Ensuring Business Profitability with CAD Partners CFO On Call

CAD Partners CFO On Call explains that a simple way to ensure business profitability and healthy cash flow is to focus on what drives both.

To determine this drive, a business owner should ask themselves these questions:

• What drives revenue needs to be understood.
• How saleable is the product or service and what’s the market?
• What marketing is working and how much is it costing to acquire a customer?
• Is it profitable revenue?
• How does the true cost of delivering the product or service compare with the price?
• Are customers returning and if not why not?

To ensure profit, businesses have to avoid being cornered into a ‘margin squeeze’, which involves allowing costs to rise without increasing prices and absorbing the extra costs. The pricing of products and services is vital to a business’ profit.

Overheads are another area business owners have to keep an eye on, they can get out of hand when there is no budgetary control. Managing overheads involves overlooking what the business’ spending, such as what staff are spending on or shopping around for the best deal.

Debt collection is another area that can have a dire effect on a business’ cash flow. To manage this, start by letting customers understand their expectations with the Terms of Trade. Invoice as soon as the product/service has been delivered or arrange a deposit or progress payment. For large amounts, businesses can follow up smartly with small e-mails and phone calls. It is always best to keep good records of reasons/excuses for late payments and agree to outstanding amounts being paid off in instalments over a period.

CAD Partners financial franchises also recommend businesses to reduce the time between stocks sitting in store and jobs waiting to be finished and invoiced. Stock and jobs can be a huge drain to cash flow. It is through good records and planning that can help manage both areas. Businesses can consider utilising some of the cost effective online systems that are available in the market.

Slowing down payments to suppliers is often the last resort tactic for where there are cash flow problems. It is often suppliers are paid too quickly, and in worse cases, are being overpaid. Keeping an eye on this area can provide the much needed cash flow in the business.

For more financial advice from CAD Partners CFO On Call, visit their website or fill out the form below.