Posts Categorized: Business improvement & efficiency
Be careful with industry benchmarks
Be careful with industry benchmarks for I have two problems when measuring against industry benchmarks:-
1/. Are you really comparing apples with apples?
How many businesses make up the benchmark and just how comparable are they to each other and indeed to your own business?
Are they big & small, metropolitan &/or country based, new & old, running the same funding and operational structures and so on.
One can place faith in more common and the more identifiable businesses but otherwise, great care should be taken. Data from well know franchises can reliably be compared against each other, but thereafter, beware.
2/. I have found over the years that clients who focus on their industry benchmark fall for the trap of thinking that as they ahead or close to a benchmark, that all is OK. Laziness and mediocrity tend to creep in (it reminds me of one of those great lines from Jim Collins seminal book Good to Great – good is the enemy of great).
More successful business owners however are more focused on improving any system and process in their business.
It’s amazing how often little changes have big results (see our blog titled Greater profitability is closer than you may think).
So should you refer to industry benchmarks? The answer is yes but a qualified one. Just make sure you know what you are comparing yourself to and more importantly. Also, place greater emphasis on improving the processes and systems within your own business. In this regard, it is amazing how some businesses have come to dominate their industry by employing systems and processes from different industries.
The one benchmark though that you should not avoid is any applicable ATO’s small business industry benchmark. Like many accountants, I question how they derive their numbers. For example, it is a blight upon my profession that many public accountants lazily declare cost of goods sold items within overheads so this must greatly distort the ATO’s gross profit margin numbers. Questionable as these benchmarks are, they can’t be ignored as they are the ATO’s greatest business audit selection method and they target those businesses operating outside the ATO’s industry benchmarks.
We have software that reports on your business’ performance in real time. Some of the measures are leading indicators so you can understand what will happen next. We can also play with the key drivers to see what will be the result of making changes to your key drivers. We welcome the chance to demonstrate this to you in a free meeting.
Cash flow – state actual due date on invoice
Instead of stating terms such as 14 days on an invoice, we suggest stating the actual due date – such as Monday Nov 5.
We have found that other clients that have moved away from number of days to the actual due date have experienced earlier receipts from customers.
How to improve your cash flow
Xero’s latest Business Insights reports that as of August, only 53.5% of businesses were cash flow positive.
That means that almost half of Australian businesses have more money going out the door than in. That is a lot of stress, sleepless nights and extra interest to fund.
Together with our years of experience, our businesses analysis dashboards can reveal where you’re at and what will be the impact of making changes to the business. More to the point, we can show you on a rolling basis what your cash flow will be like in the months ahead.
Sleep easier by giving us a call to discuss your situation and opportunities.
Savings from a company tax rate cut?
So Scott Morrison has said that they wish to accelerate the company tax rate cuts for small business. So what are the savings from a company tax rate?
Not much if you intend to pay out profits as dividends.
In fact you might be worse off.
For more, read our previous blog at:-
How we can add 137% to a client’s profit
How we can add 137% to a client’s profit
But first, let me address the process and why we are different.
Firstly, in our annual general meetings with business clients, we work through a series of high level performance analysis reports (some of those reports are used in conjunction with other tools for our more regular meetings).
Secondly, we have regular discussions with our clients (even if only briefly). With cloud accounting, we know what is happening now and can identify and address trends as they occur. Analysis and meetings keep our clients moving towards their goals.
Thirdly, our focus is your long term success and your security. Our work and focus does not end with the preparation of an annual Tax Return.
So how did we work out how to add 137% to a client’s profit?
- Firstly our analysis tools identified that small 1% changes in key areas would deliver a profit of 30%. What areas – whilst straight forward, that will be explored in another blog.A 1% change is not difficult to implement for most businesses. A 30% uplift in profit (with a corresponding improvement in cash flow) is a big reward for small effort.
- We then identified that a 5% price increase on its own will add 68% to the bottom line. In our client’s case this should not be difficult as they haven’t reviewed their prices for a little while.
- We then explored a 10% price increase. Our software revealed that a 10% price increase would increase the bottom line by 137%.
- We then, and here is the key to all this, our software revealed what their fall back positon will be. Our software determined that they would have to lose more 24% of their existing customers to make less than under the existing price structure. Our client sells a unique and quality personal product that people buy on emotion and are guided more by outcomes & quality than they are on price. They might lose some customers, but they will not lose anything like one out of every four customers (which they will be tracking anyway).
- Even if they lost 10% of their customers in response to a 10% price increase they would still improve their profit by 80%. 80% more for doing 10% less – sounds attractive doesn’t it?
Our modelling software takes the guess work out of decisions. Such big decisions can be taken confidently. Our client can now review their prices confident of the outcome. They will not be lying awake at night worrying nor will they procrastinate or not make any change at all.
And if that isn’t enough!
Based off a likely maintainable business profits multiplier, their business will be worth up to $240,000 more.
We welcome the opportunity to discuss with you how we can help you to improve your business. Our initial meeting is free of cost or obligation. Call us now on 9899 7511.
Customers – not all your customers are profitable
Not all your customers are profitable. You know who the ones are that give you the wrong specs, are difficult to deal with, rude to your team and probably add further insult by paying you late. There is a point of view that a business should cease acting for its lowest 5% of its customers.
Who are your worst 5% of your customers?
What extra profit would you make by not servicing such customers?
How would you and your team feel if they you know worked with them?
Please contact us if you would like help in devising a customer ranking tool.
Cash flow – include due date on your invoices
You will find your customers & clients pay you quicker if you state the actual due date (like 15th October 2018) rather than 15 days.
Password fatigue – and what to do about it
If you are like me, you are finding you are doing more and more on line. And with this comes the need to make up strong, unique and memorable passwords.
And with that comes password fatigue.
And no wonder as it is recommended that a password needs at last 12 if not 15 or more characters; and those being a combination of letters, numbers and characters.
So what should you do?
The answer is to use a password program that stores all your passwords. There are many such programs and all give protection via one strong and unique password.
You will also benefit from such a program as it will allow you to regularly change your passwords – as keeping the same password is another source of risk.
Please let us know if you would like a referral to an IT specialist who can recommend and install a password protection program for you.
The one thing
So you have had a Christmas break, recharged the batteries and come back to work with new ideas. Hopefully you have formulated a plan, or better yet, updated an existing one. Hopefully you have followed up on last week’s blog.
No doubt you have identified one key thing you are going to do. Equally as important though, have you identified one thing you are not going to continue to do?
The reality of small businesses is that owners have to do and be good at so many things.
However, I often see time and costs demands as well as perfection desires of small business owners resulting them in:-
- Doing some low level activity that someone else should be doing as they are equally or reasonably capable of doing – such as administration and book-keeping. The loss here is that an owner loses the chance to do something(s) more important that generates a greater return(s).
- Doing something that should be done by someone else because they are better at it – such as recruitment and web development. The loss here is twofold in that a lesser result that consumes too much time.
So what are you going to stop doing?
Create a list of 5 that you should not be doing. Against each item, state what the benefit will be from not doing that thing – whether that be freeing up time, generating more revenue or obtaining a better outcome. Resolve which is the most important one and determine what the replacement action will look like and require. Sign it off to commit yourself to action. And add it to your 90 day plan so you can monitor your performance and results.
At MRS, we will spend today planning for your success tomorrow.
Business planning tools that work
I trust you had a great holiday. And like many other business owners, no matter how much you managed to switch off during the Christmas break, I bet you still had plenty of thoughts as to how to improve your business in 2018 and beyond. I also bet you would love to have business planning tools that work.
The problem with thoughts though is that they so rarely amount to anything. Numerous studies over the years have shown that those who put their plans in writing are far more successful than those who don’t.
Why is this? Some reasons include:-
- Writing down goals helps identify goals. It also allows goals to not only be identified but to also be ranked.
- You can then drill down as to what are the most important actions that must be taken on a daily, weekly and monthly basis to ensure that you are moving towards achieving those key goals.
- It allows you to consider how you are going to measure and track how you are moving towards achieving those goals.
- It allows you to consider what can and can’t be done with the available resources. Do you get more resources or do you focus on the more important goals at the exclusion or deferment of others?
- It enables you to identify the things that you shouldn’t be doing?
- It allows you to share your goals and vision with your team.
Over the holidays, I read a book called Mastering the Rockefeller Habits by Verne Harnish (which has been more recently republished as Scaling Up). It is short, concise, highly relevant across so many business areas and provides you with a link to suggested tools. In fact, if I could recommend you to read just one business book, then this would be the one.
As important as developing a written business plan is, most plans are too long. Harnish’s tools are practical and simple. They are also easy to update and refer to on an on-going basis. We can help you with many of the subject areas. We are also in the process of rolling out new business diagnostic tools to gain greater insight into your business (including your cash flow). We look forward to assisting you on your path to making your business more successful.
At MRS, we will spend today planning for your success tomorrow.