How to make your Business a Lean Mean Fighting Machine (Part 1)

Small businesses often have a multitude of contributing factors that can affect their bottom line.  Rising costs and excess stock contribute drastically with cash flow and over purchasing.

In Part 1 of our 3 part series we give a few tips on how to go about turning your high overhead business turn into a Lean Mean Fighting Machine.

Customers

Watch out for credit-worthiness of customers.  If you are a service based business, try to get up front deposits and progress payments.  If you are a product based business, check previous payments history of customers who make big purchases and negotiate better payment terms from them.

Stock

Closely monitor stock requirements.  Check sales figures to see trends and allow for some decline in sales compared to previous periods.

Don’t get sucked into buying stock because of discounts unless you are absolutely certain you can turn stock over quickly

Think of stock or work-in-progress as cash piled up on the shelves!  Work closely with good customers to predict their short and long term requirements.

Accounts Receivables

  • Put someone in charge of Accounts Receivables and give them a system to work with.  Give them targets to meet.
  • Get Regular reports from and meet weekly with the person who is doing your collections
  • Ensure your customers know what your “Terms of Trade” are and that they are clearly stated on your invoices and statements
  • Provide as many ways as possible for customers to pay you
  • Make speedy follow up calls and make arrangements to pay of larger sums if they can’t be paid in whole immediately
  • Don’t hesitate to call in the debt collector.
  • Let your customers know you’re serious about payments from day one.

Accounts Payable

Get the maximum terms possible from suppliers and know what business you’re doing with suppliers monthly to get better returns.  Be prepared to shop around for alternatives.

Costs & Overheads

A small reduction in Costs can have as much impact on the bottom line as big increase in sales, and may be easier to achieve.  Shop around and look for more effective ways to achieve the results.

Don’t just ‘slash and burn’ when it comes to cost reduction.  Get a copy of your last Profit and Loss statement and take the time to go through each line of the P&L asking what can and cannot be cut.

  • Assess if you could manage with one less staff member
  • Cut phone costs and rent and a lot of little things
  • Look closely at all your overheads and ask yourself ‘How does this cost contribute to the profit?’
  • Don’t cut the wrong overheads e.g. Marketing and good staff – especially not the Bookkeeper.

 

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