Articles

Get More Cashflow In Your Business Without Increasing Sales

March 29th, 2011

At some stage when you moved from the role of an employee to a business owner there must have been some thought about the money side of things. What profit were you going to make, how much turnover did you need to break even, what did you need each week to pay the bills and feed the family?

Sometimes though those initial thoughts, plans or budgets can get lost in the daily doing of being in business. A client once said to me that they would prefer to go broke sitting on the beach rather than doing a job with nil profit, so why is it that many businesses do an activity but don’t maximise their return?

If you want to make sure that you are maximising the cashflow in your business from each job or sale here are some key points without having to increase sales:

  • Get your price right from the start
  • Keep an eye on productivity
  • Watch stock movement
  • Watch for scope creep
  • Measure your activity
  • Review and re-adjust

Getting your price right from the start
Before you present a price to a client or customer, you need to know what it will actually cost you to deliver the goods or service. What is the cost to you, how many GP$ or what GP% do you need to generate through the sale, how long will it take and what are other prices in the market.

Watch Productivity
If you’re delivering a service will it take you as long as you estimated when you were arriving at your price? If you’ve allowed x hours have considered that you or your staff aren’t able to be productive 100% of the time (they need to have annual leave, eat lunch or chat). If you budget for 1 hour and it takes 1½ hours, your productivity and more importantly profitability has all of a sudden taken a hit. It means a double whammy for the company – you’ve had to pay a staff member an additional wage cost which you hadn’t factored into the price as well as miss the opportunity to have that time delivered to another client.

Keep an eye on that stock
If you have stock you want to turn it as quickly as you can and keep an eye on ‘slippage’ (which once upon a time we would have just called theft!). Don’t forget though that some stock for whatever reason won’t make it to market and you need to allow for that as well when you are pricing. Your true GP$ for stock isn’t just the sale amount less the cost of sale, you need to build in any other movements as well such as theft or dated product.

Scope creep can really creep up on you
Scope creep is where you end up doing more for the client than you expected to. Now while it’s ok to over deliver on expectations, if you are doing this all the time and missing the opportunity to complete work elsewhere you’re in effect giving your GP$ away. Watch the project or work, make sure the scope is very clear before you begin and have a process in place where if you do end up doing more you’re recovering that.

Measure what you do
The old saying if you don’t measure it you can’t manage it is so true. Know your key numbers, make sure you are looking at the GP$ or GP% that each transaction is giving you. Once you start measuring you may see some goods or services that you are better not to offer and others that it may pay to focus on. Keep the measurement process simple, but make it on-going. If you wait to look at monthly management reports, or worse still end of year financials it’s probably going to be too late to know if you are underselling, overpricing or not getting the returns that you need.

Be prepared to change
If you are watching pricing and you think you do need to move it, then be prepared to do just that. Too often business owners won’t move because they’re scared the price will turn clients away. That may be fine in the short term, but if you’re not reviewing pricing on a regular basis, when it is time to move, any change suddenly becomes too extreme.

Also you need to consider what may happen if you discount or increase prices and how many sales do you need to get back to your break even point?

If you had a margin of 40% and you discounted by 8%, you need to increase sales by 25% just to break even.

On the other hand, if you had a margin of 40% and increased your sales by 4%, you can afford to loose 9% of sales until you’re in a worse position.

So understand the numbers, measure what you do, be prepared to change, otherwise you may as well just go and sit on the beach!

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