Helping business prosper Part 2
6. Improved Performance The object of a business is to make a profit. At this stage the following will have become apparent: (a) Profit performance is unsatisfactory, or (b) There is a cash flow problem (c) The situation is extremely difficult. I then place the first emphasis on Cash Flow as invariably this will be causing immediate stress and is threatening to the business I therefore assist the client in drawing up a weekly cash flow for up to 8 weeks. This is most important because if something “cuts loose” it quickly becomes the immediate most important problem and invariably rules the operation and decision-making of the operators and takes their eyes off the main objective of making profit. The data contained in the 8-week cash flow will prompt action to immediately “plug holes” to give breathing space, to take the pressure off while corrective steps are taken to improve the cash flow problems. I run a cosmetic business in Sydney that took some hard work with cash flow but following the above really helped.
7. Methods of easing immediate cash flow problems: (a) Assess bank position (b) Peruse Aged Debtor listing (c) Peruse Aged Creditor listing (d) Take into account loan repayments (e) Ensure monthly debts to bank account are taken into consideration (f) Don’t forget interest payments. I am prepared to contact bank and creditors with the client to make an arrangement for payment if necessary. An assessment of debtors and advice on how and where to apply pressure is also important.
8. Now We return to the performance of the business: (a) Assess a “break-even” point – very important. The client then knows how he is going monthly by the knowledge that he knows how much he must sell at what gross profit margin in order to break even. Anything less in these areas will increase the amount of the monthly loss. Anything greater will give him comfort as to the amount of profit he is making on a quick assessment basis. (b) These are the ways in which to improve profit to the client’s business: (i) Level of sales Here we should study product mix high earners and low earners and whether the product range should be increased or decreased. Furthermore a study of new markets, new products, new selling locations should receive attention. These aspects of sales are however very much in the province of the operators who must have a reasonable grip of their market and it’s potential. (ii) Price levels i.e. increase gross margins on products sold. This of course will have an immediate impact on profit. The danger of course is that it may impact on sales levels. A very subtle approach to this procedure is the ideal way to go, i.e. if prices are to increase on meal prices, then do it when the menu is changed. In other industries consideration should be given to selective price adjustments i.e. perhaps not bread and butter lines, so increase these prices less than in the more luxury lines. (iii) Overheads A very careful study of how overheads should be reduced is of the utmost importance. Once overheads begin to rise they invariably outstrip gross profit increases and eventually lead to poor profit performances. Here, stress to clients not to take the easy way out i.e. give lip service only to cost cuts and not actually carry out the exercise. Controlling cost cuts is the greatest protection a business can have to a long and successful life.
9. Client Relationship I endeavour to assess as well as possible the position of the business, its future and the prospect of making improvements or putting the business back on track. I believe an optimistic approach is necessary and should be conveyed to the client. However, an honest appraisal should be given and if the situation is considered extremely difficult, this information should be conveyed to the client. I advise the client that I am a phone call away and will assist further if requested and do so willingly. The relationship must be friendly, positive and constructive. I assure the client that I am “here to help” and an honest opinion is absolutely essential in the client interest. Many businesses can be turned around and to do this the client must have faith in the counsellor and a willingness to cooperate and succeed.