Cash Flow

3 Tips to Combat Cash Flow Issues Now

3 Tips to Combat Cash Flow Issues Now

We’ve been working with a client who a few months back found themselves in a real spot of bother when it came to cash flow.

They were experiencing a sales slump which was heightened by some negative business events which were outside of their control. This perfect storm lead to a complete depletion of cash holdings in the business. Gone were the savings or cash buffers that once existing and these unfortunate business owners found themselves in unchartered waters with growing ATO debt, unpaid suppliers putting them on stop supply, and the inability to restock a warehouse with their top selling items. They had entered a vicious cycle and without quick action they knew they would be faced with ruin.

When we assessed all of the factors at play the number one priority for everyone was to get cash in and fast. It wasn’t about major structural or process changes. Sure, both were needed but right now they weren’t going to keep the business afloat. Quick wins were what we needed.

Strong margins will gear you for growth

Strong margins will gear you for growth

I know it seems like I’m constantly banging on about Cash flow and Gross Margin and that would probably be because I am. Healthy margins and cash flow almost always result in strong businesses that are geared for growth. This is what you should aim to be and hopefully our tips and blog posts are getting you one step closer to this.

To give you some context, we recently conducted a detailed margin review for a client who had experienced a decline in profit despite sales and overhead expenses tracking along as forecasted.

When setting the price point for their products, they calculated that they’d have a 55-60% gross margin (or 40% material costs), approx. 40% in overhead expenses and a net profit margin of approx. 20%. Good healthy financial results, which would result in a self-sustainable business that was cash flow positive and had the ability to invest in further research and development (R&D), whilst continue to aggressively advertise and promote their existing product range.

On paper the forecasts looked great. They were well thought out and appeared to be based on sound calculations. However 6 months into the financial year, things were not running to plan. Sales were strong, with many of their growth projections being met, however gross margin was tracking well below expectation. Instead to tracking along at 60%, the actual gross margin was only 45%. With 40% in overhead expenses, net profit before tax only represented 5% of total sales.

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.