When the business owners I talk to ask me about increasing their profit, the one and only thing they focus on is sales. But there are other ways to increase profit and one of them, possibly my favourite, is to get control of and reduce the outgoings in the business. In fact, for some businesses, a focus on outgoings has saved them, and allowed them to thrive in better times.
If you’ve suffered a drop in turnover, due to Covid-19 here are some key things you should have in place now – please do not rely on guesswork or, even worse, bury your head in the sand!
Cash flow is the money that moves within your business each month – into and out of your bank accounts. When something stops that cash from moving it can have a negative impact on your business and a serious knock on effect to the people that they must pay. This may not be your fault.
Having a lack of cash is one of the biggest reasons that a business fails and must be shut down. Running out of money is the quickest way for a business to cease trading because there is not an adequate amount of financial reserves to turn to whenever there is a problem.
Cash Flow and Budget forecast – This is crucial in any business and especially during these uncertain times to show you the reality of your solvency position. You need to know where to put the focus in your business to get the income and profits you deserve. Do you know when you may hit your cash pain points? Another question I would like to ask – Will you survive or become insolvent?
Breakeven – Every business needs to know the level of sales necessary just to break even, knowing your direct, indirect, and capital costs and the amount you need to draw from the business to live.
Stop unnecessary payments, look at all your direct debits, standing orders and other regular payments. I am amazed at the number of business owners lose track of what some existing payments relate to, and when they check they realise a particular service is not being used or of benefit to their business anymore. My advice is to look and evaluate every standing order and direct debit you have coming out of your bank account, monthly, quarterly, and annually. Give notice on any service that you are paying for that is currently not relevant or of benefit to your business.
Job costing – There are several key things you can do here; Ensure you know every cost in detail involved in a job or service. Speak to each of your existing suppliers so that you both agree on the costs they will be charging you, are they giving you the right/best cost for the service or product you are receiving.
Purchasing/buying is a huge area where some businesses do not have control over their costs and not able to negotiate better costs. There are professional people that can help in this area procurement specialists can help save thousands of pounds in certain areas of your business especially in Manufacturing industries. I encourage you to have efficient use of spending resources: look at all your purchasing, utilities, office rental, telecoms/communication, software, and subscriptions to name a few.
Intelligent reporting – Having the above in place is one part of the process, the second is how you monitor, review, and know where to put the focus in your business and facing facts when making necessary key decisions. A Management Accountant makes use of the information provide by bookkeeping and is responsible for interpreting, classifying, analysing, reporting, and summarising the financial data. They will tell you about your business so you can make the right decisions to grow and at the very least survive.
If you don’t currently have an advise or wish to discuss your options on how to reduce costs and cash flow support measures to know where to put the focus in your business, I’m more than happy to help, please contact email@example.com to arrange an initial free consultation.
Fiscal Business Services Ltd