9 smart strategies to improve profit and cash flow for your sign business

We’re at the end of another financial year. If it’s been a good one, with great rewards for your hard work … fantastic! If it’s been a slog, with not enough reward … read on!

End of financial year is a great time to reflect on what you’ve achieved in your business. Not just for the taxman to work out how much you owe, but for you, as a business owner, to understand exactly how profitable your business has been (if you haven’t been looking at it closely every month).

It’s so easy to get sucked into the day to day stuff and forget to take a step back and review what you’ve actually achieved financially. Many business owners struggle with this for two reasons; they aren’t trained in how to do it and they don’t see their accountant often or quickly enough to benefit from the advice for the new financial year.

Here are some strategies to help you achieve a great result next financial year:

1.    Have a Plan - There’s an old saying “If you aim at nothing… you’ll meet the target with amazing accuracy!”  Plan your sales, how you’ll achieve them, what they will cost and what your overheads will be to deliver to customers.

2.    Understand the benefits of a Budget - This is one of the most powerful tools in your armoury to better profit.  It is effectively your ‘Financial Road Map’.

3.    Understand the benefits of a Cash Flow Forecast - “Sales are vanity, profit is sanity and cash is king!”  A documented cash flow plan will help you to navigate the peaks and troughs throughout the year and help you to avoid ‘crisis cash flow management’ i.e. having to go ‘cap in hand’ to someone to lend money to cover unexpected shortfalls.

4.    Use these Budgeting Tips

a.    Set realistic expectations

b.    Separate ‘fixed’ expenses from ‘variable’ expenses i.e. ‘fixed’ are the ones you incur all the time e.g. rent, admin salaries and ‘variable’ are the ones directly related to the product or service e.g. product cost, labour and materials on a job.  This enables you to get a clearer picture of gross profit and track changes needing action.  For example, if gross profit goes down you may need to consider a price increase or shop around to keep costs down.

c.    Categorise ‘fixed’ expenses, so that you can more easily see where things are going over budget. For example split them by:

i.        Occupancy - rent, building and contents insurance

ii.        Admin - salaries, super, workers comp insurance etc.

iii.        Marketing and Sales - advertising, sales aids etc.

5.    Use this Cash Flow Tip

a.    Compare your actual cash flow against forecast at least weekly if cash is tight.  This helps you to learn where spending needs to be tightened or cash brought in more quickly.

6.    Understand the Power of ‘Break-even’ - This is the amount of sales you need to make neither a profit or a loss i.e. $0.  Obviously this isn’t the objective of being in business. However, it sets a great starting point to set a target of profitability and to avoid losses.

7.    Understand the ‘Cash Flow Cycle’ - many businesses offer credit terms to customers and similarly receive terms from suppliers.  Cash flow squeeze is caused when terms to customers are too long and those from suppliers are too short … the result is cash flow squeeze.  Also stock sitting in store for too long and jobs being in progress for too long, adds to the squeeze. 

8.    Create strong profitability and cash flow by managing ‘The Seven Key Numbers that Drive Profit and Cash Flow’

a.    Sales levels/revenue growth

b.    Cost of your product or service

c.    Overheads

d.    Customer payment days

e.    Stock/Work in Progress days

f.     Supplier payment days

g.    Price change %

9.    Do what successful businesses do

a.    They have a Business Plan and a Budget

b.    They are systematic

c.    They measure their performance - monthly at a minimum

d.    If measures don’t meet plans and budgets, they make changes quickly.

e.    Because of these actions they have strong profitability and cash flow.

Picture Credit: helloquence (Unsplash)

Sue Hirst, CFO-ON-CALL

CFO On-Call is a team of Financial and Business Advisors who work with open-minded people committed to business growth and achieving success. For a no obligation FREE chat about your profit growth opportunities please call us on 1300 36 24 36 or visit www.CFOonCall.com.au