The current crisis has made it important for businesses to have an understanding of the various cash flow and profit drivers that impact their business.
Some of the key areas that business owners should be focusing on are:
The trend in sales figures and what impacts them.
Which products/services are profitable and which are not.
Which salespeople are producing the best results in sales as well as profit.
Which jobs they made money on, which they lost money on and why.
Which customers are contributing the most in sales and profit.
Review specific key performance indicators for the business e.g. sales per salesperson, per square metre of retail space, per customer etc.
What to charge for products and services in order to be profitable as well as competitive.
Costs and Overheads
The true cost of products and services and how they are trending.
The exact amount of overheads and a comparison to budget. This enables you to take very quick action if the variance is not in your favour.
Review the profit & loss statement on a monthly basis and look for savings that can be generated by cutting discretionary overheads such as advertising with minimal return on investment and consumables.
The gross profit or contribution to profit of various product/service lines or divisions of the business.
The gross profit percentage for the current month and year to date, as well as a comparison to previous periods. Some also compare against benchmarks for their industry.
Net profitability every month. Note that costs and overheads need to be relative to the sales i.e. if you sell product or services in a month you need to deduct the cost in the same month.
Comparing actual profit & loss to budget on a rolling 12 month rolling basis.
The ‘Break-even’ point i.e. how much you need to sell to cover costs and overheads without making a loss or profit.
The stock level and the amount required to meet near and long term needs.
The average stock turn days, i.e. how many days on average stock is sitting on the shelf waiting to be sold.
The Work in Progress level and the average number of days jobs are in progress until they are finished or invoiced.
The amounts outstanding to suppliers and the number of days on average they are taking to pay all suppliers.
The amounts owed by customers and the number of days on average customers are taking to pay.
The amount of tax due (GST/PAYG etc.) and if this can be paid when due. Seek payment extensions with the ATO on a timely basis.
Forward projection of cash flow i.e. the future monthly bank balance based on assumptions of customer receipts and all payments due. During these tough times, this may need to be known on a weekly and even a daily basis.
The dates when leases or lending facilities are due to end so you can plan for renewal or replacement.