Up to date financial information will tell you what is going on in your business. This enables you to take appropriate action. The secret with this is ensuring you do things NOW – not some distant time in the future. We will tackle this in two parts, costs and income.
Keeping a close eye on your costs is vitally important. At the end of every month you should look at what you have spent and draw up a short “To Do” list of things to do to keep your costs under control. This need not be an onerous task, just a simple walk through of you P&L report and identify what you have been spending. The sorts of things you should be looking for are:
- Errors – have you paid for something twice? Is there a huge sum you don’t recognise? Has everything been paid that should have been? This should take you no more than 5 minutes & is just a very simple check to ensure all is in order;
- Unusual amounts – in particular are there any large and unexpected sums? Some examples might be:
- A big overtime bill – this is a very obvious one, but has it got out of control?
- A bill for some capital equipment that should be allocated to capital and spread over a period of time;
- A large utility bill – look for large phone bills or internet usage bills;
- Fuel costs – are they creeping up? Should you be re-thinking your delivery charges or re-thinking all the travelling that is going on?
- Big “miscellaneous” expenses – are things creeping in here that perhaps should be elsewhere and the costs passed on to customers?
- Goods and materials costs – must always be kept a close watch of. This could lead to lots of possible actions, including increasing prices to customers if raw material prices are going up, considering getting new deals from different suppliers, perhaps the production team are not being careful about wastage, perhaps the production process needs looking at to make it more cost efficient;
- Bank charges and professional fees – can easily creep up and it may be that you need to think about ways and means of reducing your interest payments or checking that you are getting value for money from the use of other professionals;
- Insurance – this is a very competitive market and it always pays to shop around.
My father always said to me “Look after the pennies and the pounds will look after themselves”. Two or three hours every month just walking through costs and taking a few actions as a result will reward you significantly.
Most business owners will say that you cannot predict what your customers are going to spend with you. To some extent this is probably true but a switched on owner will know what is happening with his/her customers. The main theme is to ensure that you are constantly aware of what your main customers are doing – and are talking to them about it. If they are expanding, help them out, be part of it, go out of your way to provide whatever help you can. If they are struggling then talk to them again, you may be able to help out with their marketing or with talking to their customers. Perhaps you could even make some amendments to your product so your customer can improve the service they are providing. Be very careful about extending credit, but this could well be something worth considering.
I have a client with £3m p.a. turnover. They buy approximately £400K of goods p.a. from one supplier (supplier X). During the recession my customer was really struggling to meet payment terms and needed some help from their suppliers. They owed supplier X about £200K. They sat down with supplier X and came to a financial arrangement about the historical debt that made a huge difference to their cash flow issues. Supplier X is now treating the £200K as a loan. Both businesses are thriving and supplier X is still selling over £400K worth of goods every year to my client. If supplier X had called in the debt at the time, my client would probably have gone out of business, supplier X would not have got the full amount of their £200K debt paid and MOST IMPORTANT Supplier X would now be £400K p.a. down on their regular annual income.
Watch for trends, a gradual reduction of sales could mean the customer is struggling, or could mean they are buying elsewhere because of some issues with your supply. Talk to the customer, find out what is happening and if they need help offer it – it’ll be worth your while.
If your customer is planning expansion then you will want to be part of that. You may need to gear up your production in advance. You may be able to help them in other ways, perhaps with their marketing plans. In any event, if you are constantly working with them, you will be part of their expansion and able to reap the obvious benefits.
In summary, a close eye on costs will enable you to do things to keep them under control. A close eye on income will give you the steer on how you can work better with your customers – and therefore drive up sales.
If you would like more detail about this subject, please call or email:
Tel: 01225 580103