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If you’re serious about achieving better results this year and you’d like more control over your finances… You need a plan. We have a simple tool that will help you.
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One of the key factors in good cash flow management is how you manage your Accounts Payables i.e. suppliers who give you terms to pay.
A key measurement in managing this, is knowing your average Accounts Payable Days. This is the number of days, on average, it takes you to pay all of your suppliers.
Outstanding Supplier Amounts/Costs x 365
For example:
If you owe suppliers $ 200,000
Your direct costs are $1,000,000
Calculation: 200,000/1,000,000 x 365 = 73
This means that you are taking 73 days, on average, to pay your suppliers.
Once you know this number and can regularly measure, monitor and increase it, you will be able to make improvements to your cash flow.
Accounts Payable may seem like a ‘ho hum’ kind of subject, but it can be a minefield of mistakes. Opportunities to improve your cashflow and profit abound in your Accounts Payable actions.
Accounts Payable is the ‘flip-side’ to Accounts Receivable. As we discussed in an earlier post your objective is to keep your cash in your bank account for as long as possible. Let’s discuss some ways you can achieve this objective.
If you don’t pay any attention to Accounts Payable, you could be losing out on money and opportunities. Suppliers do make mistakes on invoices.
Paying suppliers too quickly is a common error made by many businesses.
It’s tempting when a supplier calls up to immediately get the boss to authorise a payment and get them ‘off your back’. This could be a very expensive reaction.
If you analyse your average days payable i.e. the number of days, on average, you take to pay your suppliers, you may be amazed how much money can come back into your bank account, if you can take the maximum credit terms. It can be tens of thousands of dollars. This is valuable cash for your business.
Conversely, not paying suppliers on time can be expensive too. If suppliers are willing to offer early payment discounts, you could be missing out on valuable profit.
If you have good Accounts Receivable procedures and get paid on time, this should put you in a position to pay suppliers on time and get those valuable early payment discounts. Again this can mean $10,000’s onto your bottom line. Only pay early if a discount is offered
Not recognising the value you provide to suppliers and getting the best termsIt is so easy to keep going along with the same supplier because you always have, and not realise the value of the business you put their way. Some suppliers will not alert you to better value items or offer you better terms, so you have to keep a track of it yourself.
The best way to do this is by having a good system for tracking purchases. That way, it’s easy for you to print out a report on how much business you have done with a supplier over a period, and go back to them to negotiate better terms or even approach an alternative supplier. You can do this easily in your accounting system if it’s set up right i.e. if you are able to report on purchases from a particular supplier. Rather than just allocating payments to suppliers straight out of the bank account, it worth taking the extra step of recording each purchase against a supplier. This way you will have an easy record of exactly how much business you’ve done with them over a period. This makes it easier to negotiate for better prices and terms when the time comes.
Obviously service levels are important too, and if they are equal, the deciding factor could be the credit terms from a supplier. Again this could have the impact of tens of thousands of dollars into your bank account of vital cash.
Stringing out supplier payments with no agreed terms or strategy, can be very expensive in terms of your credit rating. Most good suppliers will expect you to complete a Credit Application, prior to doing business.
If you can’t provide good references, you may find it very difficult to get credit. Also if you have had a judgment against your business by a supplier, it could cause suppliers to give you a ‘wide berth’. This can be very damaging to cash flow if you have to purchase on COD terms.
If you don’t have a system for tracking Accounts Payable, then it’s very difficult to know your near and far future obligations and cash-flow position. If your business is growing this could cause huge headaches.
The last thing you want is to be going to the bank ‘cap in hand’ because you have run out of money. Banks see this type of approach as very unattractive and unprofessional. If you can go to them well before the event, and say “if this happens, I may need to borrow money, they will see you as a much better bet, as you demonstrate you have your ‘finger on the pulse’ of your business.
Working Capital is a vital issue for every business and Accounts Payable makes up a large part of it i.e. the quicker you pay suppliers the worse-off your working capital requirement will be.
‘Working Capital’ is the amount of cash you need to fund sales. If you offer credit terms to your customers and keep stock lying around for a while, the money tied up in these items is working capital.
Accounts payable adds to this requirement, so if you are paying suppliers haphazardly you could be ‘shooting yourself in the foot’ in regards to Working Capital.
Inventory Days is the number of days, on average, that your inventory is sitting in store waiting to be sold or used.
It’s a key number for managing the amount of cash tied up in inventory.
Inventory Days need to be calculated from other numbers you will find in the Profit and Loss and Balance Sheet, but the time taken to calculate them will return enormous dividends. Once you are in a position to know what the numbers are, then you need a strategy to improve them, as well as knowing if they are good or bad for your particular type of business.
Some customers will use you as a bank if they can. Better to use your goods and/or services and not pay until they have to. Here are some suggestions to speed up payment.
Once you have sent out invoices, which really should have your terms of trade highlighted on them, it doesn’t automatically follow that customers will do the ‘right thing’ and pay on time.
You need to be able to easily monitor what is owed to you, by whom and for how long. A very simple report that you can get from most accounting systems, lists all the customers who owe you money, how much they owe, with columns for how long they have owed the money.
This gives you a very quick and easy way to see where you should be concentrating your collection efforts. The more often you can look at such a report, the better your cash position will be, if you use this report as a basis for collection.
Make it as easy as possible for customers to pay you. You can include instant payment methods on invoices via third party payment services. This will save lots of time chasing up debts as well as improving your cash flow situation.
Your terms, don’t guarantee you will get paid on time. You need to let customers know you are serious about getting paid. The best way to do this is to send out regular statements. Statements not only remind customers it’s time to pay, but let them know you are ‘on top’ of the situation.
If slow payers get the impression you aren’t organized about collection, some will take advantage of the situation. Put yourself in their shoes or the shoes of their Accounts Payable person. They get all kinds of invoices coming via mail and email. Which ones are they going to pay first? Those who seem disorganized with shoddy practices or those who appear professional and serious about collection?
All good accounting software has the ability to produce statements. You can be sure though that the suppliers who remind customers about payment are going to get paid ahead of those who don’t.
It’s interesting how many business owners write off perfectly recoverable debts. For some reason they feel it’s not worth the effort to employ a debt collection/recovery agency to collect the payment for them. If you have exhausted all efforts to get paid by a customer, find a good debt collection agency.
At this stage you may not want to do any more business with the customer, so getting tough should not be a problem. Any good debt collection agency though, should perform their task without you having to lose a customer. Good agencies understand the importance of maintaining good customer relations.
So don’t hesitate to employ a debt collection agency, as you should have the right to charge your customers the costs, if you have included this in your ‘Terms of Trade’.
Is worth the effort every time. All of the above will happen if one person is allocated the responsibility for Debt Management. They may not have to perform all of the tasks, but if one person is responsible to oversee the process … it’s more likely to get done properly.
It may seem like a large expense but the cost of not managing debt collection can be very high, in terms of lost working capital and accumulating bad debts.
If you would like to learn more about this subject, plus other useful business financial management tips, check out ‘Business Financial Toolkit’
Let’s take a look at why workflow management is vital for a business. The automotive industry is currently in a state of transition due to consolidation away from small family run operations towards more corporate-run multinational organisations. These organisations are by definition more process driven and they eventually hold a competitive advantage against smaller operations in terms of processes and cost control due to greater resources and greater bargaining power with suppliers.
The majority of smaller businesses often operate with ingrained and out-dated processes, which can lead to inefficient production teams, mismanaged workloads (or work in progress), lesser bargaining power with suppliers and potentially either the business goes bankrupt or shuts down voluntarily. This is a shame, because the small family run business has a key function in the automotive industry, in performing a more personalised service to their existing clientele, that corporate-run organisations cannot do. This is particularly the case in regional centres such as the Murray, Dubbo, Tamworth, Newcastle, and Wollongong.
Two crucial components to running a successful business in the automotive industry, is having control of your workflow management, and productivity and cost control. Have these two issues under control, and you will inevitably be running a successful business operation. However too often in the automotive industry, businesses become unstuck due to on-going jobs being forgotten, once they have been completed and delivered. There is no process in place to invoice these jobs, and therefore get paid. How would you feel if you put in many hours of work on a specific job that was quite complex in nature, and not get paid for it? In this industry it happens way too often, and can lead to businesses losing money, and potentially going broke.
Several years ago, when I was assisting in establishing a new paint and panel operation in Sydney, I was speaking to an Assessing Manager at a prominent insurance company, whilst we were setting up the manual and electronic platforms in which individual jobs and insurance claims were managed. He advised me to make sure that when a job is completed it is invoiced within a couple of days of completing the job. In my naivety, I scoffed at him and suggested that him mentioning this was absurd, however he responded by saying that I would be surprised at how many businesses do not complete their job properly by not invoicing it.
If a business cannot control its workflow management, it cannot manage its cashflow and can severely affect the profitability of the business.
Workflow management is about managing all the tasks and stages in your workflow. Accountants and lawyers refer to this as work-in-progress, and it is simply work that is under your control which you are currently in the process of completing, or about to complete. Having control of your workflow is about the following:
The pitfalls associated with poor workflow management are:
For many small businesses the solution to their workflow problems is already in place. Many workflow and production management software systems in the industry are easy and simple to use daily, but so often, the business has the software in place but does not use the system to its maximum potential.
Here is an indication of the possible problems a business has when not managing its workflow properly. A small business repairs on average 20 cars per week at an average cost of $3000 per job. That equals $60,000 a week in revenue or annually $3.12 million per year. If your workflow management issues cause you to forget just 2 jobs in one week, that has a flow on effect in the following weeks because that 20 cars per week average can drop to as low as 17 or 18 cars because you are catching up from the previous week. That causes your revenue to drop $6,000 – $9,000 per week. If this problem persists that can equate to over $300,000 per year. Your costs stay the same. It may even increase as you get your employees working longer hours to catch up the overload. So that lost revenue (or lost profits) can be well over $350,000 per year!
As you can see the flow-on effect of poor workflow management is quite striking and can be simply fatal for a small business where workflow management is the crucial element of a business in the automotive industry. Your business is providing a service after all.
Productivity is a measure of how efficiently you are producing the goods or services to sell. It can be measured individually, in groups or organisationally.
Cost Control is essentially the methods you have which controls your costs either on a jobs basis, or activity basis. In the automotive industry you have fixed costs like many businesses such as rent, electricity, office expenses, motor vehicle expenses and wages, however production costs such as spare parts, paint and materials are key costs which can be allocated to particular jobs and activities. Having control of these costs ensure that you are paid the correct amount for a job, and you do not incur losses for the cost of parts and materials that you have fitted onto a car.
Both productivity and cost control are extremely important success factors in maintaining solid workflow management processes. Your business is providing a service and therefore you are selling the skills of yourself and your staff. This is a valuable commodity, so employing the right staff is an important skill, often relying on gut instinct, but also in maintaining good processes within your business, so that your staff know what is expected of them.
These processes are:
When taking on a job, many businesses will underquote to win the job. It is a competitive environment, but you must ensure that when you provide a quote that the quote provided indicates your knowledge of the scope of the work involved, and that your quote, whilst being competitive must also be profitable for you. This means that you must be able to know how much it will cost you to complete that job. Always remember that each job will consume fixed costs as well as productive costs, such as supplier invoices and such. We can assist you in these areas, as well as working out just how much it costs to run your business, and how much more efficiently you can run your business.
If you are having problems with your workflow management, productivity and cost control, a Virtual CFO can help you solve these problems and get your business back on track to profitability and cash flow under control.
-Written by Con Koudsy
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You know how it is when you look at the reports that come out of your accounting system and you’re not entirely convinced they’re telling the real story…
We see it so often, where transactions have been incorrectly handled or missed, accounts have been set up incorrectly, reports have been designed with errors. These issues end up causing all sorts of grief for business owners because:
There are some ‘red flags’ that may mean your accounts can’t be totally relied upon:
This may seem impossible with an accounting system, but we see it occasionally. Somehow things got ‘out of whack’ in the system and the total of the assets doesn’t agree with the total of liabilities and equity. Even if looks like it’s a small difference, it may be big difference one way and a big one the other way i.e. two big differences end up creating what seems like a small one !
Sometimes you look at your Profit & Loss and you just know it’s not right. This can easily occur if sales, costs and overheads aren’t treated properly.
For example:
What is worse, is when these issues are happening, but they are not obvious !
It’s so easy to fudge this in accounting systems. Someone who’s not really sure what they’re doing can’t make it reconcile, so they just shove the difference into a balancing account. This means you could be doubling up on sales and/or costs and vastly misrepresenting the profit situation !
This can occur when erroneous transactions are made to these accounts if the system isn’t set up correctly to stop this happening. That is why proper regular reconciliations of these Balance Sheet accounts are so important !
This could happen without considering the consequences e.g. in the past ‘Average cost’ method has been used and it gets changed to ‘FIFO’. This can have a big impact on profitability and the Balance Sheet. A lender/investor may be surprised to see sudden and unexplained changes in ratios and lose confidence in the business risk.
On the surface these may seem like just small transactional issues, however if allowed to continue, they can seriously hinder a business’ opportunities to grow and secure funding. Not to mention limiting owners’ confidence in the information they are basing their decisions upon.
If you’d like an unbiased second opinion on the validity of your accounts from a CFO who’s been ‘around the traps’, get in touch and we’ll be happy to organise it for you. Our CFOs have a well-honed toolkit for how to handle accounting problems and avoid unintended consequences of mistakes.
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
The example below shows a $69K or 38% profit improvement achieved with a 5% increase in labour utilisation i.e. from 75% to 80%. If you’re paying people 40 hours per week and charging 30 hours on jobs… if you can get an extra 2 hours per person per week this results in extra profit.
Conversely… The example below shows a 5% drop in both labour utilisation and recovery % of labour, results in a $134K profit reduction. ‘Recovery % of labour’ being the number of hours billed of all hours worked on jobs/projects.
To learn more about this simple way to positively impact profit watch this video.
If it’s important to you to understand your financial position and know the numbers in your business, an outsourced CFO could be the answer to your prayers.
Many business owners are deterred by the relatively high price tag, with the average full time Australian CFO earning a $155,000 annual salary, However you can get the same value from a part time or outsourced CFO at much less cost and the benefits of having the right CFO on your team are priceless.
As your right-hand person in the business, an outsourced CFO takes responsibility for your financial challenges and provides you with the data you need to make well-informed decisions, so that you can get on with running the show.
Plus, as the world struggles with growing disconnection, the option of outsourcing these high-level roles gives business owners access to a broader collection of people with the skills and attributes they are looking for.
Have you been considering hiring a new or replacement CFO for your business? Are you aware of everything the process involves?
If you’re considering bringing an outsourced CFO into your business, read on to explore the perks you can expect.
The cost of hiring a locally-based CFO for your business could be immense, but with an outsourced CFO, the expense will likely be far more manageable. While a part-time CFO may charge as much as $2000 per day for their services, a full-time outsourced CFO typically costs between $2000 and $4000 per month.
It’s quite common for business owners to attempt their own profit and cash flow planning, often without any training. This can be, at best, a waste of time, and at worst, a real danger to your business, particularly if you base business decisions on inaccurate information and assumptions.
As the manager of your business, you have plenty to worry about already, from delegating tasks to your employees to ordering supplies and everything in between. With a professional taking care of the critical financial functions, you won’t have to worry about financial errors derailing your business.
Business owners who choose to manage the financial aspects of business on their own are often motivated by saving money. However, the opportunity cost of spending your time working with data instead of investing that time into your customers, suppliers, and staff may be far more significant.
With an outsourced CFO on your team, you’ll know that your calculations are accurate, forming a solid basis for smart business decisions. Then, with the right partner to support the implementation process, you’ll see growth in sales, profit, and cash flow.
With an outsourced CFO on your team, you’ll have more time and energy to devote to running and growing your business, as well as an advisor who can offer guidance in relation to financial decisions. This way, you’ll have more confidence that your hard work will contribute to better sales, profit and cash flow.
One of the toughest issues in running a business is having confidence to do the things you want, such as growing your business into a new area, product or service. You need to be sure that all your hard work to get it up and running will pay dividends and profit onto your bottom line.
Pricing for profit is one of the most important jobs in any business, and if anyone can help you get it right, it’s your virtual CFO. The process begins with a clear understanding of the ‘true cost’ of the product or service and the margins involved, going beyond wages and basic product costs, and also takes into account the prices set by competition.
Choosing the wrong pricing strategy (or no strategy at all) could be extremely damaging for your business and your profit margin. You need the kind of clarity over the numbers in your business that only someone with training and experience can provide.
While hiring a CFO can be seen as a cost, the money business owners invest is often returned in the form of direct savings. An outsourced CFO with the right training and experience is capable of assisting business owners with everything from setting prices to managing stock, inventory and accessing growth funding.
There are even cases where an outsourced CFO has delivered value far in excess of their hiring costs. For example, some clients hire an outsourced CFO to assist with matters such as stock management. In one case, the CFO identified the business’ spare parts stock, which they gave away for free to people who’ve bought equipment from them before. Because it wasn’t technically stock to be sold, this meant it could be ‘written off’, thereby reducing their tax bill. They also had some ‘floor stock/demo’ equipment which couldn’t be sold, and therefore could be written off as an asset under government stimulus. All this added up to around $200K in financial benefit!
A robust financial management system is crucial to achieving business success, but in the initial stages, competing priorities may get in the way. With the extensive experience of your outsourced CFO on your team, you’ll be able to grow your business with greater confidence and efficiency.
If you need a fresh, objective view of growth strategies and planning without the time- and costly process of building on your own , hiring an outsourced CFO could be a great option for your business.
Hiring a Financial Controller or CFO is the key to avoiding self-managed finance
When your business is in financial growth mode, there’s only one thing worth more than the money you’re bringing in: the steadfast business advice you need to manage it well.
For this reason, many businesses choose to hire both a Financial Controller and a CFO to assist, but even the most diligent business owner could be forgiven for misunderstanding the differences between the two.
According to Sue Hirst, Co-founder of CFO On Call, the strategic guidance you can expect from a Financial Controller or CFO is critical to making well-informed, future-oriented business decisions:
“While an accountant may be able to provide necessary guidance on how to navigate things like legislation and payroll, what they lack – and what is arguably the most important asset for any business right now – is strong commercial acumen.”
It’s no secret that effective financial guidance is essential for any well-functioning business, but how do you know who to turn to for advice? Do you need a Financial Controller, a CFO, or both?
Read on to find out what both Financial Controllers and CFOs actually do, how they differ, and how your business could benefit from each.
Topics of discussion:
Financial Controllers take responsibility for various reporting, analysis, and management tasks within your business. The most important aspect of their role is to ensure the integrity of accounting functions, create and analyse financial reports, and advise the CEO or business owner accordingly. A Financial Controller can also assist with matters such as systematising and managing your financial processes, and mentoring your financial team of bookkeeping, accounts receivable and accounts payable staff members.
Hiring a Financial Controller could be beneficial for your business if you have an ongoing need for accurate and timely advice relating to compliance matters and the general financial position of your business. The role of a Financial Controller focuses on increasing business owner confidence through compliance-oriented tasks, ensuring that the business complies with internal and external financial requirements.
A CFO is responsible for tending to a range of high-level matters in your business. They work with you as the owner or CEO to determine the viability of your business, create an accurate budget that reflects your plans for growth, and liaise with various internal and external stakeholders, including lenders and investors, to ensure that your business achieves these goals. If and when you decide to exit your business, your CFO will also assist you with creating and executing these plans for maximum financial benefit.
According to Sue Hirst, specific activities a CFO manages include monitoring financial statements, managing liquidity, analysing financial reports, and forecasting future cash flows within the organisation. “A chief financial officer (CFO) is an executive officer responsible for creating and implementing financial strategies that manage the past, present, and future financial situations and actions of an organisation.”
A CFO or Financial Officer can bring extensive knowledge and experience to your team meetings (Source: https://www.pexels.com/photo/man-wearing-white-long-sleeved-shirt-holding-black-pen-3182781/)
Business owners will notice many immediate benefits to hiring a CFO. An adept CFO will not only deepen your understanding of and confidence in your business operations and future plans, but also act as a sounding board for any problems and ideas that arise. They can assist with creating plans for financial results, communicate with lenders and investors on your behalf, and deliver a big-picture financial focus that drives business growth.
If your business and revenue is large enough, you may benefit from hiring both a Financial controller and a CFO, either on a full-time or contract basis. However, if you are operating as a small to medium enterprise, you may only need periodic access to high-level guidance to complement the direction you receive from an accountant or bookkeeper. For these situations, you have the option of hiring an outsourced CFO or Financial Controller for a day rate.
Hiring a CFO is an important growth step for large corporations managing high-growth business opportunities. As a rule of thumb, you should only consider hiring a full time CFO once your company is generating annual revenue of $50 million or more. With the right systems in place, a good CFO can manage both the high-level strategy roles and the hands-on financial management aspect of your business. If your business is smaller, you can still have the benefits of a CFO on a part-time or outsourced basis for a reasonable fee.
As a key leadership position in any business, CFOs require extensive industry knowledge and passion and highly developed skills in leadership, communication, and problem-solving. They should also have at least ten years of experience in a senior leadership role and qualifications in a business or financial discipline.
Most CFOs earn an annual salary of between $160,000 to $220,000. As of September 2021, the average salary for an Australian CFO is $159,071, although this average varies widely by location, with a top salary of $187,701 in Perth. However, if your company does not require a full-time in-house CFO, you have the option of hiring a remote CFO to cut costs. The typical day rate for an outsourced CFO on-call is approximately $1500.
Rapid expansion in your business is the biggest indication that you may need to hire an in-house Financial Controller, particularly if your company is generating between $1 million and $10 million in annual revenue. A Financial Controller is also a great support for your business if your existing financial management positions, including your accountant or CEO, are struggling with an overwhelming workload.
The position of Financial Controller requires a specialised financial knowledge base and breadth of experience. A management or financial accounting background is a strong foundation, as the role requires strong accounting and numeracy skills. In terms of soft skills, business owners should prioritise potential hires who are proficient in leading and managing teams with a proven ability to meet and manage deadlines.
Salaries for Australian financial controllers range from approximately $130,000 for entry-level employees to more than $180,000 for the most experienced workers, with an average of $155,000 per year. According to a 2018/2019 salary review, the hourly rate for this role varies from $110 to $180.
A public salary review from Moir Group (Source: https://moirgroup.com.au/2018/12/finance-accounting-salary-review-2018-19/)
If you’d like to read more about how CFOs help businesses to achieve better results, download our eBook ‘Virtual CFOs – A Rising Trend in 2021 and beyond’
Don’t risk making your business exit without an exit strategy
If you’re like most business owners, you have plans to one day retire, leaving a healthy legacy for others to carry on into the future, and reap the rewards of your years of hard work. The trouble is, according to a Voice of Australia Business Survey, only 19% of small to medium enterprise owners in Australia have a succession or retirement plan,
The majority of business exits occur upon sale of the business, but selling a business isn’t a simple proposition like selling a car, or any other piece of equipment. It’s far more complicated, with multiple factors impacting its value, including customers, suppliers, staff & management – but it can also be far more valuable, as long as you know how to sell it.
In this article, we’ll cover factors to consider when you want to maximise the exit value of your business.
An exit strategy plan is a plan for how you will eventually leave your business. This plan will typically include one of several options; for example, mergers, acquisitions, IPOs, and exits by liquidation. The idea of the exit strategy plan is to cover all the key considerations for potential investors so that you can sell the business at a high price point.
The need for an exit strategy isn’t only for owners who are planning on leaving their businesses – it’s for all business owners who want a flexible blueprint and measurement strategy for success. Your exit strategy can guide you through changing circumstances and towards the goal you want to achieve, namely exiting the business with a substantial profit to your name and leaving a legacy that carries on.
If your business is also your retirement fund, you may need to start thinking about selling quite a while before your actual sale day. In some cases, the best time to start planning may be a number of years beforehand – and in any case, the best time to start planning is now.
According to Sue Hirst from CFO On Call, there is no such thing as “too early” when it comes to planning your business exit. “Business owners are so caught up in the day to day management of the business that there is a tendency to prioritise matters that are urgent over matters that are important,” Sue said. “Sometimes, things can happen unexpectedly – people become disabled; people die. Even if your business is in growth mode and you have no thoughts of retirement, you still need to deal with the contingencies of a forced exit.”
A sale like this takes a lot of planning, and that’s not easy when you’re caught up in the daily business functions. Planning early gives you the best possible chance to grow the value of your business and make it attractive to potential buyers. This is especially important if you have been central to the business for a long time, because you’ll need to create systems that allow the business to function effectively without you. It takes time to implement these changes and see results.
Most people want to buy a business of ‘today and tomorrow’, not ‘yesterday’ – a business that keeps up with current trends – so you need to take these into consideration and be realistic about the value, taking into consideration current trends.
Key questions include:
The most common measures of business performance are profit and cash flow. In the past, some businesses were run based on tax minimisation – but now it’s time to switch into a ‘profit maximisation’ mindset. If the business is struggling with profit and cash flow, it won’t be as attractive to a potential purchaser. They may even expect a discount for poor results – but by some forethought and focus on profit maximisation, you can eliminate the risk of this happening.
Key questions include:
A potential purchaser will want to leverage the opportunities for growth that currently exist in your business – and the fewer there are, the bigger discount they will want. To answer this question, you’ll need to look at both past and future performance predictors.
Key questions include:
The riskier the business opportunity, the less attractive (and hence valuable) it is to a purchaser. Top risks in your business fall under several major categories, including economic trends, legislation, insurance options, and technological developments.
Key questions include:
In most industries, business owners should expect to come up against a handful of competitors, but too many (or too few) could be a red flag. The main problem with an undersaturated market is that it may encourage your potential successors to start their own business in competition instead of taking over yours.
Key questions to ask yourself about your competitors include:
A purchaser will want to be very clear about the accuracy of the results of the business, and that relies on your ability to manage information effectively.
Key questions here include:
Developing a management team around you is a start; however, ensuring this is sustainable takes time to implement, so start early. Minimising reliance on the business owner or manager is important to maximising the value of the business.
Key questions here include:
Loyal customers keep businesses thriving (Source: https://unsplash.com/photos/q3o_8MteFM0)
Customers and staff are a great asset of any business, so anything you can do to secure them is important. Purchasers want to be confident about the future viability of the business they are entering into, and that means having people to sell to.
Key questions here include:
Staff are an important asset of any business – so much so that staff turnover is a major Human Resources KPI, and may be a major red flag for a potential buyer. Anything you can do to secure your staff members could potentially increase business value. If you’re unsure about your staff members’ commitment to the organisation goals and visions, consider a formal staff appraisal.
If you think of your business like a house, the exit strategy plan is an opportunity to renovate before you sell and get the best possible price.
Because you know the business and the industry better than anyone, you are in a great position to perform the renovation, and if you’re willing to stay in and do the work, you stand to make a premium profit a few years from now. In any case, now is the time to start planning.
Key questions here include:
Realistically, most Business Owners are so focused on creating, building and managing their businesses that they don’t have much time to plan an exit from the business – but don’t despair! You don’t have to do all the work yourself. We have experienced advisors across Australia and New Zealand to help guide you through the process.
Ready to book a call with a CFO? Contact us today on 1300 36 24 36 for an obligation-free chat!
If you employ people to provide services to customers, it’s vital to manage the hours invoiced to customers compared to those you pay to staff. Reason being the differential is potential lost income to your business and precious profit.
It may seem like a ‘no brainer’ to say that it’s vital to sell as many hours as you can, to ensure you’re making profit from the people employed to deliver services.
What is not so easy though, is to measure exactly how much time is being charged to jobs and how many hours are being invoiced to customers.
What typically happens, is that we get focused on managing everything and trying to do the best possible job for customers.
What we also need to know is where potential unbillable hours are going … and how we can create a situation to bill more of them.
The diagram above shows:
The differential between these falls into many categories under the heading of ‘Unbillable hours’.
There’s a whole raft of things people can spend time doing that can’t be billed to customers. The challenge is to minimize them, where billable staff are concerned.
firstly you need a system to keep track of hours spent on jobs and invoiced. Then you are in a position to measure productivity and take action where it falls below expectations.
Below is a typical graphical report we provide to clients showing a comparison of
This report shows that for an eighteen week period the hours booked on jobs, exceeded the hours invoiced for ten of those weeks. This means the business was paying for hours it didn’t invoice. As mentioned above this differential is potential lost income and profit.
Before you encounter this situation, what is also useful to know is ‘What If’ your staff utilization rate and/or recovery rate falls – what would be the impact on profit?
What you missed at the Webinar
CFO Brendan Raftery shared with the audience the benefit of his experience in helping clients to secure business loans, including the following:
If you’d like to learn more about tactics to secure your business loan check out the webinar recording here
It seems to be a perennial issue for business owners that cash flow is an issue. You’ve got suppliers on your back for payment, customers that take too long to pay… plus a bunch of other places where cash gets stuck.
Often the money in business is just in the wrong place … i.e. it’s in:
The issue re the above is that the money needs to spend more time in the bank account and less time in these places.
It’s all about wastage isn’t it? Wasted opportunities due to lack of clarity and time to manage it and head off these cashflow and profit gobblers.
If you’d like to see an example of how this works in practise, download our Infographic here showing how one business found $38,000 extra cash without making any extra sales!
Or… if you’d like to know more about ‘Pay for itself’ help to avoid missing out on fantastic growth opportunities in your business, click here to speak with a CFO.
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