicker you get the job started the quicker you can finish and invoice it.
    3. Have one person in charge of managing jobs who has a good understanding of status and progress.
    4. Manage labour allocation and track staff/contractor time spent on jobs.  Schedule jobs and travel for efficiency.
    5. Have good ‘quality control’ to avoid rework and investigate ‘write-offs’ to avoid them in future.
    6. Use checklists so that staff aren’t having to ‘reinvent the wheel’ all the time.  Also helps to maintain standards and improve customer satisfaction..
    7. Keep equipment well maintained to avoid down time.
    8. Have ‘Key Performance Indicators’ for jobs, such as number of quotes versus jobs won and lost.

 

To minimize the number of days customers are taking to pay, you need to implement a system to ensure that customers are invoiced as quickly as possible and everything is done to ensure customers pay as quickly as possible.  Here are some ways to speed up customer payments:

    1. Ensure your customers understand your ‘terms of trade’ up front i.e. when and how you expect to be paid.
    2. Run credit checks on customers if it’s a large job.  You don’t want to get caught out with all the costs and not get paid.
    3. Improve customer relations – happy customers will pay.
    4. Invoice immediately – don’t leave it until the end of the month.  Why give customers extra days to pay on top of the time they will take anyway.
    5. Have someone in charge of collecting customer payments who understands the process.
    6. Report regularly on who owes what, so you know who to chase and if an outstanding payment may affect other work you are doing for them.
    7. Follow up appropriately – small amounts by email and large amounts by telephone.
    8. Make it as easy as possible for people to pay you.  Accepting credit cards may work out cheaper than waiting 90 days for a transfer.  Put your bank account details on invoices, so people can easily send funds to you.  Use modern payment methods such as ‘Stripe’.
    9. Get progress payments or deposits if possible to help cover the cost of labour and materials through-out the job.
    10. Get tough – don’t write off collectible debts – there are good debt collectors around who can get the money for you.

 

A lot happens to cash on its journey from the sale to your bank account.  If you are planning to grow your business you must understand and work to improve the situation, or you could be heading for problems. 

 

For more details on factors impacting cash flow in a growing business, check out our eBook ‘7 Steps to Stop Cash Flow Chaos Forever’.

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