profit Archives - CFO Centre Australia
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Hire a CFO Call us 1300 447 740

Tag: profit

Harness Your Profits With 7 Business Levers

by lauramills
Harness Your Profits With 7 Business Levers

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!

 

Photo by Artem Podrez from Pexels

Do These 6 Things Before You Plan For 2023

by lauramills
Do These 6 Things Before You Plan For 2023

Now is the perfect time to reflect on the year just gone and plan for the year ahead.  The last two years have thrown many of us challenges and/or opportunities never seen before.  So how can your business go further or do better in 2023?

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

  1. 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.

  1. 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?

  1. 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?

  1. 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.

  1. 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?

  1. 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 2023, 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/

 

Plan For Profitable Growth in 7 Easy Steps

by lauramills
Plan For Profitable Growth in 7 Easy Steps

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:

  1. Define your business goals & objectives
    Produce a formal plan from which you can articulate a vision
  2. Critically review your business
    Identify competitive advantage, scalability & sustainability
  3. Establish a financial plan
    Identify milestones, KPIs & dashboards
  4. Create organisational alignment
    Nurture your culture, hire the right people and communicate the vision
  5. Identify the financial resources required
  6. Support the business with systems & processes to optimize performance
  7. 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:

  1. Improve and grow profits
  2. Maximise the scalability of your business
  3. Enhance management team and organizational structure
  4. Attract investors and other sources of funds
  5. Increase business value

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

Top 7 Advantages of a Part-Time CFO

by lauramills
Top 7 Advantages of a Part-Time CFO

If you are an SME and want your company to achieve its goals quickly, you should consider hiring a part-time CFO.  One of our clients recently said “it’s the best money I’ve ever spent”.

That’s because a part-time CFO will provide your company with the high-level financial expertise necessary to increase profit, improve cashflow and scale up, for a fraction of the cost of a full-time CFO.

Here are the top seven advantages you can expect when you hire a part-time CFO.

  1. Increased Profit

The number one thing most business owners want!  Having a part-time CFO on your team, with their years of commercial experience across many industries, they can increase profits of most businesses by tweaking the levers every business has to increase profit.  For this reason alone, it’s worth considering a part-time CFO.

  1. Strategic advice

Your part-time CFO will provide you with strategic analysis and support on every financial aspect of your business. A report from the Financial Executives Research Foundation (FERF) found CFOs play key roles in not only managing a company’s finances but also in setting broader strategic goals and establishing and achieving financial and non-financial milestones.  What’s more, part-time CFOs can highlight potential threats or risks of which you and your team may be unaware or perhaps don’t know how to deal with.

  1. Flexibility

You can use the services of your part-time CFO for what you need, when you need it. That could be for a variety of different financial functions or a specific project. This means you and your CFO can tailor the role to suit your company’s needs at any time.

  1. Multiple industry experience

Although you can choose to work with part-time CFOs who have direct experience in your given industry, you can also opt to work with those that have experience across multiple industries. The advantage will be that your CFO will provide you with access to networks and multi-layered insights that you might not otherwise have.

  1. Sounding board

Running a company can often be a lonely and stressful experience for CEOs, according to The CFO Centre’s Chairman Colin Mills in his book ‘Scaling Up How to Take Your Business to the Next Level Without Losing Control and Running Out of Cash’.  He’s seen first-hand what pressure does to business owners.

“I’ve sat in sales meetings with entrepreneurs who had literally been brought to tears by stress and frustration and the feeling that it’s all too much.”

That’s where a part-time CFO can help. He or she can act as an independent sounding board for the over-burdened, stressed-out business owner. With their ‘big business’ experience, it’s more than likely CFOs can provide solutions to what can seem like overwhelming problems to the CEOs of growing businesses.

  1. Access to a national and international network

If you choose a part-time CFO from an organisation like The CFO Centre, you’ll benefit from the expertise from all the CFOs in its worldwide network. That’s hundreds of years of experience in every aspect of finance—all for a fraction of the cost of employing a single full-time CFO.

  1. Enjoy life through your business, sooner

With the help of a part-time CFO, your business will start delivering on what’s really important to you so you get to live the life you choose (eg. more time with family, more time on rather than in your business).

To discover how The CFO Centre will help your company, please call us on 1300 447 740, go to our website, or watch our short video How it Works.

17 Reasons Why You Need a CFO To Help You Exit

by lauramills
17 Reasons Why You Need a CFO To Help You Exit

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:

  1. Help you to implement your strategy for growth and exit
  2. Identify where value can be maximised and eliminate unprofitable or low profit activities
  3. Ensure that shareholders’ interests are protected through a shareholders’ agreement
  4. 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
  5. Ensure that property is held in the most appropriate manner for the business and any potential acquirer, freehold or leasehold, length of tenancy
  6. Review pension arrangements to identify any funding or future liability issues
  7. Review contracts and trading terms to ensure they are in place, up to date and enforced
  8. Identify risks to the business from suppliers and customers on whom the business may have become reliant and plan to spread the risk
  9. Improve the accuracy and timeliness of management information
  10. Introduce systems and controls to increase confidence in the integrity of the accounting information
  11. Improve and/or introduce forecasting processes and procedures so that budgets and forecasts can be used as dynamic planning tools
  12. Identify means of improving margins and reducing overheads to improve profitability
  13. 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
  14. Introduce you to corporate finance, legal and other advisers to help with all aspects of the exit preparation and process
  15. Project manage the exit process internally so that it minimises the disruption to other staff and their continuing responsibilities
  16. 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
  17. 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

 

Photo by fauxels

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

Profit Improvement through Expenses and Supply Chain Management

by lauramills
Profit Improvement through Expenses and Supply Chain Management

There are two types of expenses, fixed and variable. Careful and regular monitoring should be in place for all businesses.

Fixed Expenses

Fixed expenses remain relatively constant regardless of the volume of sales. These are usually salaries, insurance and rent.

If your organisation has a significant decrease in sales, profit is impacted as fixed costs remain constant. Additionally, although termed “fixed”, those costs can increase alongside changing economic and other trading conditions.

The following tips can help a business improve the management of fixed expenses.

  1. Regularly review all these costs and compare them against other suppliers’ pricing to ensure the business pays competitive rates.
  2. Salaries are classified as a fixed cost. You should review your staffing levels and make sure they align with your business activity
  3. Compare your expenses to the industry standard. This will also help you know if the costs you are incurring are in line.

Variable

On the other hand, variable costs are directly impacted by changes in the activity levels or the volume of products or services that your company produces.

It is crucial to differentiate variable costs from fixed costs as variable costs are critical when it comes to profitability. If your organisation is not performing as expected, sales can remain flat or are decreasing. It is essential to manage these costs in line with the sales to reduce the risk of profit erosion.

The following tips can help a business improve the management of variable costs.

  1. Analysing profit margins, not just on a company level but on all product lines. You may find that one product has a high margin and another a negative margin. This will not be evident unless you report on each product line.
  2. Make sure you are aware of which costs are attributed to sales. If you see that the profitability is reducing, you may need to reduce those not attributed to sales, for example marketing costs.
  3. Staffing can be a high cost for any organisation. Consider hiring staff on a casual or part-time basis so that you can scale your staffing levels up and down based on sales demand. There are also recruitment agencies that will handle this aspect for you.

Supplier / Supply Chain

When thinking of supply chain, you usually think about the delivery of goods, are they on time or are they correct, and when will you pay for them. If you think about your supply chain as another way to maximise your profitability, you will be on the right track.

The following tips can help a business improve the use of its supply chain:

  1. Implementing the proper inventory method, finding the balance between too much and insufficient material.
  2. Technology that suggests minimum material quantities, and when more stock needs to be ordered.  As a result, this can reduce reliance on human interaction and ensure the stock is on hand when required.
  3. Review your supply chain arrangements regularly, look to see if you can get a better price or negotiate the current arrangement. Having your suppliers hold the stock could reduce your cost of storage.
  4. Always have two suppliers. If something were to happen to one supplier, this would not impact your organisation as much if you only had one supplier.

Each business has its own challenges when it comes to profitability. This blog only touches the surface around what can be achieved.  The CFO Centre has been assisting SME’s for 20 years, offering highly experienced Chief Financial Officers on a flexible, part-time basis. As CFOs, we are qualified CPAs or CAs with extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

Written by Elechia Jones, Regional Director, The CFO Centre

Photo by Adeolu Eletu on Unsplash

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