Have you returned to work feeling refreshed and energised about what you can achieve this year?
Even if you didn’t have a break, now is a great opportunity to start afresh and take the opportunity to review things for better financial performance in 2014.
Use the New Year as an opportunity to take a ‘helicopter view’ of your business and formulate a business growth plan to achieve better profit, cash flow and efficiency.
Here are the keys we would recommend for small business growth:
1. Income – what can you do to improve it? What are your KPIs (Key Performance Indicators) impacting income? Can you capitalise on modern marketing methods e.g. digital marketing? What are the key drivers to achieve sales numbers in your business?
2. Cost of Goods (COGs)– what are they and how are they different from Overheads? COGs are the costs directly associated with your product/service e.g. service labour and materials, product purchase, freight inwards, customs etc. How can they be more cost effective and efficient? Think ‘Productivity’.
3. Gross Profit – the result of your income less COGs. Check out yours compared to others in your industry by percentage. Percentage is the easiest and most accurate way to do the comparison.
4. Overheads – always a good place to find savings, efficiencies and modern ways of doing things. There could be tens of thousands of dollars in savings lurking here.
5. Net Profit – the result of your Gross Profit less Overheads. Check out how yours compares to those in your industry by percentage. Are you getting a good enough return for your efforts?
6. Accounts Receivable – there are many factors affecting how long customers take to pay – from how/when you invoice them to how/when they pay up. Find ways to speed it up.
7. Accounts Payable – on the other side of the ledger - how can you find ways to stretch your terms with suppliers without damaging relations? Improve terms in your favour.
8. Work in Progress – i.e. jobs in progress that haven’t been invoiced to customers yet, including labour and materials. A sure way to improve cash flow is to find ways to speed up finishing jobs, so they can be invoiced. Also reducing rework and any excuses for customers not to pay for finished work. Improve profit on jobs with focus on labour productivity and materials management.
9. Stock management – think of stock as dollar bills piled up on the stock room floor. You want it sitting there for as little time as possible i.e. enough for customers’ needs, but not too much to suck up precious cash.
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Sue Hirst is a co-founder of CFO On Call
4 Comments
Some truly wonderful insights here:
Gross Profit – the result of your income less COGs. Check out yours compared to others in your industry by percentage. Percentage is the easiest and most accurate way to do the comparison.
Er...percentage is the ONLY effective way to compare disparate baselines...
Net Profit – the result of your Gross Profit less Overheads.
Work in Progress – i.e. jobs in progress that haven’t been invoiced to customers yet, including labour and materials. A sure way to improve cash flow is to find ways to speed up finishing jobs, so they can be invoiced.
Er...how about negotiating a payment scheme with the client?
Overheads.
My first comment would be to get rid of the waste.
My second comment would be to get rid of the real overheads, we could really all do without.
My third comment would be to utilise clever people, who do not relish over heads, waste and incompetance.
But I do not know any. (Most have a vested interest)
So what the hell are we gonna do without removing scheming Banks and Politicians, lawyers, The Judicial System,drug pushers, prisons, socially engineered solutions, the arms race, and the nanny state, we have to support at any cost to ourselves, our businesses, our well being.
Add to that the cost of buildings, transport, Awklands fiasco, Wellingtons incompetance, entitlement thinking, importing corruption, overpriced fuels, energy and gas guzzlers for all the above.
Oh, and stealing from the elderly etc, to pay for it, out of their savings, leaving little left for indulging in playing games with houses, land banking, sewage expansion, water rates, effluent ponds, drought scheming, flood prevention, earthquake upgrades and rising insurances and ferry building.
So we import more issues, of other nations.
And create more issues of our own.
And they are failing too, hence the link above.
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