Together Business - Blog #Cashflow

The seventh cause of poor cashflow - Sales levels are too low

Mon, 25 Mar 2024 13:01:00 +0930

It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing.

This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers).

There are five ways to improve your sales levels. These are:

1. Increase customer retention.

Stop your customers from defecting to the competition.

2. Generate more leads.

Gain more enquiries from people who are not yet customers.

3. Increase your sales conversion rate.

Get more of your prospects to buy from you.

4. Increase transaction frequency.

Engage your customers to buy from you more often.

5. Increase transaction value.

Help your customers to buy more products or services from you.

There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason.

What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients - both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change?

The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences.

Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.

The sixth cause of poor cashflow - Overheads are too high

Wed, 13 Mar 2024 05:25:00 +0930

At Together Business, we understand that keeping tabs on your expenses is crucial, especially as your business grows. While many business owners are diligent about managing costs, as your company expands, it's easy for management control to slip, leading to unnecessary spending.

To ensure your business stays lean and efficient, it's essential to regularly review your overheads. This should become a routine part of your business strategy, ideally conducted annually.

Here are some questions to guide your review:

Do you and your key staff have clear expense budgets? How are these budgets managed?
Have you taken a close look at your debt service costs and associated fees?
What policies do you have in place to control expenses for sales staff, including allowances, vehicle expenses, entertainment, and credit card usage?
How much did you spend on marketing and advertising in the past year? Have you evaluated the effectiveness of each spending component?
When did you last update your IT support contract? Are you paying a fixed monthly fee, and is it appropriate for your current needs?
Take stock of all your monthly subscriptions for SaaS cloud services. Are you fully utilizing these services, and are you on the right plan for each?
Do you view your accounting fees as a cost or an investment? If it's merely a cost, it might be time to explore ways to reduce it. However, if you're seeing tangible benefits from our services, consider increasing your investment for better business outcomes.

To maintain control over your spending, it's advisable to set budgets and monitor them regularly, preferably on a monthly basis. We're here to help you navigate this process and demonstrate how reducing overheads can positively impact your cash flow. Let's discuss the best approach for your business.

The fifth cause of poor cashflow - Gross profit margins are too low

Wed, 06 Mar 2024 05:13:00 +0930

Boosting your gross profit margin is essential for any business, especially those focused on social outcomes. It's not just about making more money; it's about making sure your hard work pays off financially.

What's Gross Profit Margin?

Your gross profit margin is what's left from your sales after you've covered the costs of making or buying the stuff you sell. For example, if you sell stuff for $1,000,000 but it costs you $650,000 to get or make that stuff, your gross profit margin is $350,000, or 35%.

The Power of Improvement:

Now, imagine if you could increase that margin from 35% to 39%. That might not sound like much, but it could mean a big jump in your profit—from $350,000 to $390,000, which is $40,000 more. Sure, you might need to spend a bit more to make that extra profit, but it's worth it.

Tailored Strategies for Success:

Every business is different, so there's no one-size-fits-all solution. If you run a shop, you might focus on stopping things like theft and making sure you don't discount too much. If you're a contractor, you might look at ways to reduce waste, make sure you bill for all your work, and help your team work more efficiently.

How We Can Help:

Figuring out the best ways to boost your margins can be tricky, but you don't have to do it alone. Our team knows how to help businesses like yours find the right solutions. We have tools, like our Cashflow & Profit Improvement Calculator, that can show you how even small changes can make a big difference.

Take Action Today:

Don't let low profits hold your business back. Get in touch with us, and we'll work with you to make sure your business is making as much money as it can. Your commitment to making a positive impact deserves to be rewarded financially, and we're here to help you achieve that.

The fourth cause of poor cashflow - Your debt or capital structure

Thu, 22 Feb 2024 18:56:00 +0930

At Together Business, we're all about helping social enterprises like yours navigate the ins and outs of finances. In this part of our blog series, we're diving into a key aspect: how reviewing your existing debts can save you money and boost your cash flow.

To get started, gather all your current financial obligations. This includes things like loans from banks, mortgages, finance company loans, hire purchases, and credit card debts. Leave out any money owed to suppliers. Write down how much you owe, the interest rate you're being charged, whether the rate is fixed or changes, and how long you have to pay it back.

Think about combining your debts into one if you can, and stretching out the time you have to pay it back. This can free up cash for your business to grow or just cover your day-to-day expenses and personal spending.

If you're finding that the money you take out of the business for yourself is putting too much strain on your cash flow, it might be time to reassess. Maybe your business needs to make more profit to support your spending, or perhaps you need to put some money into the business to help it grow.

Take a close look at your personal spending habits. Make a list of everything you spend money on each year, like rent, childcare, groceries, and eating out. You might be surprised by how much it all adds up.

Sorting out your debts and how you're funding your business can make a big difference to your cash flow. We can help you work out an updated personal budget and Cashflow Forecast to see how much extra cash your business could have with a few simple changes.

Forecasting might sound tricky at first, but it's one of the most important tools for your business. We'll walk you through it, so you'll feel more confident about your financial future and sleep better at night. Let's work together to make your business finances stronger and more resilient.

The third cause of poor cashflow - Your stock turnover

Wed, 14 Feb 2024 10:34:00 +0930

Ensuring your shelves are stocked is important for any business, but it's equally crucial to keep your bank account healthy. If you provide services instead of physical products, imagine your work in progress as virtual stock – it needs to be managed efficiently to avoid financial strain.

Calculating your 'stock turn' is like figuring out how quickly you're turning your inventory or work in progress into cash. It's calculated by dividing your cost of sales by your average inventory or work in process. Don't worry if this sounds complicated; we're here to guide you through it.

Remember, every industry has its own way of doing things, so comparing your stock turn to others might not give you the full picture. What matters most is making your own business more efficient at turning stock into cash.

Here are some questions to get you started:

Stocking Strategy: Do you have a plan for how much inventory you should keep on hand, when to reorder, and how much to keep for emergencies?

Inventory Management Software: What tools do you use to keep track of how much stock you have?

Stock Policies: Are your rules clear about what to do with items that aren't selling quickly?

Shrinkage Costs: Do you know how much money you're losing to theft or damage?

Ordering System: Is there a clear process for deciding when to order more stock?

These steps are just the beginning. If you think your stock levels are hurting your cash flow, let us know. In our Cashflow & Profit Improvement Meeting, we'll go over the numbers together and come up with a simple plan to get your business's cash flowing smoothly. Let's turn your stock into cash, faster and smarter.

The second cause of poor cashflow - Your accounts payable process

Wed, 31 Jan 2024 14:14:00 +0930

Managing cash flow effectively is crucial for the success of any business, big or small. At Together Business, we understand the challenges that businesses face, which is why we're committed to simplifying financial concepts and offering practical advice to help you navigate your finances with ease. In this article, we'll explore the second common cause of poor cash flow and provide actionable tips to improve your cash flow management.

The second common reason for poor cash flow is how and when money is spent, particularly in dealings with suppliers. Understanding this aspect of your business can make a significant difference in your financial health.

Setting Spending Limits:
A good starting point is establishing a clear spending budget for your business. This budget should be created annually, preferably before the start of the new financial year. By setting spending limits and ensuring that authorised team members adhere to these limits, you can prevent overspending and maintain better control over your finances.

Reviewing Accounts Payable Processes:
Take a moment to review your Accounts Payable process, from the moment you place an order to when the payment is made. Documenting this process can help identify areas for improvement and streamline your payment procedures.

Checking Supplier Terms:
When was the last time you reviewed the terms of payment and prices from your suppliers? Understanding payment expectations, early payment discounts, and late payment penalties is crucial for effective cash flow management. By staying informed about your supplier terms, you can take advantage of discounts and avoid unnecessary expenses.

Comparing Supplier Prices:
Regularly comparing prices from different suppliers can help you ensure that you're getting the best value for your money. Consider not only the price but also factors such as delivery charges, payment terms, and discounts offered. This comparative analysis can inform your purchasing decisions and help you optimize your spending.

Mitigating Risks and Building Relationships:
In addition to managing cash flow, it's essential to mitigate risks such as fraud and human error. Implementing robust controls and building strong relationships with your suppliers can further safeguard your financial interests and foster long-term partnerships.

Effective cash flow management is essential for the financial health and sustainability of your business. By understanding how and when money is spent, reviewing supplier terms, and implementing best practices in accounts payable processes, you can improve your cash flow management and set your business up for success. At Together Business, we're here to support you every step of the way on your financial journey.

Schedule a Cashflow & Profit Improvement Meeting with us today to explore personalised solutions for your business.

The first cause of poor cashflow - Your cash lockup

Sun, 28 Jan 2024 15:30:00 +0930

Maximising Cashflow: Strategic Steps for Indigenous Businesses

Reducing the time that cash is 'locked-up' waiting for people to pay you is crucial for small business owners, and is a multifaceted task that demands a strategic approach. In the dynamic landscape of Indigenous business and social enterprise, understanding the distinction between profit and cashflow is crucial for sustainable growth. While profit is generated through invoicing, actual cashflow increases when payments are deposited into your bank account. This article sheds light on the significance of managing cash lockup and provides valuable insights into enhancing billing and collections processes.

1. Billing Strategies: Efficient billing is a cornerstone for improving cashflow. Consider the frequency that you invoice your clients. The sooner you invoice a customer, the faster you'll receive payment. For businesses with extended service durations, the option of progress billing is suggested as a means to consistently inject cash into the business.

2. Efficient collection of cash: Once the work is completed and the invoice is sent, the focus shifts to collecting the money. It is important that business owners establish clear Terms of Trade with customers before initiating any transactions. Shortening payment timeframes, such as a 7 or 14-day period, is recommended to as a quick way to reduce cash lockup time.

Clear Expectations: The importance of setting clear expectations regarding payment timelines is stressed, ensuring that customers understand when their accounts are due for settlement.
Payment Facilitation: Ensure your payment processes are user-friendly. Invoices and statements should feature easily accessible online payment options or provide explicit bank account details and due dates. Offering multiple payment methods, including direct debit, credit cards, Eftpos, and debtor finance where applicable, enhances customer convenience and expedites payments.
Incentivising Prompt Payment: Businesses are encouraged to explore the benefits of offering small discounts for prompt payments, as this can foster positive relationships with customers while accelerating cash inflow.

Want to dive deeper? Talk to us about our Cashflow & Profit Improvement Meeting. We’ll show you what’s possible - in cold hard cash of course!

Requesting payment of overdue accounts in an economic slowdown

Wed, 27 Dec 2023 15:00:00 +0930

Cash has always been king but it’s even more important during times of economic slowdown. The slower the economy, the less cash is available in businesses, and the more likely it will be for some customers to be unable to pay.

To protect your business and minimise the risk to your cashflow, follow these six steps to help ensure you get paid.

1. You must continue to enforce your Terms of Trade, however, your approach must change.
Do not adjust your expectation to receive what you are owed but tread carefully with your payment request, or you could risk irreparable damage to your brand and reputation.
2. Triage your debtors.
Consider each customer’s likely financial position; how impacted will their cashflow be in these times? Those who are most at risk need to be treated with empathy and flexibility.
3. A phone call is likely to be the most appropriate contact method.
An email may get missed or inadvertently deleted. Also, it’s hard to portray empathy in an email. A quick, polite phone call to your customer will be respected.
4. When you call customers with outstanding payments, first ask how they are.

Your initial assumptions may be wrong, and they may have been more impacted than you realise. Be respectful and kind in your positioning. If your customer is genuinely struggling, demanding payment within 48 hours may not be appropriate.
5. Offer severely impacted customers options to resolve their balance.
Be honest and tell the customer you are calling to discuss their overdue account and offer them some options, such as spreading payments across the next 6-12 months. Empathy, directness and professionalism are key.
6. Reach an agreement, record the details and set a reminder to check when due again.

If payment doesn’t come through on the agreed date/dates, follow up with the customer (again, with empathy, flexibility and options). Flexibility now will pay off in the future.

In reality, some customers may simply be unable to make payments. If this is the case, referring their account to a debt collection agency may be pointless. Consider the potential brand damage of appearing aggressive during difficult times.

Nobody is immune to the impact of an economic downturn, now or in the future.

Contact us for some scripts that will help you achieve better debtors’ outcomes when phoning clients to discuss overdue accounts. We can also provide you with a Credit Management Guide to support you to manage your accounts receivable and ensure your best shot at getting paid.