46 DEC 2022/JAN 2023 SUE HIRST Here’s what’s included in the plan: 1. Profit and Cash Flow Knowing your ‘break-even’ sales point is the best way to avoid losses. i.e. sales needed to achieve $0 profit, then use that for targeting profitability. Issues affecting cash flow are sales, costs, overheads, pricing, customer/supplier payments, stock, jobs, finance and taxes. Focus on these for better cash flow. 2. Budgeting and Cash Flow Forecasting A budget sets out financial goals, provides something to measure against, and shows how on/off track you are. Review it monthly and fix things. Cash Flow Forecasting deals with timing and movement of cash, as customers don’t pay immediately, and you get terms from suppliers. The cash flow forecast includes taxes, dividends, loans etc. 3. Pricing and Cost Management For profitable pricing, you need to know the ‘true cost’ of products/services, including everything directly related to production, for example, if selling widgets, the cost of the widget and getting it into stock to sell. Once you know the ‘true cost’ and desired profit, set a price to achieve that. Competition impacts price, but knowing the ‘true cost’ can ensure your price is profitable. If not, and you can’t compete, you need to rethink what you’re selling or lower costs. 4. Overheads and Customer Payments Once you’ve set the budget, enter it into your accounting system (including overheads). Print a monthly Profit and Loss Report showing a comparison of actual and budget and investigate if ‘over budget’ and stop overspending. Timely customer payments are vital to cash flow and systems help. Start with when and how customers understand terms, how and when your invoice, what invoices say, for example, the due date for payment, payment methods, how and when you send statements, phone calls, and debt collectors. 5. Stock and Supplier Payments Too much stock held for too long sucks up cash. Not having enough stock when customers want to buy means fewer sales. It needs management. Businesses compromise cash flow by not seeking better terms from suppliers. Shop around and keep records as ammunition when negotiating. 6. Quoting and Tendering and Job Management Businesses spend time quoting and tendering. Are they the right jobs, is there a chance of winning said jobs, and will they be profitable? Once quoted and won, you start delivering. Costs blow out, and you make a loss! Job management systems help to avoid this. Keep track of expenses, compare against quote/budget, and report on profitability during and at the end. Records help you learn from each job what went wrong, how to avoid it in future and improve quoting and processes. 7. Measuring and improving service staff productivity Service deliverers are an ‘income earning asset’. Compared to what is paid, knowing the percentage of hours billed is vital and maximises billable time by eliminating unbillable actions, like admin, travel, rework etc. Systems measuring service staff time improve sales, productivity and profit. Photo Credit: Firmbee.com (Unsplash) Why Every Business Needs a Financial Fitness Plan Financial management is the backbone of a business. Money in and out must flow at the right pace.
