There’s always a mad rush of activity leading into the End of Financial Year (EOFY), but what about Beginning of Financial Year (BOFY)? This is a perfect time to make financial improvements that will boost your business success and increase profits.
We’ve just come out of that time of year where everyone is advertising their products and services leveraging off ‘End of Financial Year’. And while it’s great to be on the ball with getting as many tax deductions as possible, what I want to talk with you about today are your plans for BOFY: ‘Beginning of Financial Year’ i.e. the one that started this month.
Presumably, if you’re in business, you want to achieve and increase profits. Here’s a checklist of what to focus on to ensure sustained and improved profits this year:
1. Sales/Gross Profit
Review sales and gross profit by product, service, customer, region, division etc. to determine which ones you should be focusing on this year. Perhaps there are some you should ditch that are dragging things down. Consider new opportunities available due to changing business conditions. Be a survivor of
‘Digital Disruption’ not a victim. If you aren’t comfortable with online/digital marketing get some help in this area. Unless your business appeals to those only over say 65 you must get it together online. Run a strategic planning session with your team or find someone to facilitate it for you. Brainstorm ways you can achieve sustainable sales improvements.
Closely review your business costs e.g. are there ways you could achieve supplies more cost effectively and efficiently?
Labour hours is a massive opportunity to achieve better productivity in a service business. Look very closely at everyone’s productivity level i.e. how many of the hours they’re working are you able to bill to customers? Small changes in work practices can have massive impact on profitability. Ask yourself “Am I selling all the hours I’m paying for?”.
Answer these questions honestly:
- How long since you increased prices?
- Have you been too worried you will lose customers if you do this?
- Can you continue to suck up the margin squeeze created by increased costs without increasing your prices?
- How much more is your overhead this year compared to the previous two years?
If you’re being squeezed by competitors you must fight back by lowering your costs to compete or by explaining to the market why they should pay more for your better product/service. You need to make the ‘invisible visible’ by describing what you do that makes your offering so much better, longer lasting or whatever is your ‘point of difference’.
4. Overheads/net profit
Closely review all your overheads and ask yourself these questions:
- Why are we spending this money?
- How does this expense contribute to the business and our profitability?
- Should we stop spending on this item?
- Is there a more cost effective alternative or better way of achieving this?
- Should we seek an alternative supplier – if only to get current supplier to sharpen their pencil on costs?
It really pays sometimes to create an environment of competition amongst suppliers. Don’t underestimate your value as a customer to them.
5. Customer payments
How does the average number of days it takes us to get paid by your customers compare to the terms you offer? Not many business owners really understand and/or appreciate the massive difference between these two numbers and the horrendous impact it can have on cash flow if the difference is large. Work it outand set yourself a goal to reduce this number.
6. Supplier payments
What is the average number of days it takes us to pay suppliers compared to the terms they offer us? If you’re not taking advantage of every day of the terms offered you could be creating unnecessary cash flow squeeze. It really pays to seek better terms from suppliers – particularly if you’re a big customer and they have plenty of competition for your custom.
7. Stock management
How much stock do you really need to keep on hand at any given point? Think of stock sitting in your stockroom as dollars piled up on the floor that could be used for other things e.g. marketing to get the stuff out of the door quicker. It’s so easy to get sucked into buying things in bulk to get discounts, but if the stuff is going to sit around sucking up precious cash, you might be better to buy in smaller quantities. Consider ways to minimise the amount of stock.
8. Job Management
How much money do you have tied up at any one time in jobs in progress? Try to find ways to speed up the time it takes to get payment on jobs e.g. through a deposit, progressive invoicing etc.
Set a plan this year to focus on these key aspects of your financial control and you will almost certainly increase profits and cash flow in the coming financial year.