Cutting Costs – How To Maximise Your Profit As A Business

With it now being over a year since the first lockdown was enforced, the world as we know has completely changed from what we first conceived as ’normal’. The economy, and businesses in general, have taken a hit with many companies and firms having had to close up temporarily and, in some cases, permanently during the pandemic.

Whilst government support through schemes and grants have helped somewhat, many businesses and owners have struggled to adjust to the quickly changing landscape of their respective sectors. Cashflow problems have become a common issue for many firms with the Financial Times estimating back in late 2020 that ‘over 500,000 businesses have experienced financial distress due to the pandemic’.

As a business owner, it’s your responsibility to take all the necessary actions to protect yourself, your staff and your business during these turbulent times. This also extends to post-lockdown (scheduled to be after 21st June 2021) where many businesses will be scrambling to get back into the flow of things and start making profit again.

Here are a few recommended measures that you could consider to help your business, whilst gaining a head start against your competitors as lockdown is slowly lifted:

Cash Flow Forecasting

It is arguably as important as ever to be able to manage the cash flow of your business correctly. The most common reason a business fails is simply because they run out of money or aren’t getting the funding they require to survive. According to a U.S. Bank study, 82% of business failures are due to poor cash flow management or poor understanding of how cash flow contributes to business.

A cash flow forecast allows you to analyse and survey the predicted cash entering and exiting your business over a designated period of time, usually recorded annually. There seven areas where cash is present in your business, which usually are: price, volume, cost of goods sold (COGS), overheads, accounts receivable, inventory, and accounts payable.

One of the most fundamental aspects of cashflow is calculating your current revenue and funding (equity + debt) availability. Once this identified you can create future scenarios and establish a clear plan of action forward to optimise your cash to the best of your abilities. It will also provide the impetus to tackle challenging issues that may or may not arise, enabling you to prepare for any possible circumstance whether positive or negative.

Constant Review Of Your Expenses

Consistently and constantly examining all of your outgoing expenses for the business is a crucial element of cash flow forecasting. This will help discover the areas in your business which aren’t as profitable or are exceeding the targets set, allowing you to hone in and focus on key areas that need assessment and possible restructuring.

An obvious example of this is staff members, wherein you will be able to work how valuable each staff member is and whether they are bringing in more money than you’re spending on them. This will help to revaluate your staff force where it is possible to combine roles, reduce roles and even create roles where applicable.

Analyse Your Suppliers & Whether They Work For You

Scrutinising your contracts to suppliers can be hugely beneficial. Often once a supplier for a particular product or service is found, companies rest on their laurels and believe the problem is solved indefinitely. This allows suppliers to potentially higher costs over a course of time which can go undetected if cashflow isn’t reviewed, costing your business a huge sum in total.

By just going through your supplier contacts once every month or few months, you’re able to stay on top of all services and products essential to your business and shop around where needed. This can reduce your expenditure massively, whilst allowing you to liaise with new suppliers and build relationships for future collaboration.

Getting The Funding From Lenders

During the pandemic, the government have made available numerous grants and schemes that have helped businesses during the testing climate. However, funding options extend far beyond government aid as well as banks. There are many different finance products on the market, such as term loans, flexi loans, start-up loans and development loans that are curated to specific growth methods that your business want to attain.

There are plenty of specialist lenders out there that often provide a more bespoke package of products for your business. All lenders will want to look at your financial figures, and if you’re a start-up almost certainly your cashflow forecast, so it’s imperative that these are accurate and correct. Making sure your projections and accounting is meticulously recorded and up to date is a crucial, whether you aim to borrow money or not.

Chasing Up Payments Owed

Keeping on top of your client’s payments is also highly important as without any profit coming in your business is essentially worthless. Sending invoices as early as possible, introducing late fees, regular communication and asking for upfront payments or a deposit in advance can all eliminate the possibility of late payments that will hold your business back and cost you valuable time in chasing up.

Alternatively, as a business owner you need to be understanding and compassionate, particularly during the uncertainty we’re all facing. Renegotiating payment schedules or fees can go a long way and may even install valuable trust from your clients which could be repaid over time through repeat custom and recommendations.

If a client feels unfairly hassled and unheard, the chances are they won’t return to your business for the product or service you’re offering. Finding that happy balance is key.

We’re now offering FREE strategic consultation sessions up to 30th June 2021. Please contact Nordens’ Director of Strategic Consultancy Joe Sword at js@nordens-strategic.co.uk or 020 8530 0720.

If you require any more information on the cashflow forecasting, reducing your cost expenditure, or anything accounting or strategic related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

 
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