If you are anything like me as a business owner you are sick & tired of the economic doom & gloom continually portrayed by the Australian media. Sure it has been a tough 12 months for many businesses, but I also see plenty of businesses thriving. History shows the businesses that set themselves up in the down time ready for the up time, will prosper more quickly. So is your business ready to shine?
The following are 5 tips that I believe all businesses should be putting in place to be ready to shine sooner rather than later and just good business practices in general:-
1.Debt Collection Processes – I am seeing a lot of businesses debtors ledgers at the moment with way too many dollars not collected in 60 days plus and often 90 days plus. If your debtors are in this situation you are funding your debtors business, generally interest free while you are paying interest on borrowed funds. Good deal? For your customers yes, but obviously not for you. Tighten up on your payment terms and collection processes, enforce them, collect partial upfront deposits if you can, and improve your documented terms & conditions and get customers signed up to them. Customers who don’t pay within reasonable terms are not good customers, and not customers you can grow your business with.
How does your debtors ledger look?
2.Customer Analysis – flows on from tip 1, ie: any customers not paying in reasonable terms are not good customers. Do some analysis of your customers and assess them against appropriate criteria to determine how good a customer they really are. Some criteria to consider: Number 1 meet payment terms?, pricing/profit margins, regularity & level of sales ie: their business growing vs reducing, level of credits/returns, how easy to deal with? Be honest as you rate the criteria and then review the results and consider opportunities to improve sales with the good customers, and the customers you identify to grow your business with. The other key here is to identify the customers you don’t want to do business with any more, and how you sack them. Hard love required!
How does your customer analysis shape up?
3.Funds Available to Support Business Growth – lack of adequate and available cashflow/working capital is one of the top 2 reasons SME’s fail. It also costs businesses significant bottom line profits in wasted admin & business owner time juggling & forecasting cashflow balances and payments and in missed opportunities due to lack of funds, ie: bulk discounts, early payment discounts, good buys etc. This doesn’t even consider the costs of the stress on the business owner! You need to have sufficient, and backup, working capital funds in place, or available as required at short notice especially if you want your business to grow. This may be a bank facility you can draw down on if needed, ie: overdraft or line of credit. There are options available in most cases so you need to work out what can be done in your circumstance. Also critical is to have some form of cashflow forecasting in place so you can identify in advance if any shortfall of funds likely, and take action before to late & less options available.
Does your business have adequate funding available to support business growth?
4.Plan for your Business Future – the other top 2 reason why SMEs fail is lack of planning. You should always have a form of plan and goals setting structure in place, but even more so to step through how you will achieve business growth. You need to be clear on what you are trying to achieve and why, and then have worked through and documented a clear action plan of what needs to be done, by who, and when. A good plan will be supported by some form of budget that clearly sets regular ie: weekly, monthly targets to be achieved for sales $s, Net profits, and other key business measures & drivers.
Do you have a plan in place about what you want to achieve & why?
5.Measuring – if you have your plan in place and also budgets both from Tip 4 you then need to measure regularly how you are performing against those targets. You need to ensure you have systems and processes in place to easily and accurately track your key results and for both financial and non-financial measures. A good Accounting system, ie: Xero, should be able to run standard key financial reports, but look at other systems that provide key data, ie: sales, stock, POS, HR etc. It is one thing to have the data, but you need to also have a process to review versus budget, and then the key is making the time to review the reports and understand what they tell you. If the above is in place then decisions can be made in a timely manner about how to best rectify problems, improve results etc.
Can you easily measure your key business drives & results?
I hope these tips help get your business shining brightly, and sooner rather than later. Be positive about what you want to achieve, and how. If you don’t know how to implement all these tips in your business give us a call at MFS Business Advisors & Accountants. This is what we help SMEs do as ‘We will take your business to the next level!”