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It doesn’t matter what business you are in or where you are located, fundamentally there are just SEVEN ways to increase the profitability of your business.
That’s right – just seven.
Which is a relief, really, when you think about it.
If there’s only seven ways to grow your business, then there’s only really seven things that you need to focus on in your business to have it grow and put more cash into your back pocket. Not twenty, not two hundred... thankfully!
And if you focus on and improve each of the seven ways (even if it’s just a tiny improvement for each) then you’ll start to see DRAMATIC improvements in your business.
Let’s start by exploring the seven ways to grow your business:
Which of these areas do you focus on the most in your business?
If you’re like most people, you spend most of your time focusing on Point 1: Attracting new potential customers or generating leads. While you focus all your attention on this area, you can end up neglecting other areas which are potentially even more profitable for their business.
Moreover, while you focus all your time on attracting new leads, you’re actually missing ‘big picture’ sales and profit opportunities that often take far less effort but can have a much bigger impact.
That’s because small, incremental increases across several of the seven ways listed above actually leads to a disproportionately large increase in total revenue and/or profit.
The business growth formula looks something like this:
Leads Generated x Conversion Rate x Retention Rate = Total Customers
Total Customers x Transaction Frequency x Transaction Value = Total Sales
Total Sales - Cost of Goods - Expenses = Profit
If you’d like to learn more about how small increases to each component of the above formula can lead to absolutely MASSIVE business growth, simply request our free report, ‘Growing Your Business and Increase Your Profitability... Dramatically’.
The report takes you through a simple exercise that demonstrates the power of small increases to each of the seven ways to grow your business, as well providing specific strategies that you can implement straight away in your business.
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Sadly, even profitable businesses are going broke by not effectively managing their cashflow during hard financial times: it’s something that happens across the country every day.
It’s not surprisingly then, cashflow is one of the biggest challenges currently facing business owners, with some 92% reporting that they frequently experience stress due to cashflow concerns.
If you’re like many of the business owners we’ve talked with recently, you may have had to:
It’s not all doom and gloom, however: the good news is that while cashflow may be the first to take a hit during a recession, it is actually THE KEY to surviving the recession. Implementing strategic cashflow management policies and systems can literally transform your business bank balance within a month.
We’ve handpicked a few strategies that you can put into action in your business and see tangible results from straight away!
Our Top 4 Cashflow Management Strategies
1. Set goal-oriented budgets and proactively manage them.
Profit and Loss Budgets are still important but right now your focus should be on developing your Cashflow Budget, which will allow you to plan for your cash requirements and shortfalls in advance.
2. Focus on increasing sales and income – a feat that, even during a recession, is possible.
Be proactive, provide real value to your customers and identify creative ways to increase your retention rate, generate leads, and increase conversion.
3. Avoid easy tactics like discounting, which can be dangerous to business profitability.
Even a 10% discount can result in your business having to increase sales by 100% to achieve the same gross profit pre-discount.
4. Reduce your cashflow cycle by collecting debtors faster, selling stock more quickly, and negotiating longer credit terms with creditors.
Putting in place systems like a debtor collection system, credit policy, stock control system and purchasing system will encourage inflows and put less pressure on the immediacy of outflows, freeing up more cash for the business.
Cashflow is the lifeline of your businesses, and with the right resources and support, you can turn around almost any cashflow situation or dramatically increase the current cash ‘buffer’ in your business.
At YBTCC, we know that this is a critical issue for business owners right now and we wanted to make sure that you too can benefit from the expertise of our expert accountants.
If this blog raises questions for you about the state of your business, contact the team at YBTCC today. Experts in all things business, they will sit down with you and take you through your options.
Just phone 03 479 3890 or email email@example.com today!
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The 'Four P's are DEAD!
A lot of business owners would know about the 'Four P’s' – Product, Promotion, Price and Place – but in these challenging economic times, say goodbye to the conventional way of doing marketing. The Four P’s are DEAD!
The Four P’s ‘push’ approach is finished.
In an ever-so-complex marketplace and uncertain economic climate, how can this conventional way of pushing customers to the sale be justified? The truth is it CAN’T!
The age of instantaneous and interactive information has turned the Four P’s on its head. The speed of transactions is faster, more dynamic and happening real-time. The world is moving into a more demand-based view. Customers are exposed to large amounts of ads every day. So how do you make your product stand out and above the rest?
EASY. You customize your product to suit each customer’s needs!
How to Change to the New Era of Marketing – The Four C’s:
The customer is no longer the object of a sale, selling a service, or the subject of some department loyalty scheme. You, as a business owner, must capture what is important to the customer and understand the shift from the Four P’s to the Four C’s.
Here’s a good example...
Dell, the computer manufacturer, offers basic to customized computer packages at reasonable prices for personal, home or business use. With no actual Dell store, you don’t need to worry about opening or closing hours.
They go 24/7 as you can order from their website. Not only do they cater for your basic needs but you can customize your computer by adding more advanced hardware at the click of a mouse. If you want it, they will give it to you.
As business owners, you must act as servers of customers, not suppliers of products or services. Create customizable value and keep on giving!
YBTCC Tips for how you can incorporate the 4 C’s into your business:
Questions? Contact the YBTCC team today to further discuss your options!
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It's a game changer for your business
I want to share with you THE most common consistent problem I strike behind most small business management performance – THEY DON’T KNOW THEIR NUMBERS!
Plus, and even worse, no one has ever spent the time to explain why it is important. SOUND FAMILIAR!?
Yes, many business owners have weaknesses in marketing, HR, management skills, and leadership skills, but all of these should be worked on after you know the goals you aspire to achieve and how to get there financially. Otherwise, why get out of bed?
The initial reaction I get when asking this is an eye-roll and being told they ‘know their figures’, e.g.:
But usually they have no idea about the following:
PROFIT GOAL - COMMON-SENSE Firstly, if you tell me you want to make $50,000 - $75,000 per annum profit before your own remuneration, and I will show you the door and give you directions to the nearest employment agency.
Any small business must be ASPIRING (sometimes a bad year accepted), to make twice what their team are earning, otherwise, why bother?!
Being told ‘It’s a lifestyle!’ and ‘Be Your Own Boss’ is a complete COP OUT told to them by their ‘BBQ Advisor’ friends or someone selling the business to them.
Your responsibility to yourself as a business owner is to make a profit to reward you for risk and then to ensure your valuable team has secure employment and a healthy growing environment.
For the purpose of this article, a profit TARGET for a small business owner should be consistently $100,000 p.a. and growing.
Secondly, what is your ‘WHY’ for the profit? To repay your $400,000 mortgage in 10 years? If so, this requires a tax-paid profit of $40,000 p.a. on average to reduce and AFTER you have paid all other personal costs like school fees, food and health insurance.
Plus, the business has to have funded its own growth by paying tax and funding debt repayments, and such.
Why is this important? Because money alone will not motivate your goals being achieved long-term, someone driven to repay their mortgage will be CONSISTENTLY working on the business than someone just wanting to earn $100,000 on a cold winter’s morning.
Why do so many corporate-executive-type personnel leave their ‘comfortable’ jobs and go into small business ventures? Because often they were not fulfilled by money alone; something was calling them to aspire to more fulfillment.
Your goals for the profit are PERSONAL TO YOU, so choose wisely and ALWAYS keep reviewing whether it is still relevant. For example:
WHAT LEVEL OF SALES IS NEEDED FOR THIS PROFIT? We don’t know yet, but we better find out soon! Otherwise, you’ll be disillusioned and unmotivated – maybe not in the short term, but within the decade, you’ll find money alone does not motivate.
So, let's play a little… to know the profit goal, you next need a Sales Trigger Target, as without sufficient sales being known, no goals will be achieved with certainty.
Here is a table (‘Sales Mountain’) to use based on the following KPI’s as an example:
Your ‘Sales Mountain’ is:
Against last year’s Sales - say (or average) $975,000 (B)
Distance to the Sales Peak: $318,103 (A-B = C)
So for this example, to achieve the desired additional profit of $50,000, the Sales have to increase to $1.293M or an increase of $318k.
Then, focused questions kick in:
GROSS PROFIT: WHAT IS THAT? Typically, this is the surplus of the sale you have received after paying for the goods (e.g. buy a unit for $50, sell it for $100, retain $50 profit) i.e. Gross Profit.
This article is not intended to re-educate you on the finer points of Gross Profit and Mark-Up (plenty is written elsewhere online), but more on how to use this knowledge to your advantage.
If you struggle with understanding Gross Profit, then contact us and we’ll schedule a training session with you, and ensure you end the day with a solid understanding of this.
However, for the purposes of planning a quick understanding of how the level of sales need to be assessed to see if this is credible, it is imperative you include your staff that are paid to generate the turnover, as simply doubling your sales to achieve your target profit is too simplistic without understanding the level of additional personnel you will need to employ to generate this turnover.
NOTE: Additional staffing for this Sales increase excludes administration staff, they will be included in a prudent % of Turnover for overheads increasing. A more detailed budget process can define this at a later stage.
WHAT IS THE BIGGEST BARRIER TO SUCCESS TODAY? We are not saying other challenges don’t exist but most are things you can quickly influence, like marketing, finance and systems.
If growing your business requires more personnel, then locating the right number of people with the right skills is becoming incredibly challenging in this modern market – particularly in NZ.
So in the example we have been using we see as follow:
We have calculated your Sales Mountain Distance to climb and it is $318,103.
Based on last year's turnover of $975,000 and divided by the average Full-Time Equivalent (FTE) @ 7 (assumed for this example) = $139,286 average sales per FTE.
When we divide the sales GAP of $318,108 by this average sale per FTE $139,286, it means we need to secure an additional 2.3 new team members to help generate this additional turnover.
NOTE - This additional 2.3 FTE should be achievable but, in some industries, it may be nearly impossible due to location or competitive pressures for recruitment of skilled labor. In others, it may be highly feasible (e.g. hospitality or retail).
Alternatively, by increasing the GP% by 3% to 32% (e.g. raising prices), you may need (in this case) only 1.4 additional FTE to achieve the Sales GAP/Profit Goals.
So, what is the answer to my question: what is the biggest barrier nowadays for a growing small business in NZ? ANSWER: It is finding suitable number of personnel to help you grow the business.
Remember I am not saying this is the *ONLY* barrier, just the main one that we see in all client operations.
IN SUMMARY So we have endeavored to demonstrate a quick and easy way to assess your goals and how achievable they are by helping you understand your numbers that are relevant to you.
By doing this we have asked you to achieve the following before you undertake 2019/2020 annual budget processes:
Contact us if you would like a simple tool to download to enable you to undertake this process by emailing firstname.lastname@example.org
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Measure your Marketing!
Measuring your marketing results is one of the most important things you can do for your business.
It is the yardstick that gives you an indication of how healthy or unhealthy your business is across many different areas. It’s your business score–keeping system.
If you don’t have one, you’re operating your business blindfolded. You don’t know whether you're winning or losing. Think of it this way…
How possible is it to beat the world record at 1500m freestyle if you don’t have a timer to time the event and see how fast you swam?
And how easy is it to win a game of Rugby League if you don’t know which team has the highest score?
Downright impossible isn’t it?!
With the right score-keeping in place, you know who the winner is and what score you need to beat. It gives you goals.
So What Can You Measure?
Measuring and recording your results is really only useful if you know what to do next. Make sure to keep an eye out for Part 2 of our series on Lead Generation, coming out next month!
Until then, if you have any questions, contact the YBT team today! You can phone 03 479 3890 or email email@example.com.
So what can you measure?