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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Growing your business without borrowing

Columnist Sue Hirst reviews some initiatives that businesses can take to reduce their external financing needs when growing their business.

Overheads: This is an area where you can make massive savings. Do a review of all overheads and ask yourself these questions. Why am I spending this and what “value” does it deliver onto the bottom line? Should I cut it out? How could I do this differently to achieve a similar result? Who else could deliver this product or service and how much would they charge?

Purchase orders: Introduce a purchase order system into your business ie no money gets spent unless you, the business owner, approve it. It may sounds tedious but the resulting savings will far outweigh any tedium.

Outstanding customer accounts: This is an area where I often see much needed cash just sitting there waiting to be collected. It will often cost much less to get the money in than the extra funds resulting from the effort. Once you get into this habit you will need to borrow far few funds to run your business.

Supplier accounts: This is an area where available money is often under-utilised. You as the business owner should have very tight control over payments to suppliers. You need to ensure that you are not paying suppliers too quickly. I have seen this time and time again where an employee pays the bills and is way too quick at getting cheques signed. This puts unnecessary stress on cashflow and the business owner who has to deal with the result.

Stock: Try to think as hundred dollar bills sitting on your stock room floor. The aim here is to have stock sitting in stock for as little time as possible. You need to know your stock usage patterns. You can find this out by looking at previous items and setting a program for purchasing stock, ie not just when the sales rep calls in with an offer of a discount. A discount could cost you precious cashflow. Do the comparison and you may find the discount actually ends up costing you lost sales, because you weren’t able to sell other more profitable products or spend money on marketing.

Jobs in progress: The aim here is to get the jobs finished as quickly as possible so that you can invoice customers and get paid. If you can get a deposit to cover costs, this is a great place to begin injecting cash into the business. Progress payments are also a great way to ease the cashflow burden.

The best way to speed up job completion is to have good systems in place to ensure no hold ups occur and quality isn’t compromised. A job management system may seem like an expense, but once installed into your business you have it forever, creating efficiencies and improved cashflow.

Staff, job descriptions & incentives: Now is a good time to review how the business operates and who it needs on the team. Start by looking at all the tasks performed in the business (you may find some you want to stop doing!). Look at who is performing them now and how well they are doing. A reshuffle of job descriptions might be in order. It’s much easier to get people to do what they will do and are motivated by.

When something comes up don’t just hand it to the nearest person, ask “who is the best person to do this?” Understanding the strengths and weaknesses of your team members is a great place to start. There are analysis tools around to assist with this if you can’t immediately put your finger on it.

Staff incentives are a great way to improve performance. Work out the “Key Drivers” in your business and create incentives to support them. Key Drivers are generally the things that create customer satisfaction in your business. You will be amazed at the increase in positive activity when an incentive is introduced. Ensure incentives are based on profit not just sales and loyalty is built into them ie they are paid once or twice yearly.

If you can implement all these improvements in your business, the level of money “freed up” may mean you never have to go “cap in hand” to the bank again!

Remember the bottom line (profit) is ultimately where you want growth, not just the top line (sales). Business value is mostly calculated on profit, so this is what you want to concentrate on.

Sue Hirst
My Business, November 2008

www.cadpartners.biz

 


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