Profitability and improving your cash flow

Be careful of discounting

Know how much it costs you to provide something before you discount it. A lot of businesses have no real idea how much something costs them. Remember, the cost is the sum total of ALL the costs to you (it doesn’t mater if its a “thing” or a service). How much does “it” cost you from the supplier, transport, storage, maintenance, sales and advertising, staff costs, delivery and probably a whole lot more unique to you. For discounting to work – you have to generate enough extra sales to offset what you are losing off your profit margin. Discounting is best if you can use it to help sell other things (buy a sofa – cushions half price!)

Value add

Add value to what you sell. Bundle products and services where ever you can. This will increase the worth of the sale to you and also to make your offering more attractive to customers. Think about how you can increase the worth of every sale by adding extra value to what you sell. (Buy a shirt with that suit and get a tie for FREE!)

Repeat business

It’s about six or seven times more expensive to attract a new customer than it is to retain an old one. If you are a business or service that has the remotest chance of a customer using you/needing you again – then you should put every effort into encouraging that repeat business. Loyalty programmes, Facebook followers, VIP offers and “freebies” (and don’t forget “mates rates”). Anyone who has ever used you is “warm’ lead and much easier to sell too than a normal customer.

Alliances

Explore if there is a way you can team up with other businesses in complimentary products or services or to swap referrals. Big and little businesses do this all the time. The health funds often offer “customer discounts” for gym memberships to sweeten the deal while joining the gym will get you a discount with a health fund. A beauty therapist might refer customers to an allied hairdresser and vice versa.

Advertising

This is an obvious one. No one can buy from you unless they know you exist. But you do need to do some research. A lot depends on what you sell and who you sell to. Make sure to consider new ways to advertise. Social media, Google Pay Per Click, Groupon – there are a whole new range of ways to get your message out. But again, research, get advice and consider help. If you don’t know what you’re doing it can be easy to blow your budget for no results.

Get paid

Limit credit extended to customers and enact steps to ensure prompt payment. Just getting paid on time (not as common in Australia as it should be) can be a huge boost to your cash flow and piece of mind. Modern online accounting systems have “apps” to help make sure you are paid on time. Checkout out the website of your chosen accounting service (Xero, MYOB, etc) to learn more. Also talk to your accountant.

Minimise inventory

Computers and modern inventory systems mean you do not need to tie up as much cash in your businesses inventory as was the case in the old days. Maybe you already have everything perfectly organised but it’s worth double checking to see if do not need to have so much company money tied up in your stock.

Know EVERYTHING so you know how much you make

If you, or your book keeper, don’t measure every cent coming in and going out then you won’t know what your break even point is. Your cash flow is the money you make MINUS what you spend. This might seem obvious but it trips up a lot of businesses. Some expenses are obvious or reoccurring and easy to keep track of but some are hidden in the sense that they are expenses you don’t really notice or have ever considered.

But there will also be big “one off” expenses. Let’s say you run a delivery truck business and have three very profitable months – but you need to buy an extra truck. Average it out and you actually lost money – but that extra truck means that in the long term you will make a fortune. But still, that won’t help if you go out of business first.

Modern bookkeeping software is incredibly good at keeping track of your cash flow and controlling it. You need to use it and know how to make it work for you.

Talk to your accountant

No, this isn’t shameless self promotion, your accountant lives, breathes and dreams about cash flow, profits, “best practice” and everything else to do with money and business. So talk to your accountant because they will know things you don’t and can advise you in how to save money and make money.

Call: 1300 268 800

For a free, no obligation, discussion of how we can help you business grow.