Making Improvements to your Profit & Cash flow Drivers

Revenue Growth Percentage

Increasing sales creates a need for inceasing cash flow. This is an often misunderstood concept that creates confusion and stress within a growing business.  Lots of sales are being made but cash is getting tighter. 

Interestingly, a drop in revenue can sometimes cause a short term improvement in cash flow because less costs are being incurred to make the sales or inventory is being used up. Sometimes shifting your primary focus from sales for a short while to focus on managing debt collection, your inventory and costs can be a way to address your cash flow issues.

 
Costs and Overheads Percentage

The percentage of costs and overheads is important to know as well as the dollar value.  This is because a percentage indicates how the costs and overheads are moving relative to the revenue.  If you are selling more but your costs and overheads are growing by more relatively you aren’t really getting ahead. 

Example:

If your Revenue is growing by 5% but your Direct Costs and Overheads are growing by 10% you are missing out on vital profits.

Get started Today by reading our article on >> Keeping Costs under Control

Get started Today by reading our article on >> Reducing Overheads

Price Change Percentage

If you're not doing regular, small price increases - your margins are being eroded. 

Markets influence pricing but you need to find ways to increase the perceived value of your product or service to justify charging more.  Regular small price increases are much easier to achieve than irregular big ones. 

Discounting is a hot topic at the moment, with many businesses offering them to retain business.  Have you ever calculated how much more volume you need to sell to compensate for discounting? 

Example:

If you have gross profit of 60% and you offer a 10% Discount you need to sell 20% more volume to maintain your 60% gross profit.

It might be better to find a low cost addition to the sale with a higher perceived value than slashing your gross profit.

Accounts Receivable Days

This is the number of days ‘on average’ that customers are taking to pay you.  This is quite different to the credit terms you offer.  Anything you can do to reduce the number of days that customers are taking to pay you puts that cash into your bank account for longer.

Get stated Today by reading our article on >> Streamlining Accounts Recievable 

Accounts Payable Days

This is the number of days on average that you are taking to pay your suppliers.  Anything you can do to lengthen the number of days you are taking to pay suppliers puts that cash into your bank account for longer.  Obviously you need to manage this against the level of service you receive.  Some suppliers are quite prepared to offer better terms to keep your business.

Get stated Today by reading our article on >> Streamlining Accounts Payable

Inventory and Work in Progress Days

The number of days on average that stock sits in store or jobs are in progress prior to invoicing.  Try to think of stock as dollar bills piled up on the store room floor and Work in Progress as dollar bills piled up on the work room floor.  Anything you can do to shorten the time stock sits in store and jobs are able to be invoiced will put cash back into your bank account.

Get stated Today by reading our article on >> Turning Stock into Cash

Get stated Today by reading our article on >> Keeping on top of Work in Progess

If you can focus attention on better managing the above ‘Drivers’ of profit and cash flow you may not have to borrow from the bank or sell shares in your business.

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