Cashflow and cost control

More than ever, cashflow is a vital part of staying afloat, whether your business is in recovery or growth mode.

Revenue, profit and your bottom line will all resume their importance when we’re back to “normal” (however that’s going to look), but keeping everything running is the priority for now.

Regular cashflow forecasts will help you keep that in focus. Here’s why:

Cost control  

If you can't reach your targets for income, reining in your costs may give you a little extra head room to manage cashflow while you plan your next move.

Visibility on outgoings 

Cost control can be a challenge when it’s hard to pinpoint hidden costs or where established ways of doing things cost more money than they should. You may also have been coping with unexpected expenses, as you’ve adapted your business for unplanned circumstances.

Improving business practice

It's more than just keeping an eye on outgoings (though that's important). It's about looking at each aspect of your business and business systems (or the gaps where there should be business systems) to see if poor practice is driving costs up unnecessarily.

It can be useful to break it down  

You can look at cost centres such as office supplies or freight. Or you can look at what those costs do for your business.

It can help to analyse costs in terms of cost of sale and overheads.

Cost of sale and overheads​​​​

Cost of sale (also known as Cost of Goods Sold or CoGS) is how much it costs you to make a sale. In a business which sells products, CoGS is based on the price paid for the product, plus any costs necessary to put the merchandise into inventory and make it ready for sale, including shipping and handling. You can even break it down to calculate the cost of sale of individual units.

Overheads are general business expenses. They can’t be tracked directly to sales. Overheads are what it costs you to open your doors (whether online or actual) every morning.

What’s your plan?

• Reduce unnecessary expenses - Now might be the time to trim every expense that’s not related to your core product or service.
• Suppliers - Are you able to work with your providers to ask for discounts or more favourable payment terms on either cost of sale or overhead expenses?
• Talk to the team - Analyse your costs and involve your team, including frontline sales staff.
• Advertising - It might be a false economy to cut back on advertising, as customers are online looking for bargains and price-checking alternatives. Targeted campaigns might work better.
• Prioritise - Can you pinpoint the products most likely to bring the fastest or best return and hold back on products that are a slower sell?
• Promote or discount - If you have old or slow-moving stock, can you discount it and convert old stock to cash? If you can attract customers now, you may be able to use it to spotlight your other products.

Every dollar you can pull back from your costs can go straight into cashflow.

Want to get a handle on cash flow in your business?

Whether your sales are boom or bust, you want to make sure that your costs aren't holding you back. We can help.

Talk to us if you'd like to review your costs and your systems to keep costs under control. .

6 secrets to getting prompt payment

If you’re struggling with late payments, and about half of small businesses are, here are some simple tips to try.

Invoice without delay

Your customer can't pay until you've invoiced them, so make sure you send you bill promptly. Customers are also more open to paying when they've just recieved the goods or services that you delivered. Cash in the goodwill, there's no reason to delay.

Include all the information

Make sure you invoice has all the right information, including a description of the work or product, the date it was ddelivered, and any customer requirements such as a purchase order number. Some customers have very specific requirements so ask what they need to see on the invoice. Make the due date clear too.

Ask for prompt payment

Customers used to get weeks to pay invoices, but that's changing. More than a third of businesses now request payment within a week. Consider doing the same. Starting off at seven days will help set an expectation of prompt payment. 

Be easy to pay

Customers will pay faster if they can use their prefferemd method to hand over the money. Consider whether you can offer them a variety of options, like a credit card or PayPal.

Chase payments

Your job's not done when the invoice goes out the door. You'll need to follow up with the customer to make sure it's being processed. If the invoice goes past due, it's time to make a phone call.

Talk to us about your invoicing system, we can help you get paid faster.

4 Tips to help your debtor management

It’s not easy to request payment right now, but it is important to keep cash flowing into your business so you can cover expenses and meet your obligations to others.

As with all business dealings right now, a little empathy and a lot of open communication can go a long way.

The following tips might be useful to keep in mind when you are asking for payment.

Communication

Connecting with your customers is important. Try to make it personal to their situation rather than a one-size-fits-all email.

Connecting on a more personal level shows you value them and are conscious of the impacts that the current situation may be having on them. The empathy you show now will also be remembered when business returns to normal.

And, be proactive . Early communication will help you stay on top of cash flow and will also alert you, if you need to account for late payments.

Add value

Use your expertise to give something back. Surprise and delight your customers by offering something over and above your usual services.

It could be as simple letting customers know you want to help and being open to requests, offering a one-off discount or an offer just to chat one to one.

Offer flexible payment options

For customers who can’t pay in full, consider breaking invoices into multiple payments with payment terms moved to a longer timeframe.

Set up a credit card facility to give customers other options for payment. After all, the easier you can make it for them to pay you, the quicker you will get paid.

If you don’t have payment services set up in your Xero account, we can help you do this.

Offering a discount for early payment might provide the incentive for customers who can settle, to pay your invoice before others.

Set up debtor management apps

Debtor management apps allow you to automatically send payment reminders, provide cashflow forecasting, automate and tailor debtor communications, and more.

Dedicated debtor management tools help you to collect your debtors faster.

Keeping cash flow going is vital for your business so the earlier you can communicate with customers the better.

Talk to us about ways to improve your debtor management.

Inventory management best practices for retailers

Inventory management is incredibly important in retail and yet studies reveal that 43% of small businesses either don’t track inventory at all, or do it manually. Proper inventory management can be the difference between a lost sale and a lifelong customer.

Here are some quick tips on how you can stay on top of stock control:

Understand the relationship between sales and inventory

Look at inventory and sales data together so you can see the relationship between the two.

For example, if you pull your sales results and see that dresses are 20% of your sales, and jumpsuits have only generated 4%, the instant reaction is to buy more dresses.

However, if you simultaneously look at your inventory results, you may see that while dresses generated 20% of sales, they represented 40% of your inventory, while jumpsuits generated 4% of sales but on 1% of your inventory.

By considering the relationship of sales to inventory, you might discover you are over-inventoried in one item, and missing opportunities to sell another.

Manage residual inventory to control costs and preserve profit

Residual inventory is what remains at the end of one selling season and is carried into the next season. A few examples include wool apparel that is on sale in the spring season or outdoor furniture sets that are marked down after the summer season.

An effective way to manage this is to create season codes with style numbers when you enter items into your inventory management system. This can make analysing sales and inventory by season a significantly easier task.

Equip your business with the right inventory management tools

From choosing the right inventory management software to finding a POS solution that fits your business, it’s essential to implement tools.

The right ones will integrate together to streamline and automate processes, making inventory management more accurate and efficient.

In a competitive market, knowledge is key to business success.

We can help you understand and integrate inventory management apps into your retail business. Get in touch to discuss how.

How to create a cash flow forecast for your business

A cash flow forecast is an important tool for business planning. And right now, understanding the cash coming in and going out of your business is vital.

A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you’ll have in the bank at the end of a period.

It will give you an understanding of what the revenue drivers are in your business, and give you visibility of your expenses and the things you can control. Having this information in a forecast will also allow you to plan for different scenarios, work out your priorities and understand the outcomes of different options such as diversification.

A cash flow plan can give you a proactive tool to deal with uncertainty. If you are seeking funding in the form of a loan, applying for business support or just establishing your long term survival, you'll need a cash flow plan.

What information do you need?

We can help you to create a plan for your business. The plan is only as good as the data you have. So here’s what you’ll need to get started:

Understanding where your cash is coming from

Start with revenue from sales - break your sales figures up by product line and across channels. This will show you where the cash is coming from. For example:

• Does 80% of your revenue come from only 20% of your products?
• Do you sell to different markets and does one deliver more revenue than others?
• Are some of your products high value but low volume or low value at high volume?

The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?

Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.

Understanding expenses - where is the cash going to?

This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills, and electricity.

If you have a bank loan, include the details such as the length of the term and the monthly payments.

Your cash flow plan should also include tax payments when they are due and any capital expenditures.

Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship in order for you to scenario plan.

Controlling expenses - what costs are fixed and what are the variable costs that you can control? You may not be able to stop fixed expenses like rent, power and internet, but you could reduce the cash going out on petrol and travel, cleaning, and even directors' drawings.

Making informed decisions in your business

A good cash flow forecast will collate all the data from your business in one place. It will allow you to plan and work out how long your business can weather a storm. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials or investing in growth.

It’s worth remembering that a cash flow plan is a different tool to a budget. Here’s one example: a budget will show sales but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.

Want to get a handle on cash flow in your business?

If you’re not certain of how to get this information from your accounting software, talk to us about which reports to run. You may need a combination of accounting software reports and projected figures.

Use the information above to source the data you’ll need and get in touch. We can help you build a plan that gives you cash flow projections to assist your decision making.

Managing cashflow and accessing emergency funding

Working capital is a vital component of any successful trading business – providing the liquid cash needed for everyday operations. Suddenly finding your business without this cash can be a shock, but there are ways to fill these cashflow holes and get the company back on track.

In short, it comes down to careful cashflow management, and ensuring you have the best possible routes to additional finance and funding provision.

Key ways we can help include

Helping you understand your cash requirements

The starting point of any funding search will always be to understand what your current cash requirements are. This means sitting down to review your whole financial position. Then, armed with this information, we can see exactly how much you’ll need to borrow.

Liaising with banks and lenders

We can put you in touch with the most suitable banks, lenders and alternative funding providers, and can help in conversations with these lenders. For example, you may want to discuss the possibility of extending your overdraft facility, or whether you could temporarily suspend principal payments etc.

Preparing financial information for lenders

Any lender will want detailed financial reporting to back up your loan application. We can produce up-to-date accounts, cashflow statements and forecasts to help banks and finance providers understand your financial health and the risk levels involved in lending to your company.

Accessing government assistance

The Government is offering a variety of ways to support businesses financially during the coronavirus crisis. We can explain what loans, grants, tax reliefs or filing extensions may be available to you, and can help you fill out all the relevant forms and applications to make a claim.

Improving your debtor tracking

Outstanding customer invoices is another key area to get under control. We can help you understand your aged debt position, and identify which invoices you should be prioritising when it comes to chasing up customers and finding mutually agreeable payment terms.

Extending credit from suppliers

The coming months will be tough for many businesses, so it’s worth having open and honest communication with customers and suppliers around when payments will realistically be made. Agreeing on small discounts, part payments or extended terms will all help to increase liquidity for everyone.

It’s likely to be a rocky road for many businesses over the next few weeks and months. So, working together as a business community to support each other will be essential.

If you’d like to get in control of your cashflow management and funding needs, we’re here to help. We can help you crunch those cashflow numbers, access the best possible routes to funding and remove some of the worry during these testing times.

Talk to us about getting on top of cashflow.

Have you explored Deep Work?

Have you explored Deep Work? The way you structure your day has a huge impact on your outcomes. Minimising disruption and distraction to achieve 'flow' will boost your productivity.

Think about a typical day in your office...

Perhaps you chat with colleagues, check email, return phone calls, open a work file, check email again – which leads you to your social media feed… A universe of beeps, rings and pings beckons attention and steals productivity. Distraction is the new normal. The culprit: technology.

Multi-tasking is a misnomer because research shows doing two things at once means each task suffers. One study found a typical office worker gets just 11 minutes between interruptions, while it takes an average of 25 minutes to return to the original task after an interference.

It’s worth asking whether you and your team are giving yourselves the chance to put your mind to important tasks.

The author of Deep Work – Rules for Focused Success in a Distracted World, says most serious professionals should quit social media and we should all practise being bored.

Professor Cal Newport defines Deep Work as "professional activities performed in a state of distraction-free concentration that push your cognitive capabilities to their limit". That sweet spot, where you’re focused and productive, is often referred to as a 'state of flow'.

Five Ways to Improve Flow

​A big project is due. You need to minimise distractions to meet your deadline. You must make minutes count rather than stretch your work hours from here to next Sunday. Here are five ways to get into a state of flow, where you’re ultra-productive and focused:

1. Limit social media

Cull the feeds you rarely use. Maybe keep LinkedIn but cut Instagram. Are you using your Twitter account, or can you get news another way? If Facebook or another site is stealing too much of your time, curtail its use through technology, with an app like Freedom, https://freedom.to/, which can block internet access for up to eight hours at a stretch. Or StayFocused, a Chrome extension that restricts minutes spent on time-wasting websites. The extension is totally flexible, allowing you to set the amount of time you can waste each day, determine which websites are time-wasters, and decide if you’d like to block certain sites altogether.

2. Give yourself a strict time period to work

This limits procrastination and prevents burnout. Newport calls working 9-5, with no weekend work, fixed-schedule productivity. The more limits you give yourself, the less time you have for wasting. Deadlines such as ‘I have 90 minutes to finish this business case', or ‘I will finish work by 5.30pm each day’, make it easier to keep yourself on task.

Newport says he doesn’t work past 5.30pm and rarely works weekends yet manages a full-time professor job and writes books.

3. Introduce Deep Work strategies:

• Monastic: isolate yourself for long periods of time without distractions; no shallow work allowed. This is when you squirrel yourself away in a distant room and tell everyone you’re unavailable
• Bimodal: reserve a few consecutive days when you’ll work like a monastic. For example, you go to your quiet space Monday through Wednesday, then return to your usual routine of meetings and taking calls the rest of the week
• Rhythmic: take three to four hours each day to perform Deep Work on your project - this strategy might involve blocking your calendar from 8am-12pm each day so you can work uninterrupted

4. Transition to Deep Work

Use rituals and set routines to minimise friction in your transition to depth. After you decide on your working philosophy, commit to scheduling Deep Work blocks into your diary and stick to them. Scheduling a specific time of day in advance negates the need to use willpower. Also, know where you’ll work and for how long. Create a zone specifically to perform Deep Work.

5. Drain the shallows

Confine shallow work so it doesn’t impede your ability to take full advantage of deeper efforts that will ultimately determine your impact.

Use time blocking to schedule every minute of your day, and group tasks into blocks, such as emailing, printing, scheduling meetings, etc. Don’t worry if you tweak your schedule multiple times. The goal is not to be a schedule stickler, but to maintain a say in what kind of work you’re doing.

Economist, philosopher and author, Adam Smith, figured out the value of Deep Work in the 18th century:

“The man who works so moderately as to be able to work constantly not only preserves his health the longest but, in the course of the year, executes the greatest quantity of work".

Deep Work improves efficiency. 

Get in touch if you’d like help with other strategies to increase efficiency in your business.