Virtual CFO

Really understanding your gross margin

Really understanding your gross margin

Let’s talk about your Gross Margin. Do you know what your margin is on the stock you sell or the services you offer? And if you do know, do you track its development? Often, I receive a yes to the first question, but the second questions is met with a blank stare or we’re told, I don’t need to, it doesn’t change. My response is always, are you sure about that?

So first things first, for those that aren’t all over it, let’s go over what this thing called a Gross Margin actually is. In a nutshell, your gross margin is the difference between what you invoice a customer for a product, and what you paid the supplier for that product, plus your on costs (inbound freight, duty, packaging ect). Different industries will have different margins on products, however your margin should be at a level that it covers your overhead/fixed business costs and leaves you with a reasonable profit.

Time to track KPIs in your business

Time to track KPIs in your business

One of the biggest misconceptions amongst small business owners is that KPI’s are something that big businesses set and track. They and their business are not sophisticated enough for KPIs or they don’t need a KPI to tell them how their business is performing or they’re snowed under with work and don’t have time for more admin – these are just a few of the common responses we receive when we question how they track performance and growth.

So what exactly is a KPI and how will it help you manage your business? A KPI is a Key Performance Indicator. Coming in different shapes and size, they can be implemented to measure just about anything worth measuring in your business. They can have either a financial or operational focus and will not only help you grow and remedy pain points, but assist with strategic planning.

Different KPIs will tell you if your business is growing as quickly as you think, or if you’re really making as much money as you believe. If your pricing is right or if you can afford to invest in new equipment. How long it takes you to convert a sale into cash or how long stock sits on a shelf.

We've Got Your 2019 Cash Flow Forecast Sorted

We've Got Your 2019 Cash Flow Forecast Sorted

Happy New Year!! I hope you all took the time to celebrate your wins in 2018, enjoyed some well-deserved downtime, are feeling refreshed and ready to take on 2019.

So have you checked your business bank accounts? Are they looking healthy? If so, hats off to you and keep up the great work. If not, it sucks, but you’re not alone. The Christmas/holiday period through to mid-January is often the most difficult time to manage cash flow.

Let me set the scene, your B2B customers have all been on holidays, many haven’t settled their December accounts and may not do so until their finance teams are back from holidays. Everyone being on holidays also means that end user sales are slow into January, which is made worse by the fact that most people are about to receive their post-Christmas credit card statements. Once they get over the bill shock, chances are they’ll cut down of general spending to pay off the damage done in December and again sales will take a hit. All the while, you’ve had to pay leave entitlements to employees during the holidays while little, to no cash was coming in.  All of these factors aren’t good for business right now, or your cash flow over the coming months.

Want to get paid faster? Here are 6 ways to make it happen..

This week I was sitting down with a client and an all too regular comment was made - “Seriously, why can’t people pay on time?” No matter what the size of the business, they all ask the same question. Getting paid according to our standard terms is all we want, yet it seems to be one of the biggest challenges we face.

Chasing delinquent accounts costs us time and money. Quite frankly, ain’t nobody got time for that!

Despite not being able to control the actions of our customers/clients, there are a few things we can do to encourage or even better, entice them to pay on time. Here are a few measures that work well:

Stock on hand can have a big impact on cash flow

Stock on hand can have a big impact on cash flow

Buying stock is challenging at the best of times. It can be difficult to gauge what stock to buy, or what are the right volumes to order, or what the right product mix is. This is a challenge faced by businesses big and small, however a few bad decisions can have a much greater impact on small businesses that don’t have enough of a cash buffer to carry them through.  

Generally speaking the faster you turnover your inventory, that is the faster you sell it, the less time your cash is held up in stock and the better your overall cash position. An easy way to assess how quickly stock is selling is to calculate your stock turns using the following equation:

 

Cost of Goods Sold/ (0.5 x Opening stock + 0.5 x Closing Stock)