1. Budgets & Cashflow Forecasts Help Business Management

Now is a good time to review or prepare budgets and cashflow forecasts.  We are doing quite a bit of this sort of work and it is proving immensely valuable for the business owners and management.

This involves:

Goal setting – what are your goals for the next 12 months, including your salary, targeted profit before income tax etc?

How is the economy likely to affect your business?  This covers interest rates, debtors’ days outstanding, gold and oil prices, unemployment.

Your business’ expectations?  What do you think will happen relative to:

• labour costs?
• cost of materials?
• support from your suppliers?
• market confidence etc.?

Sales targets – have you given consideration to the matters that have already been discussed?  What do you think is going to be your business’ realistic sales performance for each week and month during 2022 – 2023?

Stock purchases – does your business have to supply stock?  Do you need to create a stock purchases budget?  This will reflect the number of days you are budgeting to invest in stock on hand.

Overhead Expenses – the financial year has just started so it is a great time to subject the various expense categories within your business to a detailed review and questioning as to whether the expenses are necessary or whether the current suppliers are the best ones to continue to deal with during this year.

Break Even Analysis – what is your break even going to be in various business operations?  Are the managers/supervisors of those activities being informed of the break even calculations for which they are responsible?

Currency Fluctuations – the Australian Dollar will no doubt continue to fluctuate during the year.  If you are an importer or exporter, should you be trying to lock in currency cover?

“Profit” is not the same as “cash” – In the Budgets and Cashflow Forecasts prepared, you need to examine how much money is going to be tied up in debtors, stock and work in progress.  This is where a lot of your profit can end up; meaning that you don’t see it in your bank account.  Could the level of debtors or stock be reduced so that you can utilise more of the profits earlier?

Projected Source & Application of Funds Statement – it is a good idea to have a projected source & application of funds statement prepared because this will give a clearer outline of what is projected to happen in your business in the forthcoming 12 months.

Key Performance Indicators – once the Budgets and Cashflow Forecasts have been finalised, Key Performance Indicators can then be prepared so you can have these targeted amounts in mind to compare your actual financial performance against during the year.

If you wish to discuss the preparation of Budgets and Cashflow Forecasts, please contact us.

2. Customer Loyalty Ladder

To have a great business, you need to establish a customer loyalty ladder.  The ultimate aim then is to develop evangelists for your business, but where do you start?

The loyalty ladder:

In the first instance, a viewer is someone in the market place who could buy from you but is currently not a prospect or a customer.

Prospects are people who are not yet customers but who have shown some sort of interest in the products or services offered by your business.  They might have responded to advertising or may have requested a quotation.  The greatest cost every business has is attracting prospects and then getting them to take the next step to become customers.

Customers are people who buy from your business once, but you shouldn’t stop your marketing/promotional activities once someone becomes a customer.  In fact, you have only just started because you need to utilise systems, staff attitudes or your business’ knowledge to take customers to the next level.

Clients are people who buy from your business more than once, so you need to continue to promote and market your business to them – show them you care!

Member – a member is a client who has dealt with your business a number of times who you then offer a “loyalty card” or offer “other inducements” to make them feel they are an important component to your business.

Advocates – Advocates are different to members because, when asked, they will recommend your business.  Advocates need to be people who are well recognised by your team as being people who are prepared to be pro-active to viewers and prospects, in their support of your business.

Evangelists – the highest level of customer recognition is where an advocate becomes an evangelist.  An evangelist openly promotes your business through things they say to other people, comments they make on your website, facebook and blogs.  To develop an evangelist in your business, you need to make communications very easy and encourage members to become advocates and then to become evangelists for your business.

The team needs to understand that the first sale to a customer is the beginning of a relationship which will hopefully culminate in a customer becoming an evangelist for your business.

Then you have a loyalty ladder.

Keeping Customers Is Important

Consumers are looking to deal with businesses they can trust.  Is your business creating a feeling of trust with the customer?  It is a good idea to obtain testimonials, preferably on video, from happy customers and utilise these videos on your website.  Do you conduct customer surveys to discover customers’ likes and dislikes regarding your business?  This might mean you need to fine tune your business operation.

Staff should be encouraged to show passion and enthusiasm when dealing with customers highlighting your business’ unique selling proposition.  You can encourage loyalty from customers by focusing on providing them with superior service, and by offering specials to regular customers.  A good customer attraction and retention system should make significant contributions to your business’ cashflow.

If you would like us to review your customer attraction and retention system, please contact us.

3. What’s It Mean?

Debtors’ Days Outstanding

Debtors’ days outstanding is one of the most important key performance indicators available to a business manager.  The calculation should be prepared on a monthly basis and the resulting figure compared to budget estimates.  Debtors’ days outstanding is calculated as follows:

Credit Sales  365 = average daily sales

The actual debtors’ balance is divided by the average daily sales to give debtors’ days outstanding.

Example:

Credit sales     $2,382,000

365          =        $6,526

Debtors’ days outstanding        $327,000

Divided by average daily sale   $6,526   = 50.1 days

If your business is trading on 30 days payment terms, this means you are making available to your customers an extra $131,173 worth of credit.

If you would like to have a discussion on how to reduce the amount of money owed to you by your customers, so you are no longer acting as the banker, please contact us.

Break Even Sales

Is the level of sales necessary to cover all fixed and variable expenses (i.e.  no profit or loss).

Example:  If the fixed costs were $722,000, the variable costs were $319,000 and the business was

achieving a gross profit of 48%, the calculation of the break even sales would be:

Management should be aware of the break even sales figures for their business, or individual operation, so as to assist in the strategies being prepared for the business.

If you would like to have a discussion on how to work through your break even sales please contact us.