There are plenty of stories about businesses doing it tough. The reasons are many, and include consumer/business confidence waning, digital disruption, the end of the mining boom, and many others. If your business is experiencing profit or cash-flow squeeze due to any reason, here are some ideas to help you weather the storm.
1. Review your business model
Is your business model still relevant? Are there new competitors in your market who aren’t saddled with old ways and costs of doing things?
Take accounting firms, for example. The switched-on ones are now working with their clients in the cloud, which saves both the accountant and the client many hours of data entry and double handling of data. The cloud enables accountants to closely monitor their clients’ performance and alert them quickly when things are going off track. Those who haven’t embraced this way of looking after clients are struggling to compete and stay relevant. Look at your industry and innovation that is changing the way things are done – ask yourself how you can embrace it to remain relevant and thrive.
2. Understand your break-even sales point
This is the dollar amount of sales required to cover your business overheads. It’s beyond this point where you start to move into profit. Depending on your business, you might break this down to a monthly, weekly or daily break-even point.
It is not as simple as it might seem, since some costs vary with sales volume, whereas others are fixed. Get your accountant to help you analyse your cost structure and let you know the level of sales required to break even. Depending on your business, if your average transaction value is consistent, you will even be able to break this down further into units required to be sold. If you don’t know these numbers, be sure to ask your accountant to do some work on it for you.
Once you know your break-even point you will have a target to work towards and share with you team.
3. Manage your cash flow
If you’re having trouble managing your cash flow, here are some suggestions that might help:
- Put together a weekly cash flow forecast – whether it be on a spreadsheet or a dedicated tool, getting it down in black and white really helps you to clearly understand the situation. If things are really bad you may need to do a daily forecast for more control.
- Review the picture. If the forecast shows shortfalls work out ways to handle them, such as reducing stock, pushing out suppliers, bringing forward sales, get customers to pay earlier, enter an arrangement with the tax Office, cutting overheads etc.
- Constantly monitor the situation and when it gets better don’t drop it completely, but drop to monthly or quarterly.
4. Save on costs
Cutting costs isn’t something business owners like to do, however sometimes there isn’t a choice. Finding areas to save on costs will reflect directly on your bottom line.
One of the biggest expenses is staff. While you don’t want to cut good staff, you should definitely conduct a regular review. Prepare an organisational chart, setting out all the tasks that need to be done in the business and who is doing them now. Compare your findings against each staff member’s job description – you may find there are overlaps and gaps. Take the opportunity to realign roles within the business and make sure all critical tasks are covered. (If you do find one or more roles need to be cut, make sure you handle redundancies correctly to avoid unfair dismissal claims.)
Here are some other cost-saving ideas:
- Premises – Do you need what you’ve got? Can you manage with less space (as long as the costs of moving don’t outweigh savings?? Could you sublet some of your space temporarily?
- Communications – What type of phone system do you have? Can it be updated to save money or can you get a better deal with your phone carrier?
- Banking/loans – Have you reviewed them and do you fully understand the terms and costs. One example we recently heard was a business using debt factoring, where the cost was thousands of dollars more than they had expected, due to unclear understanding of the contract.
- Technology – Applications to automate tasks can save many hours and dollars, as well as improving customer satisfaction. Are there some that your business can benefit from?
- Advertising/marketing – Are you doing it cost effectively? Have a look at what return on investment you’re getting for your spend and find ways to improve it.
- Insurances – Shop around for better deals.
- Energy – Consider ways to reduce your energy bills with efficient lighting and temperature controls.
- Travel – Do you really have to travel for meetings? Could you conduct them as effectively online? Many businesses use Skype on a daily basis to save money and time.
If you take the time to review every cost you will find savings – which could add up to thousands of dollars. Every dollar saved goes straight to your bottom line, whereas every dollar of extra sales may deliver considerable less.
When things pick up again, not only will you survive, your business will thrive with better financial management.
Sue Hirst is a director of CFO On Call. For more ideas on keeping your business on track in tough times, download the e-book ‘7 Ways to keep your Business Sustainable & Good to Grow’.