25th November, 2015
There are plenty of stories about businesses doing it tough. The reasons are many, and include consumer/business confidence waning, digital disruption, the end of the mining boom, and many others. If your business is experiencing profit or cash-flow squeeze due to any reason, here are some ideas to help you weather the storm.
Is your business model still relevant? Are there new competitors in your market who aren’t saddled with old ways and costs of doing things?
Take accounting firms, for example. The switched-on ones are now working with their clients in the cloud, which saves both the accountant and the client many hours of data entry and double handling of data. The cloud enables accountants to closely monitor their clients’ performance and alert them quickly when things are going off track. Those who haven’t embraced this way of looking after clients are struggling to compete and stay relevant. Look at your industry and innovation that is changing the way things are done – ask yourself how you can embrace it to remain relevant and thrive.
This is the dollar amount of sales required to cover your business overheads. It’s beyond this point where you start to move into profit. Depending on your business, you might break this down to a monthly, weekly or daily break-even point.
It is not as simple as it might seem, since some costs vary with sales volume, whereas others are fixed. Get your accountant to help you analyse your cost structure and let you know the level of sales required to break even. Depending on your business, if your average transaction value is consistent, you will even be able to break this down further into units required to be sold. If you don’t know these numbers, be sure to ask your accountant to do some work on it for you.
Once you know your break-even point you will have a target to work towards and share with you team.
If you’re having trouble managing your cash flow, here are some suggestions that might help:
Cutting costs isn’t something business owners like to do, however sometimes there isn’t a choice. Finding areas to save on costs will reflect directly on your bottom line.
One of the biggest expenses is staff. While you don’t want to cut good staff, you should definitely conduct a regular review. Prepare an organisational chart, setting out all the tasks that need to be done in the business and who is doing them now. Compare your findings against each staff member’s job description – you may find there are overlaps and gaps. Take the opportunity to realign roles within the business and make sure all critical tasks are covered. (If you do find one or more roles need to be cut, make sure you handle redundancies correctly to avoid unfair dismissal claims.)
Here are some other cost-saving ideas:
If you take the time to review every cost you will find savings – which could add up to thousands of dollars. Every dollar saved goes straight to your bottom line, whereas every dollar of extra sales may deliver considerable less.
When things pick up again, not only will you survive, your business will thrive with better financial management.
Sue Hirst is a director of CFO On Call. For more ideas on keeping your business on track in tough times, download the e-book ‘7 Ways to keep your Business Sustainable & Good to Grow’.