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Tag: Cash Flow

10 Ways to Create More Cash in your Business

Published: by lauramills
10 Ways to Create More Cash in your Business

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you create more cash and protect your company from future cash flow issues?

  1. Cut Costs 

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments, reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better terms.

  1. Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

  1. Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

  1. Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans.

  1. Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help to create more cash flow.

  1. Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

  1. Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Consider this: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

  1. Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

  1. Get external funding

You could approach banks or lending institutions for a short-term loan to create more cash in the business. There are also other very reliable funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

  1. Hire a part-time Chief Financial Officer

A part-time or fractional CFO from The CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing to create more cash, for example. It will also help decision-making around whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

We love numbers, we understand how to interpret them and use them to help get your business where you want it to be.

Hazards To Growth

Published: by lauramills
Hazards To Growth

There can be a low-level panic that suffuses an organisation. A constant pressure to keep moving faster and faster and faster.  It’s no secret that companies can grow too fast, stretching both culture and controls.

Imagine this: a multi-million-dollar company with almost 200 employees. The founder likes to micromanage to the point he (not the HR department) has sole approval over employee benefits such as requests for time off for holidays.

The company doesn’t have a dedicated IT employee or team. That’s because that same founder believes its gifted employees should be able to resolve any IT problems that occur! No matter if doing so pulls them away from developing products or resolving customer problems.

It might sound far-fetched, but these are just a few of the problems companies can face during an accelerated growth or scale-up stage.

Challenges of Scaling Up

While your scaling up might not experience the internal and external challenges above, you are likely to face at least one or two challenges. It might be:

  • People challenges
  • Sales and marketing challenges
  • Operational challenges
  • Administrative challenges
  • Financial challenges.

As the CFO Centre’s founder Colin Mills said in his book, ‘Scale Up: How to Take Your Business To The Next Level Without Losing Control and Running out of Cash’, the scale-up stage is when businesses really struggle because they’re growing but don’t have the infrastructure to support their expanded operations.

They might have the necessary revenue, manufacturing base, or customer reach of a substantial business. However, their controls, processes, personnel, leadership and culture are often still that of the much smaller business they were a short time before, he said.

Worse, they often don’t have the resources to create and maintain such an infrastructure.

During the scale-up stage, they face running out of cash or simply getting stuck, he said.

Revising your business model

It’s only possible to avoid such problems by revising your entire business model. If you don’t, then all the small problems that niggle at you now are likely to become major issues once you begin scaling up.

Even if your business is already going through the scaling up stage, it’s still possible to retrofit, design, and redesign it, he said.

Don’t get lost in the complexity

“In many ways, like most things in life, scaling up is not rocket science. No genius is required, said Mills. It can often be about common sense. “But common sense isn’t always common practice, and being able to focus on the most important things as you scale up is a skill that can get lost in the complexity of the whole process.”

One solution

The easiest way to focus on what’s important during the scaling up stage is to have expert help with big business experience.

For a fraction of the cost of a full-time CFO, the CFO Centre will provide you with a highly experienced senior CFO. They will work with you on a part-time basis to help you with scaling up your business. To discover how the CFO Centre will help your company to scale up, please contact us here.

Cashflow: Where are you at?

Published: by lauramills
Cashflow: Where are you at?

Cashflow is king

It is essential that you know the current position of your business finances. Be honest with yourself and make sure you know if or when your business needs help.

Create your cash flow forecast, you may not have had to do this in the past, but you need to make sure you know what cash is coming in and what payments need to be processed, this can be constructed in a simple excel spreadsheet.

Once you have listed all known transactions, you will then need to stress-test the scenarios, for example what will happen if your top customer can no longer pay their account?

Here are some tips that can assist in preparing an accurate cash flow forecast:
  • Call all your current clients/customers and speak about their current situation and find out when the funds will be received. Don’t hold back from entering into a payment plan with them; this will give you a clearer picture of your cash flow.
  • Hold off on larger payments that are not yet due.
  • If you are renting your premises, speak to your landlord to see if there is an arrangement that can be entered into.
  • Assume a reduction in your revenue; you must be realistic. If you know that your business will be impacted over time, adjust your revenue to reflect this in the cashflow.
  • Eliminate discretionary spending. What can wait!!
  • Employee bonuses, if there are bonuses due and the employees are depending on them, you should pay them if possible. If you can hold off on paying them for 60 days, then do so.
  • If there are any tax bills requiring to be paid, speak with the tax office or your Accountant about a payment plan.
  • Be transparent with your employees.

Having a rolling cash flow and updating it at a minimum weekly will help you make sure that you are staying on top of any issues that may come to ahead.

Questions you should ask yourself – be truthful

  • Do I know where my business is at financially?
  • Are we broke already?
  • Have I spoken to my suppliers and customers and do I have a clear understanding of where they currently stand?
  • Have I spoken to the ATO?
  • Do I need help? If so, make sure they are qualified.

The CFO Centre has been assisting SME’s for 21 years. We offer highly experienced Chief Financial Officers on a flexible, part-time basis. As CFO’s we are qualified CPA’s or CA’s with extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

 

Protect Your Company from Late Payments

Published: by lauramills
Protect Your Company from Late Payments

When your company is facing yet another cash flow crisis caused by late-paying customers, it can be hard to believe there might be a solution. But there are steps you can take to overcome the problems delinquent payments cause and to avoid them happening again.

Late payments are something that hundreds of thousands of SMEs experience. They can threaten SMEs ability to trade, and stifle appetite for growth and recruitment. In worst cases, it can lead to insolvency.

The amount of time SMEs are kept waiting beyond their previously agreed payment terms can be a big issue. Almost a third of companies face delays of at least a month beyond their terms. Additionally, nearly 20% are having to wait more than 60 days before being paid.

Fortunately, there are measures you can take to protect your company from the worst effects of late payments. Furthermore, ensure that you are paid promptly in the future.

Some of these measures include:

  1. Research prospective clients – Before accepting a new client, carry out a credit check and find out if the company has a reputation for paying on time.
  2. Agree on prompt payment terms – Create contracts and terms & conditions that specify when they must pay your invoice and any overdue fees. Include your payment terms on every invoice.
  3. Send invoices promptly – Don’t delay in sending out invoices. Check that the details are correct to avoid delays.
  4. Offer a range of payment options – Make it easy for customers to pay you. Offer them a variety of payment options such as Direct Debit, PayPal, and credit card. If your clients are based in a different country, accept payment in their currency.
  5. Use invoice finance – Invoice finance will give you essential working capital (up to 90% of the approved total invoice) while you wait for the outstanding invoice to be paid. You’ll receive the remaining 10% when your client pays your invoice.
  6. Use an invoice tracker system – You’ll receive an alert when invoices are overdue.
  7. Keep to a schedule – Invoice on the same date every month so that your clients know when to expect your invoices.
  8. Set up internal invoice reviews – Hold regular weekly or monthly internal finance meetings to review your invoices.
  9. Don’t back down – If you have late fees for overdue invoices then make sure you follow through and charge them. By law, you can claim interest and debt recovery costs if another business is late paying for goods or services.
  10. Hire a part-time CFO – For a fraction of the cost of a full-time CFO, the CFO Centre provides highly experienced senior CFOs. Your part-time CFO will assess your company’s cash flow position and take the following steps:
  • Identify and address all the immediate threats to your business
  • Determine where improvements and savings can be made.
  • Instigate the use of regular cash flow forecasts. This way you’ll know in advance of a cash shortfall, and can therefore, make arrangements for extra borrowing, or take other action.

Why Weathering The Storm Might Not Be The Best Strategy

Published: by lauramills
Why Weathering The Storm Might Not Be The Best Strategy

Business Strategy in a downturn

 

Why reducing costs and “weathering the storm” may not always be the best business strategy.

 

Businesses are facing a perfect storm. High and persistent inflation. Input costs are rising twice as fast as selling prices are rising. Margins are being squeezed. Human talent is scarce, expensive and increasingly demanding. Consumer demand is falling from cost-of-living pressures and slowing economic growth. Lastly, global supply chain challenges.

Defensively cutting back on discretionary spend may not always the best solution. The actions taken at start of contractionary periods are critical to how the business will exit these periods. Gartner research show that the companies that made the correct  decisions in the 2007-2009 downturn outperformed their peers for the next decade.

FOUR KEY AREAS TO FOCUS ON

 

COSTS
  • Meaningful costs reductions will generally have an adverse operational effect. Impact on the long term business plans must be considered. If costs must be cut, understand the trade-offs involved, and prioritise the cost reductions to minimise the long term impact within your strategy.
  • Challenge workflows and processes, not only to reduce costs, but make the business more nimble.
  • Accelerate movement to cloud to reduce IT asset spend and improve cashflows.

 

TALENT

Ensure your organisation is one that talented staff would like to work for, e.g., work practices, culture, challenges and opportunities. Ensure your Employee Value Proposition is attractive and clearly communicated. Make sure that key digital talent is secured. See below.

 

DIGITAL

A clear digital strategy is essential. Ensure you attract and retain staff who can analyse,  decide, enable and execute these strategies.  Digital transformation can improve resource management, lower costs, enhance supply chain, improve customer experience, and gain insight into customer trends.

 

EXPANSION
  • A slowdown may well be the best time to secure that scarce digital talent, when other companies are reducing costs and laying off staff.
  • It may also be an opportune time to buy businesses and assets at attractive prices
  • It may present opportunities to gain customers and sales when your competitors are bunkering down

 

SUMMARY

The current business environment is challenging and uncertain, and likely to stay that way for quite a period. Weathering the storm may well be the best strategy for some businesses.

But for well-resourced companies, with good products/services and growth aspirations, risk also represents opportunities. The winners emerging from these times will be better positioned to capitalise on the growth that invariably follows.

Gary Campbell is an experienced “on demand” CFO consultant, based in Victoria, working for The CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management within manufacturing and distribution sectors. He can be contacted here or call us on 1300 447 740

The 5 Key Threats to Australian Wineries

Published: by lauramills
The 5 Key Threats to Australian Wineries

  1. ONGOING DEMOGRAPHIC SHIFT

Baby boomer’s wine purchases will diminish as they continue to leave the workforce. Unfortunately, research indicates that younger consumers are not picking up the spending baton to replace boomer’s wine spending power. Thanks to high house prices, GFC career interruptions, the craft beer and spirit loving Generation X are more frugal and less engaged with wine. Wineries must engage more with younger customers…ignore them at your peril…they will soon outnumber boomers.

 

  1. COVID INFLICTED DAMAGE TO CELLAR DOOR & RESTAURANT SALES

For smaller wineries, on-premise direct sales not only make up a large portion of sales, but are at a higher profit margin than wholesale sales. Additionally, on-premise activity is often where wine club members (similarly profitable) are recruited. Reduction in this activity from COVID travel restrictions will deal a disproportionately heavy financial blow. These sales will likely take years to recover to pre COVID levels. To remain viable wineries must compensate this financial loss.

 

  1. TRADE UNCERTAINTY

Globalisation has peaked and countries are now becoming increasingly protective. Result is Australia – China geopolitical “trade war”. At risk for Australia is its largest wine export market, China, valued at $1.2billion or 42% of exports. By comparison, New Zealand’s biggest export market (USA) represents 32% of exports value (and interestingly China at 1%). Comparatively Australia is at high risk  from China trade tensions, but increasingly as countries become more protective there should not be an over reliance on any single country.  Wineries should review and balance geographic sales portfolios.

 

  1. COVID CATALYST to E-COMMERCE

COVID has accelerated the use of e-commerce. The danger for smaller wineries is that the bigger players will increasingly dominate the off-premises e-commerce channels. Although these channels are not as profitable as direct to consumer channels, they should not be ignored. They balance the channel/mix risk, and it’s not clear now how they may develop. As e-commerce develop it is possible that separate channels may evolve that are better suited for smaller wineries. McKinsey believe that different partners will create “inter-connected service platforms” – in this context for wineries it could be partnering on a food or tourism platform. Wineries should monitor market development and enter into appropriate e-commerce sectors and platforms.

 

  1. CHANGING VALUES

Increasingly, accelerated by COVID, and the underlying demographic shift, wine attitudes, values and tastes are definitely changing.

Tipple of choice: Total alcohol sales are little changed in USA, but craft beer and premium spirits are increasing. In Australia alcohol sales are generally declining with perhaps the exception being spirits. These trends are probably largely driven by younger consumers who see the attractive benefits in the cost advantage, brand personality, and ease of understanding and storing these drinks.

Ecological/sustainability: This is becoming increasingly important for consumers. Many wineries, including world leaders, are switching to organic or biodynamic practices.

Health: There does not appear (yet) to be a full blown health driven turn away from alcohol, with overall consumption trends being more driven by demographics change. But perhaps, as NZ is doing, researching and promoting lower alcohol wine may have merit.

Packaging: In USA, 2019, different research has shown decreases in standard 750ml wine bottles, but increases in 375ml, 500ml, 3 litres, premium bag-in-a-box, cans and Tetra Paks. These changes reflect preferences and lifestyles of the changing demographics. But COVID driven changes, e.g. increased food take-aways, may well accelerate these trends.

Community/Purpose: For younger consumers, helping and connecting with local community is an important consideration influencing buying decisions.

Wineries should not ignore these trends.  The impact on these trends need to be understood and dealt with accordingly. Practical hints to follow in part 2.

Gary Campbell is a Principal for the CFO Centre based in Victoria. He is a chartered accountant, an MBA, has a passion for wine, formal wine qualifications, and advises winery (and other sector) clients. See Gary’s profile here

Under the Spotlight – The Operator

Published: by lauramills
Under the Spotlight – The Operator

The CFO as an ‘Operator’

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

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. Your CFO will ensure that your business is built on rock solid foundations and able to withstand unforeseen market conditions. 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.

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 recent blog, my colleague from The CFO Centre – Dr. Andre Van Zyl set out The Strategist role that a CFO often fills. 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.

Business frustrations

Time, or the lack of it, is so often cited by small business owners as one of their biggest frustrations. Our CFO Centre 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. This ensures the owner is as fully focused on those very client or customer facing 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.

By the very nature of the CFO role, all 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, with 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.

The last two years have forced many businesses to consider whether current business models can survive, will survive, or even should survive. Critical decisions may need to be made on products or business lines to either scale-up, maintain status quo levels, 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, which may require 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 – with potentially a myopic focus on Cash Flow management.

Part-time CFOs from The CFO Centre have the relevant experience required to assist business owners navigate through their growth journey.

 

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

10 Ways To Resolve Your Cash Flow Problems

Published: by lauramills
10 Ways To Resolve Your Cash Flow Problems

Managing cash flow is critical to the success of any business. Get it right, and shareholders, creditors, and employees are happy. Get it wrong, and the company could end up on the ropes like Carillion.

Cash flow problems can beset even profitable companies, particularly those experiencing rapid growth.

So, how do you protect your company from future cash flow issues?

 

1. Cut Costs 

Cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts. You could for instance place a freeze on bonuses and overtime payments. You could also reduce the number of employees through attrition or redundancy. You could also approach creditors to ask for better payment terms.

 

2. Carry out credit checks

Before taking on new clients, carry out credit checks. Companies that regularly make late payments or default on payments should be red-flagged. You should also get new clients to sign contracts that include your payment terms.

 

3. Offer early payment discounts

Encourage your clients to pay earlier than normal by offering early payment discounts. The early payment discount should only be used when the company is in urgent need of cash. Do it too often, and you will make a serious dent in your profit margins.

 

4. Reduce your payment terms

Cut your payment terms from 60 or 90 days down to 30. Think of it this way: when you allow customers to pay in arrears for your products or services, you’re essentially giving them short-term unsecured loans

 

5. Lease rather than buy

Consider leasing rather than purchasing cars, property, office furniture, machinery, and IT and telecommunications equipment. The benefit of renting rather than buying is that you will only have to make small monthly payments. This should help your cash flow. You can also claim the lease expense.

 

6. Raise your prices

Companies are often reluctant to raise their prices for fear they’ll lose valued customers to competitors. But even a small rise in costs can chip away at your profit margins. You can overcome customers’ resistance to a price rise by offering bundled products or services.

 

7. Issue invoices promptly

Many companies don’t issue invoices quickly enough or chase late payments. Think of it this way: every sale has already cost the company in some way, whether that’s the purchase of raw materials, warehousing, labour, sales and marketing, and distribution. If you don’t collect what you’re owed, you’ll be worse off than if you never made the sale.

American entrepreneur Nolan Bushnell says a sale is a gift to the customer until the money is in the bank.[1]

 

8. Use invoice financing

Hire a company that provides invoice financing (either invoice discounting or factoring) to receive an immediate cash injection. Such companies provide funding against your unpaid invoices for a fee.

Usually, you will receive up to 85% of the value of the outstanding invoice within 24 hours. You’ll then receive the remaining 15% minus the broker’s fee once your customer has paid the outstanding invoice.

 

9. Get external funding

You could approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, partners, investors and alternative finance like peer– to–peer lending.

 

10. Hire a part-time Chief Financial Officer

A part-time CFO from the CFO Centre will look for all the things that pose a threat to the company and work with you to resolve them. Your CFO will look for ways you can meet your most pressing financial requirements and review all incomings and outgoings to find where improvements and savings can be made.

You’ll be encouraged to use regular cash flow forecasts. Such forecasts will alert you to possible cash shortfalls in the near future. You can then make arrangements for additional borrowing, for example. It will also make decision-making over whether to hire new staff, raise your prices, move premises, find new suppliers or tender for a large contract.

 

Put an end to your cash flow problems now by calling the CFO Centre today on 0800 169 1499. To book your free one-to-one call with one of our part-time CFOs, just click here.

[1] ‘Finance for the Non-Finance Manager’, Siciliano, Gene, McGraw-Hill Companies, Inc., 2003