Article:  Improve Your Business's Cash Flow (October 2009)

Get in touch and ask us to conduct a business evaluation and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Article:  Essential RE-Forecasting of the business (March 2009)

In unpredictable times - are you best equipped to make the decisions that lie ahead?

We know that you are busy but we'd like you to consider the following:

At nuOrder we can help our clients design and implement a robust financial tool that allows decision makers to understand instant changes to the business.

We can get the ball rolling in under a week and leave you with a world class financial model that can be used every month. Ask us for an on line demonstration.

Get in touch and ask us to conduct a business evaluation and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Article:  What Are The Key Financial Value Drivers Of Your Business? (June 2008)

This article is a brief discussion on the most important financial drivers in a business and is not aimed at discussing all value drivers that exist in a business. It is also not an in depth discussion of the key drivers as this could take up a book to cover that.

In order of Priority:

Customer Base/Sales

I find that many business owners are surprised to hear me say the Sales and customer base is the most important financial value driver. They expect to hear that it is Profitability as this is the typical accountancy answer.

My answer is that sales are the most critical driver because if you do not have a sale there is NO Business.

The rest of the drivers flow from this sales driver; how to you obtain the sale; how do you produce the product or service that constitutes the sale and how do you achieve a positive cash flow from your sales.

The customer base of the business obviously links directly to the sales driver. The bigger your customer base and the more loyal and focused it is on your product/service range the better off your business is.

There is a huge amount of evidence as to why customer base is so important. In the sale of a business buyers are particularly interested in the customer base and its many dynamics of size, nature, geography and location, quality, break up and details of the underlying nature of customers even to the extent of what customers buy what products/services and how much, protection of the customer base particularly after the sale, possibilities of increasing the size and quality of the customer base.

Most businesses spend a reasonable amount on advertising and thus their customer base in both its size and quality. A loyal focused customer base is an invaluable asset as you can use this source to increase sales and future cash flows to be generated. Concentration of resources on higher margin products and services that you supply and to the class of your customers that purchase these products/services will have a direct positive improvement of your business.

There are many tools and products in our systems (in partnership with IBS) that are available to address this most important area, so I will not elaborate any further at this stage.

Systems & Procedures

The systems and procedures of a business that are used to produce the sales are critical and are usually closely guarded and protected and often are directly connected to intellectual property. These systems and procedures of a business often set a business apart from its competitors and many businesses spend a reasonable amount of expenditure in this area and continue to do so. Without being exclusive, systems and procedures include:

Cash Flow & Margins

On the basis that businesses have sales and systems and procedures in place to produce the sales, do they have current and future sustainable positive cash flow resulting from the sales?

This brings into consideration the 'Net Variable Cash Flow' system and some other parameters.

Key components of this system are as follows:

Our ProfitXpress™ and CashflowXpress™ reports and processes cover this area. 

Efficiency

Many businesses operate on an in efficient basis and the unfortunate fact is that they are un aware of this most vital factor. Our 'Activity Driver' tool covers this critical area.

We have undertaken a number of reports that have highlighted some alarming inefficiencies in operations of companies (e.g. inefficiencies as low as 40% of available key driver units such as hours). This seems hard to imagine but I clearly state that the majority of systems that we analyse show inefficiencies to which the business owner was not aware of and in cases where they had some suspicions of their business being inefficient they were not aware of the extent.

Small changes suggested and made by the businesses that we have worked with have made dramatic positive impact on cash flows. The analysis also addresses the key area of profitability at the Gross Profit level and high lights the range of Gross Profit/key driver often but not always hours). Again small changes and concentration on targeting the area of sales that have higher Gross Profit/key driver has had dramatic positive impact on cash flows. 

Integration of above drivers

Needless to say here that all of the Key Financial Value Drivers integrate with each other.

A valuable and successful business must have sales and a good customer base, andmust have good systems and procedures in place that operate efficiently and produce positive sustainable cash flows. It must also be structured adequately in terms of its debt level and also its capacity level (particularly in terms of its sales level compared to its asset base and what level of spare capacity it has and also how it plans this aspect in the future direction of the business).

Get in touch and ask us to conduct a FREE Business Evaluation Meeting and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Article:  10 Ways To Reduce Your Expenses (May 2008)

Get in touch and ask us to conduct a FREE Business Evaluation Meeting and find out about our unique way of designing and implementing strategies to generate sustainable business improvement.

Article: Keeping Debtors Under Control (April 2008)

In previous newsletters we have talked about keeping track of jobs in your office, how to improve your cashflow and the importance of managing client expectations. Implementing these suggestions in your business should result in:

But what do you do if a client still doesn't pay your invoice? Below we look at reasons why clients don't pay and a simple procedure to collect outstanding invoices.

As you transform your business into a successful business, you will naturally start to develop systems to monitor your key performance indicators. These monitoring systems will allow you to take snapshots of the performance of your business and help you with your Quadrant II planning and preventative maintenance.

One system of monitoring will be checking on financial performance and will include regular review of your outstanding debtors. Unfortunately it is a fact of life that no matter how efficient or competent we are, we will have clients that are slow to pay us, or may not pay us at all.

Clients will not pay an invoice for three main reasons:

The Time Effect

The Time Effect refers to a delay between the job and your invoice. You can deal with the Time Effect by ensuring invoices are sent out when a job is completed or at the end of each month. Avoid sending out annual invoices because the lapse of time between the job being finished and the invoice arising diminishes the value of the job to the client.

The Cash Impact

The Cash Impact refers to how the invoice affects the client's hip pocket. The Cash Impact is felt when the invoice is much higher than the client expected. The Cash Impact can be dealt with by ensuring their expectations are clear at the beginning of the job. On occasion, the client may simply be experiencing a cash squeeze. Time to pay may be appropriate but will depend on your collection policy.

Conscious or Subconscious Avoidance

Unfortunately, we can sometimes get clients who have no intention of paying. Usually these clients can be identified and rejected at your first meeting. Having a good engagement letter setting out your payment terms will help minimise bad debts but it will only be effective if you remain firm and follow your procedure. That means handing delinquent accounts to a debt collector for further action, including court orders for payment.

Occasionally a client will just be forgetful and not remember to pay your invoice. Have a simple debtor management procedure, and regularly remind clients of overdue invoices. If you follow up outstanding invoices regularly, you will avoid the Time Effect and reduce the risk of bad and doubtful debts.

It is important to remember that the job isn't finished when you get the job lodged or back to the client - the job really only finishes when the invoice is paid! Ensure all your team is aware of the importance of following up outstanding invoices promptly.

Article: What Do You Want From Your Money (March 2008)

These are fair and reasonable questions. Following is a short exercise which will help you start thinking more deeply about your money and what it should really be doing for you.

Step 1

Write ten things that your business requires money for. It could be sales, human resources, marketing, etc.

Step 2

Some of your financial goals can be achieved in two years or less. Define the list from step 1 into a goal that can be achieved in equal to or less than 2 years. For example, "Dedicate $10,000 from profits to on-the-job training programs by 1st July 2009."

Step 3

Define your list again but this time make them long term goals. This means they can be accomplished in five or more years.

Step 4

Prioritize your goals. Choose no more than five goals in total from step 2 and 3. You should only work on a few goals at a time. It will also help you to focus on the most important goals first. Don't forget to acknowledge the time frames and indicate your goal as long term or short term.

Step 5

Develop your plan to achieve your financial goals. This means that you will need to identify when you want to reach your goals, what resources will be required to reach your goals and what steps will need to take to reach your goals. Make sure each goal obeys the SMART rules.

Article: How To Protect And Improve Your Business's Credit Rating (February 2008)

Credit-reporting agencies track the creditworthiness of businesses like yours to help suppliers and lenders make decisions about which companies to do business with. These agencies collect data for reports from banks, retailers, government records, and other sources.

Potential suppliers and financial institutions may use your company’s credit rating to determine how likely you are to pay your debts. The strength of your rating can impact the payment terms that vendors grant you and interest rates that banks apply to your business loans.

Keeping your credit report in tip-top shape is smart for business. Use the advice below to protect and improve your company’s credit rating.

1. Review your report regularly

Obtain a copy of your credit report on a regular basis and review it thoroughly. Look for errors, old accounts that are still listed as active, and other inconsistencies. Be sure key supplier relationships appear. By regularly reviewing your report, you can feel confident that anyone evaluating your company will receive accurate information.

2. Update details

If you find that information on your report is dated or missing, take steps to make it current. For example, if your report lists a dated figure for your company’s annual revenues, report the new amount to the agency that issued the report. Likewise, if your report is missing data from credit relationships that are in good standing, contact the creditors and ask them to report your performance to credit bureaus.

3. Fix mistakes

If you find errors in your report, contact the credit-reporting agency to discuss how to correct them. Submit fixes in writing and include your business name and tax identification number on all correspondence. Forward copies of any documents you have that support your side of disputed items, saving the originals in your files. If an error on your report is the result of a creditor’s reporting mistake, contact the vendor and politely request that it remove the mark from your record.

4. Pay bills on time

Paying bills by their due dates will positively impact your credit standing. Timely payments reflect a history of responsible financial management.

5. Apply for secured credit

Banks are unlikely to grant unsecured loans to companies with shaky credit histories. But getting a loan that is secured with collateral can be a way to demonstrate creditworthiness. As you begin to pay back the loan responsibly, you will be building a stronger credit history. Be extremely careful not to overextend your use of secured credit. Doing so could result in losing the collateral to the lender. 

Article: Financial forecasting (January 2008)

Financial forecasting is an 'early warning system' that can help you anticipate likely cashflow problems and take steps to avoid them happening.

Of all the financial information you need to help you keep your business healthy, cashflow, sales and costs forecasts are the most important. The more frequently you do them, the better your chance of staying out of trouble. Ideally, you should update your forecasts every month.

"Regular financial forecasts can help you plan your business growth," explains Roger Brown. "By predicting highs and lows, you can manage your cashflow accordingly."

Forecasts are also essential to showing lenders that you are meeting their requirements. "You need to reassure them their money is safe and that you can repay debt," he adds. "A bank that trusts your financial forecasts will be more likely to lend you more money.

"Cash is king," Roger stresses. "Making forecasts regularly will help you ensure that your business has the working capital it needs. A business can survive for a short time without making sales or profits, but without cash - it won't.

 Identify your firm's monthly outgoings for the year ahead. For fixed costs, such as rent and rates, this will be straightforward. Variable costs, such as materials, might prove trickier.

Prediction is not an exact science, so if you are in any doubt, opt for a higher cost figure than might turn out to be the case. And remember to be comprehensive. Failing to account for all costs will have an impact on your actual cashflow

Sales forecasts are usually based on sales history and educated predictions about future sales. How many customers will you keep and how many new ones will you attract? Be influenced by such factors as any price rises you are planning, as well as what your competitors might get up to and anything else that could affect demand.

"Create a picture of the volume and timing of anticipated sales, the predicted revenue they will generate and when you expect to receive payment," advises Roger.

"For regular sales, use established figures for sales volumes, debtor periods and bad debts. Be cautious with forecasts for new products or customers - you should expect problems and delays," he warns.

Each month, compare your income against your forecast. Look for reasons behind unusual increases or shortfalls. Creating separate forecasts for different products or places in which you sell can be very useful.       

Bring together your sales and cost predictions in a spreadsheet to create a cashflow forecast. This will show you exactly when you expect money to enter and leave your firm and whether you are likely to be faced with the problem of more money leaving your business than there is coming in.

Importantly, cashflow is based on money entering and leaving your firm's bank account. It is not a question of how much you are owed.

If cashflow problems look to be on the horizon - take action straight away. Think of ways to prevent them or of short-term measures to weather the storm (such as arranging a bank loan).

Forecasting can be difficult if you lack experience. So, what final key piece of advice does Roger Brown offer? "The key is always to be realistic when making your calculations," he concludes.

Many business owners operate a business under tight or negative cash flow conditions - this article explains how to turn your business into a cash generating machine so you can grow your business or simply put more money into your pocket.

We have been able to turn cash poor or cash negative businesses into highly positive cash flow businesses by analysing two financial statements through our financial analysis software.

Small Changes Equate To Massive Improvements

Changing a number of small operating areas within your business by as little as 2% - 3% we are able to make massive changes to the financial health of your business.

How It Works

The mix of your profitability, pricing structure, accounts receivable, accounts payable and overheads plays a dramatic role in your business generating either a positive cash flow or a tight or negative cash flow. If you also have cost of goods sold and / or stock you can really make some dramatic changes.