With the increasing demand from people for both quality products and services, it is very hard to keep on top your business financial position and goals. As a new year starts I wanted to break down what I believe are the best tips for keeping your company thriving and above the day to day fight that small and medium-sized businesses often end up in.
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Back your Financial Goals with a commercial plan:
Financial, commercial… what is the difference really? Actually, quite a lot. But I want the below examples to show you the difference rather than putting a textbook definition out here. Let’s say that you and your team sat down at the end of December and outlined all the financial goals you wanted to meet for 2018. Sales of 300,000 AUD in February, Increase revenue by 5% after that, Decrease costs by 20%, etc…. You get the idea. But what most people forget to do is a commercial plan to back this up. From my point of view, all the numbers in a financial budget/plan/goal are worthless unless backed up by a series of commercial strategies that will allow you to get there. So if you wanted to sell 300,000 AUD by February 2018, I would suggest outlining what products you will be selling, to what potential customers and the likeliness of a customer buy. That will establish a proper commercial plan to meet a financial goal.
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Cashflow:
I know it is a bit cliche, a finance company talking about cashflow. But we have to. Throughout 2017 we saw so many companies having liquidity issues just because they underestimated the power of cashflow. So here we go, how can you keep above it all in 2018?
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Negotiate good credit terms with your customers:
We know most customers pay late, it is the normal way business works nowadays, especially bigger clients. But how can you mitigate this issue? Negotiate credit terms that take into consideration their late payments. I.E. If they pay 10 days after invoice due date, then reduce credit days by 10 days, therefore, it is likely that their invoices would be settled on the original invoice due date. Moreover, you can negotiate discounts and benefits for early payments.
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Build a good relationship with suppliers:
Supplies are the other face of the cashflow coin, if you are trying to manage your inflows tightly you should do the same with your outflows. Usually, outflows are broken into two, suppliers and Payroll. Payroll is not to be touched (for obvious reasons). However, suppliers, we can adjust and move. Our take is that before you start paying all suppliers late, you should seek to build a better relationship with them and be honest. If you think you can pay in 60 days then try to negotiate a credit term that fits that. The better the relationship you have with your suppliers the more you are going to be able to push these terms.
With these two strategies, you can start moving forward into having a better cashflow position and consequently be in a better spot than a lot of other companies.
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Funding Plan:
Now that you have your financial goals, a commercial plan to back it up and an understanding of how you can improve your cashflow position it is time you put all of these combined. The result should be a projection of how your business should perform throughout 2018. You should take into account, inflows, outflows, repayment trends, out of the ordinary expenses etc… once you have a whole year of realistic projections of both inflows and outflows you will be able to look at the months you might need funding and on what months you will be cash rich and how are you going to be able to manage these funds effectively to maximize their use.
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Keep a vision:
All these plans and strategies are great but if you don’t have a compelling vision of why you are doing what you are doing then it is likely it will become quite hard to push through and thrive on a highly competitve environment. So invest time in keeping that vision of your company in your head and transmit that to your team, if you are aligned on that vision and your plans you will be able to push through 2018 and grow your business effectively.
We hope these tips work to get you started this 2018 with the right perspective!