How does your industry and business model affect growth?
The financial position of your business is often identifiable through analysis of recent growth. Identification of working capital and a clear cash flow is essential in ensuring that the business is moving forward. Understanding these metrics is the first step towards success. SP Solutions are best placed within the business planning services industry to offer advice to small businesses in Melbourne. The first step SP Solutions will take with all new clients is to analyse the three-way cash flow to determine and forecast how cash, profits and sales will interact in your business’s future. This will then assist in making decisions about overdrafts and further financial modelling.
How does your industry affect your cash flow?
Each industry sees distinctions in the kinds of transactions that take place. Questions to consider when analysing cash flow include:
1. How regularly do transactions occur?
2. Does stock move quickly or is it a long sales process? Or are the services you’re offering short or long term?
A case study that best exemplifies the impacts of industry norms on cash flow is within a wholesale business. The long logistics process of ordering goods from overseas and waiting for delivery meant that cash was spent up to six months in advance of entering the sales period. This left the client funding six months of working capital, with an overdraft of just $250,000.
SP Solutions were able to assist in the business planning of the wholesale company through the development of a growth strategy that would increase their overdraft to $500,000, based on a three-way cash flow analysis and forecasting. This saw the client negotiating with suppliers to enact a Cash on Delivery plan that saw the waiting period between purchasing stock and making sales reduced.
These business process changes resulted in an improved financial position of the business, with sales increasing to create a positive cash flow. After just 12 months they had doubled their business!
Focus on a long-term cash flow strategy
Cash flow is best understood when in the context of the long term of the business. This provides more clarity concerning problems that may be undermining overall business growth, ensuring that solutions will best prepare you to take on the future without worry. Without this understanding, short term fixes such as loans can create more issues later on down the track.
SP Solutions understand quick fixes are never effective in the long term. Their business planning services assist small businesses in developing long-term cash flow strategies to stimulate growth.