10 smart money moves

Owning and operating your own small business can be a rewarding experience. However, in the present environment, you’re faced with challenges such as decreasing margins to win work from competitors, pressure to pay debts and increasing operating costs. Even with consumer confidence slowly returning and revenue beginning to increase, now is the time to ensure your business has all the right strategies in place to survive the next financial crisis.

1. Reject unprofitable work

In the frantic race to win work from their competitors, many businesses discount their quotes, sometimes below cost. This may result in a successful tender, but there are hidden costs in many projects that ultimately make the work unprofitable.  Some of these hidden costs include:

• Unforeseeable design changes or redrafts for plans;
• Timetable delays;
• Rectification work due to problems or issues that arise;
• Failure to allow for administrative overhead costs in quotes;
• Additional management time being devoted to project;
• Suppliers costs exceeding budget;
• Labour costs increasing due to additional staff needs or pay rises not factored into quotes;
• Site Management, including environmental issues; and
• Lack of skills or experience increasing costs.

Taking on work that you are not equipped to handle is the downfall of many businesses. It is often too late to revise your tender and recoup these costs once you have commenced work. When calculating your quote it is important to factor in all foreseeable costs and include an allowance for cost overruns as a buffer. This approach may result in you missing out on some tenders, but it is better than losing money on a job. Businesses should focus on winning tenders based on their reputation for quality, timeliness, value for money and specialist expertise.

2.    Revise margins to include overhead costs

When calculating the costs of a product or manufactured goods, include an allowance for administrative overheads like wages, rent, leases, electricity, phone, fuel and other operating costs. That way you will ensure these costs are being met for each product that’s sold.

3.    Use a rolling 12-week cash flow

It is difficult for many businesses to forecast their income and expenditure for any period beyond the next three months. Market conditions, customer demand, seasonal fluctuations like Christmas and Easter, all impact on sales and costs in a business. However, sales trends or market fads tend to continue for at least a few weeks or months. A rolling cashflow works by asking you to forecast your income and expenses over the next 12 weeks, using your current forecast customer receipts and current supplier bills and obligations. These are typically easy to establish and are often based on a detailed analysis of your aged debtors or creditors ledgers. With each new week you add another week to the forecast based on analysing the due dates of your customer receipts and supplier commitments. This will provide you with a very clear understanding of your income and expenditure and will allow you to compare the actual results achieved against your forecast and improve your estimates for the following week. Managing the timing of customer receipts and supplier payments is critical to managing your cashflow.

4.    Use debtor insurance and debtor finance

Like insurance for your fixed assets, debtor insurance gives you piece of mind, by paying accounts when a customer fails to pay. Debtor finance is a cashflow tool that accelerates the income of slow paying customers. Instead of waiting 90, 120 or 180 days for a customer to pay, you receive typically 80 percent immediately. Debtor financing quickly coverts your debtors into cash, allowing you to pay bills on time.

5.    Sell the right products

Holding product lines that are slow moving or obsolete is very costly and ties up cash while products remain on the shelf. If a product is only ordered once a month, then consider placing the item on back order for a customer. A simple way to generate cash is selling obsolete stock at a heavily discounted rate. Sales of this nature draw in customers who hopefully also buy other items whilst in store.

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