profit Archives - The CFO Centre Australia

Navigating Your Business Growth Journey: Where Does Your Company Stand?

January 15, 2024 by lauramills

As the business landscape constantly evolves, understanding where your company stands on its business growth journey is crucial for shaping future strategies. In a recent business survey, we asked 264 participants to assess their business’s growth stage. The results provide valuable insights into the diverse stages businesses find themselves in. Let’s delve into these findings and explore the implications for businesses at various growth stages.

Scaling: The Power of Momentum (54%)

With over half of the respondents indicating their businesses are currently scaling, it’s evident that many companies are experiencing significant growth and expansion. Scaling is an exciting phase that requires careful planning, resource allocation, and strategic decision-making. It’s essential for businesses in this stage to maintain their momentum while effectively managing risks and seizing new opportunities.

Insight: Scaling businesses should focus on streamlining operations, investing in scalable technologies, nurturing their workforce, and building strong customer relationships to sustain their growth trajectory. The CFO Centre can help by adding an experienced part-time CFO (Chief Financial Officer) resource to your team to help you plan and implement the right strategy for your growth goals.

Market Leaders: Maintaining the Edge (18%)

Being a market leader is an accomplishment that comes with its own set of challenges. These businesses have successfully carved out a substantial share in their respective industries. However, complacency can be detrimental. Market leaders must continuously innovate, adapt to changing market dynamics, and stay ahead of the competition while nurturing their existing customer base.

Insight: Market leaders should embrace a culture of innovation, invest in research and development, explore new markets, and consistently deliver exceptional customer experiences to maintain their edge in an ever-evolving business environment. Our part-time CFOs could be the edge you need to set you apart from your competitors – find out how.

Early Stage: Nurturing Potential (15%)

A significant number of respondents identified their businesses as being in the early stage. This stage is characterised by laying the groundwork for future growth. Early-stage businesses need to focus on refining their business models, building a strong foundation, attracting talent, securing funding, and establishing a solid customer base.

Insight: Early-stage businesses should prioritise market research, develop a compelling value proposition, build strategic partnerships, and leverage digital marketing tools to establish a strong foothold in their target markets.

Preparing for Exit: Strategic Transitions (9%)

Some businesses indicated that they were preparing for an exit. This stage involves strategic decision-making regarding potential mergers, acquisitions, or divestments. It requires careful planning, financial analysis, and alignment with long-term objectives to ensure a smooth transition.

Insight: Businesses preparing for exit should seek expert advice, conduct comprehensive due diligence, optimise their financials to ensure the best possible price, and identify potential buyers or investors who align with their strategic vision. The CFO Centre has helped countless businesses plan and execute profitable and smooth exits for our clients. Hear from one of them here.

Conclusion:

Understanding where your business sits on its growth journey is crucial for making informed decisions and charting a path towards success. Whether you are scaling, a market leader, in the early stage, or preparing for exit, each growth stage presents unique opportunities and challenges. To gain deeper insights into your business’s growth journey, consider taking the Scale-up & Exit Business Assessment™ by The CFO Centre. Or contact us on 1300 447 740 to find out how we could add significant value to your business.

Critical Factors for Improving Profitability

January 15, 2024 by lauramills

In a recent survey of our clients, improving profitability emerged as one of the top three priorities on their business agenda. Profitability is the lifeblood of any successful enterprise, and understanding its intricacies is crucial for business owners and managers alike. In this blog, we’ll dive into the two primary drivers of profit and explore the indispensable link between profitability and cash flow.

Profitability is affected by sales and reducing costs. Within the realms of sales there are 3 critical areas: price, volume and customers. These elements are not isolated but intricately interconnected, each influencing sales in unique ways.

Price

To improve profitability and performance, price sets the scene. It will determine the volume of sales and ultimately attract different types of customers.

The most obvious part of profitability is the selling price. It is essential when determining the price to ensure that the price and sales volume allow the business to be profitable. It is therefore, good practice to also review these prices regularly.

Setting prices involves a careful balance across your product range. It’s common to have “loss-leader” products, which may not yield substantial profits but can be offset by other lucrative offerings. Competitive pricing and your desired market positioning should also guide your pricing strategy. Discounts can boost sales volume but may impact profitability, so diligent record-keeping and regular review are key.

When offering a discount to a customer, always remember that the discount will increase sales volume, but it will also eat into the profitability of the products. You should record all discounts and review them regularly.

Two valuable metrics for monitoring pricing effectiveness are profit margin and mark-up. Both metrics should be in sync with your pricing strategy, allowing you to make necessary adjustments.

Always review your gross and net margins against previous periods
Understand customer profitability and their behaviours
Minimise discounting if possible
Implement and review a mark-up policy
Analyse sales on a regular basis.
Use key financial indicators to identify any anomalies that may impact the sales price:
- Cost of goods sold margin
- Gross margin
- Average stock turnover
- Mark-up

Volume

There are two ways in which volume can be increase. The first is through increasing your current level of sales with your existing customers, and the other is sourcing new clients.

To boost sales with existing customers, implement a comprehensive marketing strategy and capitalise on the often-overlooked opportunity of up-selling. Effective sales targets and an understanding of your break-even point are essential to drive performance.

Selling targets are a way to monitor overall performance and enhance profitability. Therefore, I advise you to look at this carefully as it can have an impact on other areas of the business. Understanding your break-even point will allow for realistic targets to be set and ensure profit is maximised.

To help increase the volume:

Understand your customers’ buying patterns
Implement a marketing strategy to increase sales volumes
Introduce loyalty programs that encourage referrals
Train staff to excel in upselling high-profit products.
Use break-even calculations to set achievable sales targets
Explore opportunities to expand into new markets

Customers

Exceptional customer service is the cornerstone of customer retention and acquisition. Understanding your customers’ needs and preferences is a simple yet powerful step towards business improvement. Utilising a Customer Relationship Management (CRM) system can provide invaluable insights into customer behaviour.

Understand the needs of the business customer and use this information to improve the customer service experience.
Utilise tools like Survey Monkey to measure customer service levels.
Reward current customer for their loyal support
Consider using mystery shoppers to monitor customer service
Maintain regular contact with customers to stay top of mind

In conclusion, the pursuit of profitability is a nuanced journey, and this blog only scratches the surface of what’s achievable.

At The CFO Centre, we boast a team of over 45 experienced CFOs across Australia and New Zealand, and over 1000 globally. Our track record speaks volumes about our ability to help clients boost their profits. If you’re interested in learning more, feel free to contacting us at 1300 447 740. Your success is our priority, and we’re here to help you on your journey to greater profitability.

You can also get in contact with us here.

First published on 22nd Feb ’22
Updated on 15th Jan ’24

Harness Your Profits With 7 Business Levers

January 7, 2024 by lauramills

Have you ever wondered why your cash-flow fluctuates even when sales are strong? Or how your business is valued in the eyes of an external party? Then you need to know the seven (7) levers in your business to increase profits.

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!

2. 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!

3. 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.

4. 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.

5. 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.

6. 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 which 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.

7. 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!

Call us on 1300 447 740 to find out more, or you can contact us here.

Photo by Artem Podrez from Pexels

Our 6 Top Tips For Business Planning In 2024

November 29, 2023 by lauramills

When it comes to business planning, now is the perfect time to reflect on the year just gone and strategise for the year ahead. The last few years have thrown many of us challenges and/or opportunities never seen before. So how can your business go further or do better in 2024?

Below is a business planning checklist to help you when planning for the future:

Know Where you Stand

Does your financial reporting provide you with an accurate and timely view of the financial performance of your business? These could contain:

Historic balance sheet, profit and loss and cash-flow together with a set of key performance indicators (KPIs) that the management team use to run the business on a day to day basis.
Rolling forecast balance sheet, profit and loss and cash-flow driven by the same KPIs. Even a static annual budget is better than no target at all.

Analyse

Have you analysed all of your products or service offerings and identified those that should be invested in and those which should be scaled back to improve the performance of the business?

Review Costs

Have you reviewed all of your costs and identified all of those costs where alternative suppliers can be identified and current deals can be renegotiated? This helps to minimise your cost base and refine your negotiation skills. Are there possible savings from systems and/or process streamlining?

Review Customers

Have you reviewed all your customers and identified the good ones form the bad ones i.e. those that take ages to pay and/or beat you down on price etc.? It may be time to let the bad ones go and focus on the ones you want.

Assess Risk

Have you assessed all of the obvious risks in your business and made sure that you have a contingency plan in place to avoid those with the highest likelihood and most significant impact?

Your Personal Goals

Take the time to really reflect on why you started the business, are those goals still the same today and are you getting closer to achieving them?

Plan:

Once you have considered the above, you are ready to start planning. A clear operational plan for the future of the business, which shows you the steps required to implement that plan is the best road to success. If you do not have this it will be impossible to identify opportunities that arise next year that fit your plan for the business.

Most of our clients have been through this process with our guidance and as a result many are now looking to exploit the opportunities, to expand their markets and recruit key staff to help drive their businesses forward in 2023.

To get your business in the best shape for 2024, contact The CFO Centre on 1300 447 740.

The CFO Centre is dedicated to helping businesses meet their strategic objectives. Find out how it works by watching this short video on our website – https://www.cfocentre.com/au/how-it-works/

The Value of Understanding Your Numbers Through Reporting

May 23, 2023 by lauramills

The benefits of having regular access to high-quality financial management reporting is far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business. They enable you to deal with potential threats and take advantage of opportunities to grow your business. The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated.

Most businesses have some level of reporting in place but in most cases existing procedures are insufficient to allow for rapid growth.

The Importance of Reporting is Twofold

To have retrospective visibility over past performance (that is, to analyse performance data and use it as a tool to course correct for the future).

To have visibility into the future (knowing what is likely to happen around the corner)

What are Management Reports

Management reports are tools for the management team to make decisions from. Having your bookkeeper run a monthly P&L and Balance Sheet is fine, however to run a business efficiently you need to understand those reports and dig deeper to really see what’s going on.

Base Level Reporting

At the very least you need to have regular access to three key financial statements. They are:

The Balance Sheet

The Cash Flow Statement

The Profit and Loss

4 Steps to Take Your Reporting to the Next Level

Step one:  build a reporting framework around your products to determine what is profitable and what is not. If there are non-profitable products (or those that deliver little profitability), should you consider dumping them or only include them in bundles with other products?

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers?

Step three: Build a 3-year plan based on your findings from Step one and two.

Step four: Monthly reviews against the plan – what worked, what didn’t work and the whys around both.

Need Help?

Most SME’s don’t have the internal experience to action these four steps, nor does the owner have the time. That’s where a part-time CFO comes in. At The CFO Centre, we don’t just focus on the business numbers – profit and loss, balance sheet, ratio’s, forecasts, but also the less visible “numbers” – what you want from your business – your financial goal for the business, the number of days a month you’d like to work, the number of holidays you want to take, the value you want for the business when you sell, the number of years you want the business to continue (legacy), the number of years until your retirement.

Both sets of numbers play an important part in your overall success.

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.

With their support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

Understanding Your Numbers Through Ratios

The CFO Operator – Increasing your Profits

February 7, 2023 by lauramills

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.

Plan For Profitable Growth in 7 Easy Steps

November 21, 2022 by lauramills

Planning for growth is something every business owner will say they do. However, not all business owners will do this effectively and with a focus that will generate profitable growth.

Many businesses plan for growth, but not profitable growth. Some businesses focus on growing sales without a focus on margins while others build infrastructures to support sales and growth that never materialize.

Michael Porter said, “If your goal is anything but profitability – if it’s to be big, or to grow fast, or to become a technology leader – you’ll hit problems.”

A business must focus on profitable, scalable and sustainable activities if it is to grow. Profit and the generation of cash to re-invest in your business must be made a priority. It’s an essential part of the financial strategy and structure of a successful business. Profit and a clear business plan will create a focus and the alignment of the organization. Additionally, it’ll attract investors and other sources of funds to fuel growth – all of which impacts the underlying business value of the business.

CFO Centre has identified:

7 Keys to Profitable Growth:

Define your business goals & objectives
Produce a formal plan from which you can articulate a vision
Critically review your business
Identify competitive advantage, scalability & sustainability
Establish a financial plan
Identify milestones, KPIs & dashboards
Create organisational alignment
Nurture your culture, hire the right people and communicate the vision
Identify the financial resources required
Support the business with systems & processes to optimize performance
Measure, review, evaluate & course correct
Be proactive & prepared to be reactive

If you follow these 7 Keys and plan for profitable growth, you will ultimately:

Improve and grow profits
Maximise the scalability of your business
Enhance management team and organizational structure
Attract investors and other sources of funds
Increase business value

To enhance the value of your business and grow successfully, follow the 7 Keys and Plan for Profitable Growth.

17 Reasons Why You Need a CFO To Help You Exit

July 4, 2022 by lauramills

The CFO Centre will provide you with a highly experienced senior CFO (Chief Financial Officer) with ‘big business experience’ for a fraction of the cost of a full-time CFO.

This means you will have:

One of Australia’s leading CFOs, working with you on a part-time basis
A local support team of CFOs, plus
A national and international collaborative team of over 750 CFOs sharing best practice (the power of hundreds)
Access to our national and international network of clients and partners

With all that support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.

In particular, your part-time CFO will help you to ensure that your business has planned and prepared for an exit. The sale process would be managed efficiently to minimise challenges on price, and prevent advisors’ fees from absorbing too much of the sale price.

For example, your CFO will:

Help you to implement your strategy for growth and exit
Identify where value can be maximised and eliminate unprofitable or low profit activities
Ensure that shareholders’ interests are protected through a shareholders’ agreement
Explain what incentive arrangements are available for key management and introduce them. These could include bonus plans aligned to the business objectives or option plans
Ensure that property is held in the most appropriate manner for the business and any potential acquirer, freehold or leasehold, length of tenancy
Review pension arrangements to identify any funding or future liability issues
Review contracts and trading terms to ensure they are in place, up to date and enforced
Identify risks to the business from suppliers and customers on whom the business may have become reliant and plan to spread the risk
Improve the accuracy and timeliness of management information
Introduce systems and controls to increase confidence in the integrity of the accounting information
Improve and/or introduce forecasting processes and procedures so that budgets and forecasts can be used as dynamic planning tools
Identify means of improving margins and reducing overheads to improve profitability
Ensure compliance with PAYG, Superannuation, GST, Income Tax and Company Tax legislation while seeking ways to reduce the overall tax burden to you and your business
Introduce you to corporate finance, legal and other advisers to help with all aspects of the exit preparation and process
Project manage the exit process internally so that it minimises the disruption to other staff and their continuing responsibilities
Create confidence in the acquirer and their advisers so that they have limited opportunity to attempt to negotiate the price down or increase warranties from you
Help you achieve the freedom you want after the efforts that you have invested in growing business

How much better would you feel when you engage a top calibre CFO to work with you on your exit/succession? Get in touch with us today – 1300 447 740

Scaling: The Power of Momentum (54%)

Market Leaders: Maintaining the Edge (18%)

Early Stage: Nurturing Potential (15%)

Preparing for Exit: Strategic Transitions (9%)

Conclusion:

Price

Volume

Customers