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Tag: business profit

The CFO Operator – Increasing your Profits

by lauramills
The CFO Operator – Increasing your Profits

Cash vs Profit

If cash used to be King, in today’s new landscape it’s now Emperor. The Operator frees up the Business Owner from having to worry about the day to day financial operations. Cash has always been critical to every business, however, now more so than ever. Your CFO will help (re)structure your business to maximise your cash position. This involves balancing supply and demand while cutting back unnecessary costs and improving productivity, efficiencies and ultimately profit.

4 areas of focus are:

  • Maximisation of Profits and Profitability
  • Ownership of Cash flow
  • Reduce Costs
  • Increase Productivity & Efficiency

The CFO as an Operator

Being thought of as the Operator may not be the first role that a small business owner would think of for their CFO. In his blog, my colleague from The CFO Centre – Dr. Andre Van Zyl set out The Strategist role that a CFO often fills Under The Spotlight – The Strategist. While that role is critical for any organisation’s long-term existence, CFOs also have vast tactical experience in an Operator role. We are obviously not referring to operating a factory floor machine. We mean that the CFO has the ability and experience to oversee and operate a number of critical functions. A calm and reassuring Operator may be key to a company’s future.

In a more benign operating environment, the maximisation of profit may be central to a company’s strategy. In the current environment keeping a tight control of cash and costs will increase organisational efficiency.

Time

Time, or the lack of it, is so often cited by small business owners as one of their biggest frustrations. Our clients often comment that they are spending so much time working IN-the-business that they can’t spend enough time ON-the-business. A Part-time CFO who works closely with a small business owner can free up time for the owner by sharing the load. As a result, this ensures the owner is fully focused on those very roles that were the initial catalyst for creating the business. This can be a significant ‘value add’ aspect of the Operator role of a CFO.

Our CFOs have either worked their way up through, or had executive responsibility for, the Finance functions in various organisations. They deeply understand the importance of running a tightly controlled organisation. This includes specific focus on cash flow management, profitability, and productivity.  Andre wrote about developing three-way financial forecasting models which are critical for banks and financiers. It is just as important to deliver against those models.

Making Critical Decisions

Many businesses need to consider whether current business models can survive in the longer term. Critical decisions may need to be made on products or business lines to either scale-up, maintain status quo, scale-down or even shut-down completely. A part-time CFO can help small business owners as they work through that exercise.

A new or refined operating rhythm may therefore need to be designed. This could mean minor tweaking or more major restructuring. Consideration of this may be critical for survival. The Operator who has extensive business experience will greatly assist with a rapid transition to a new business model. Central to this will be the robust and disciplined forecasting exercise.

At The CFO Centre we have the relevant experience required to assist business owners in navigating and operating during the current and future challenges. The objective must be to future proof your business, and The CFO Centre is here to support you.

 

Written by John Paterson, Principal (NSW) – The CFO Centre.

7 Ways To Increase Profit And Business Value

by lauramills
7 Ways To Increase Profit And Business Value

Have you ever wondered how your business is valued in the eyes of an external party? Then you need to know the seven (7) levers in your business.

With just a little additional focus on one or more of these 7 levers, you can directly improve the cash-flow, profitability and/or value of your business. There’s no smoke and mirrors, nor anything particularly difficult to undertake. However, many business owners do not take the time to appreciate how the financial performance of their business really works.  So, let’s break it down.

Often business owners will primarily focus on sales volume, in other words trying to sell more. However, whilst sales volume is important, it’s only one of the 7 levers available to you.

What are the 7 levers in a business that control your cash, profit and business valuation?

The first four levers are focused on your Profit and Loss and therefore directly impact the profitability (and cash-flow) of your business. As most, businesses are valued at a multiple of cash earnings. These levers also have a huge impact on the value of your business (along with other aspects such as Brand, customer base / income streams, and internal expertise / “keyman” dependence).

  1. Volume

Selling more – although increasing sales can grow your business, don’t forget to focus on the other levers below! How much of every extra $1 in revenue turns into profit and into cash in your bank account, and when?

Tip – formulate a sales & marketing plan, with a budget, which is aligned back to your  overall Strategy. Review and tweak the plan regularly.  This will help keep you focused on the right way to grow your top line.  Any growth needs to be sustainable!

  1. Pricing

can you increase your prices? Even a 1% increase can have a big impact. There can be a fear of losing customers by putting up your prices, which can often be unfounded.

Tip – review your margins by product / service stream / customer to ascertain which sales are making you money and which are not.  You need to know your break-even points!  Your part- time CFO can help – they love this stuff!

Tip – the results of your pricing analysis need to dovetail into the sales & marketing plan. It’s possible to make more profit from less turn-over!

  1. Cost of Goods Sold – reduction in % terms

This lever is most relevant to those businesses with direct costs such as manufacturers, construction, etc and places the focus on your gross margin.

Tip – revisit your direct purchasing arrangements and negotiate better terms and pricing. For example, bulk purchase discounts, early payment discounts, reduced freight.  Maintaining strong supply chain relationships is important but that doesn’t mean you can’t ask the question (or find potential alternatives).

Tip – review your direct labour-force using metrics such as labour utilisation, overtime levels, re-work, customer complaints, and down-time.  You may be able to re-deploy staff or reduce casual labour / overtime once you have this data.  Again, your part-time CFO can make this happen for you.

  1. Reducing Overheads

This may sound like an obvious one, but we always find at least some unnecessary “fat” in our client’s overhead expenditure.

Tip – someone needs to review the overheads line by line. Indirect / office wages, communications, insurance, utilities, freight, and advertising are the common ones where savings can be achieved. Even small reductions in certain areas can all add up over time!

These last three levers are focused on your Balance Sheet and are collectively called Working Capital. They have a significant impact on your cash-flow and therefore also on your funding requirements. Many businesses can avoid additional debt borrowings, or pay their existing debt faster by shortening their cash-conversion cycle.

  1. Reducing debtor days

This means improving the ageing profile of your Accounts Receivable function (i.e. getting your customers to pay you faster).

Tip – review your credit control policy and your payment terms as customers with poor payment histories should be carefully managed.  Review your collections process in terms of who chases the debt and when.  The introduction of direct debit may be an excellent solution for some businesses.

  1. Reducing stock days

This means a faster conversion of your inventory (if you carry it) into sold product, thereby reducing the amount of stock you hold.

Tip – introduce a stock-take process if you don’t have one. This can ensure that your financial records mirror what you actually have on the shop-floor. Then review the results of the stock-take for slow-moving or obsolete stock items – these may need to be discounted in order to convert them into cash.  Your purchasing policies may also need review if you are over-stocked with certain inventory lines.

  1. Increasing creditor days

This means taking longer to pay suppliers (without hurting the relationship or cutting off supply).

Tip – contact your suppliers to re-negotiate your settlement terms. It’s just a matter of asking the question – they may say “no” but then again, they may really value your business.

Now you know the what the 7 levers are, it’s time to do something tangible with them in order to make a real impact on your business. If you don’t have the internal expertise or time to make it happen, we would be happy to talk to you about how a part-time CFO can bring this to life. After all, as CFOs it’s what we do!

 

Photo by Monstera

What The Rolling Stones Can Teach You About Making Profit

by lauramills
What The Rolling Stones Can Teach You About Making Profit

At an age when they should (or we just wish they would) hang up their leather trousers and retire, more and more ancient rockers are embarking on yet another tour with The Rolling Stones top of the list. 

Prior to Covid, The Rolling Stones (of course!), Madonna, The Who, Neil Young, Rod Stewart, Pearl Jam, Queen, and even Ringo Starr were all performing on stages around the globe. Given that many of them are nearing or way past grandparent-age, you might wonder why they’re still bothering so many years after their first taste of fame. 

The performers will say it’s because they love it and that they ‘don’t want to let the fans down.’ But there’s another hard-nosed reason to get their weary old bones back on the tour bus. And it’s this: touring boosts their profits in a way that digital music sales and royalties can no longer do. 

“With digital music so freely and widely available, hardly anyone makes money off sales or royalties these days,” reported Mike Rowell in an article for Forbes. 

Top performers can take home 35% of the night’s gate sales and up to 50% of the money made from merchandise sales, according to Forbes’ journalist, Peter Kafka. Their record labels are likely to receive none of that, which means the stars are likely to receive a whopping payout for their performances.  

Singing aside, what can you learn from the likes of Mick Jagger when it comes to your business? 

To focus on the part of your business that brings the most profits. The Rolling Stones could have retired decades ago and waited for the income from album sales and royalties to trickle in. Instead, they made the decision to continue to tour and have generated many millions as a result. In just under three years, for example, the band’s overall concert grosses topped $401 million, according to Billboard. 

The following story also illustrates why it makes sense to focus on the most profitable part of your business.  

A major US direct marketing company with over $1 billion in annual sales recently reviewed its database to determine where its profits were coming from, B2B or B2C. At that time, 50% of its sales were to consumers and 50% to businesses. I was shocked to discover that the profits on the business sales were 500% better than those to consumers. Most consumer sales weren’t even profitable even though they represented the majority of customers, transactions, and expenses. 

The decision was made to focus on B2B sales. It required a significant turnaround in the business: at that time, the company employed 500 people taking inbound calls from customers and only 100 people making outbound calls to businesses. 

The change took two years. By the end of that period, 95% of its sales were to businesses and only 5% to consumers. Sales flourished. They had been growing at 21% before the turnaround but by the end of the two years averaged 50%. Profit growth was equally dramatic. 

So, what can you do to boost your profits besides cutting costs? For a start, identify your most profitable customers and then do everything possible to increase sales to that segment of your business. Focus on attracting more customers like them.   

Want further reading on profit? We outline 3 of the 4 factors for increasing profit in our blog Critical Factors For Improving Profit 

Fortunately, it’s not something you have to do alone. A part-time CFO (Chief Financial Officer) will help you to accomplish a more profitable company with less stress and hassle than if you were to try to do it on your own. Watch our 3-minute video on How it Works,  which explains the part-time CFO model from the CFO Centre. 

 

Photo by Clem Onojeghuo from Pexels