There’s an inherent belief that big is beautiful.
What ends up happening is; the business owner works harder and harder. The team works harder and harder. Great they increase their revenue. Six to nine months after year end their accountant tells them their directors loan account is too high and they need to adjust the figures to avoid paying too much personal tax.
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- Increasing the business bank account to turn all the hard work into cash.
- This is really really important.
- The businesses that fail predominantly run out of cash even though they were quite profitable. They grow and grow but lose sight of generating cash.
There are four critical elements to making cash and I call them CASH:
C – COSTS
managing the costs in your business. These are two-fold, firstly your sales costs or costs of goods sold. The costs directly attributed to your sales. Let’s take a simple internet business, you buy in goods and you sell them for more than the purchase and the carriage costs.
The second element is your overhead costs, these are the costs of running your business. Telephones, utilities, rent, rates, insurance, marketing etc.
this can be quite complex and I’m sorry to any Accountants but I’m going to really simplify this to focus on four key areas:
1 = the amount of Stock you hold.
2 = Work in Progress, the speed in which you turn orders into invoices.
3 = Creditors, the speed in which you pay your suppliers.
4 = Debtors, the speed in which you get paid.
S = SALES
there are four (and only four) elements that drive sales.
1 = Number of leads, that is the volume and quality of “I’m interested in buying your product”.
2 = Sales conversion, the number of leads turned into orders.
3 = Order value, the price you charge and any add-on’s you generate.
4 = Repeat sales, the number of times you sell to that customer.
H – HMRC
yes, our friends HM Revenue and Customs. Again, there are four key elements here:
1 = Corporation Tax, making sure the business is claiming all the allowances it’s entitled to.
2 = VAT, keeping good records and putting aside money each month to pay the VAT liability.
3 = PAYE making sure you’re claiming all the benefit in kind allowances.
4 = Personal Tax, making sure your relationship with the business is tax efficient.
- When was the last time you reviewed all your costs? Both your sales costs and your overhead costs. Get a print out from your accounts and go through it line by line. You’ll be amazed how things have crept up and by negotiating with suppliers (or finding better deals) you can shed pounds off your business. A decrease in overhead cost will be comparibly worth more than an increase in sales revenue.
- Do you have stock lying around that hasn’t shifted for a while? Are you really going to sell it for what you envisaged? You’ve probably already paid for it so at worst, by selling it at cost you’ll put money back into the account.
- It’s very good to be nice in business by looking after your suppliers but business is business. Ideally, you want to receive your payments before paying your suppliers. Can you negotiate better payment terms with your suppliers to slow down the speed of money going out of the bank account?
- Can you increase the speed of money into the account by getting paid quicker? What about taking deposits or staged payments? Do you have customers who are always late paying you, what’s the true cost of these customers and do you need them, or should you raise their prices?
- Talk to your team about how they feel you can increase the quantity of leads coming into the business?
- How can you increase the number of leads that convert to customers? When did you last review the sales process to increase the quality and frequency of sales follow-ups? The fortune is in the follow-up. But many companies stop following-up way too quickly. We’re normally far too nice but keep going until a lead tells you to stop. A simple trick is to get permission to recontact at each contact stage “when would be a good time to contact you again?”
- Review your prices! When was the last time your prices were increased? Over the last two years your costs will have risen quite considerably and without realising it this will have a dramatic effect on profits. Speak to your team about how you could add more value to your products without adding more cost. Ask your customers “how else could we help you today?”
- Increase the number of times your customers order from you. Which types of customers spend the most amount of money over a period of time? How could you find more of these when you increase your leads?
“If you always do what you’ve always done, you’ll always get the same result” Henry Ford – Founder of the Ford Motor Company
So, what do you do now?
If you’ve read this far, you’re clearly not happy with your business. As I see it you now have 3 choices:
One of my clients and now good friends, Adrian, has a great saying (he’s from Yorkshire, so it’s even better in his accent!):
“Only s**t happens, everything else you have to make happen yourself!”
Great stuff and good luck, you’ll be well on your way to very quickly having a much easier business to manage, you’ll feel rejuvenated and start to really enjoy your business again.
If you need any further help please check out the free tools on our website, www.betterneverstops.global
Check out www.betterneverstops.global