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How to Unlock the Cash in Your Business – a case study

The business in this case study has maintained a healthy level of cashflow (with no borrowings) and has achieved a moderate level of growth in revenue and profit over a sustained period of time. However, at various times each month, the cash balance is almost always at the point of needing additional finance.

The business uses our services for compliance and tax planning work. They also call upon our services for the odd, minor task on an ad-hoc basis, but usually only after a problem arises and requires an immediate solution. The business has maintained a healthy level of cashflow (with no borrowings) and has achieved a moderate level of growth in revenue and profit over a sustained period of time.

However, at various times each month, particularly when subbies are due payment, the cash balance is almost always at the point of needing additional finance. Money has to be found to keep the business operating, to pay employees and pay other creditors – all this despite the business achieving a record high level of profit! Does any of this sound familiar to you?

The solution

As always, we had a solution to this ongoing cashflow issue – we suggested that we perform a Business Health Check. A Business Health Check is an analytical review of the strengths and weaknesses of a business by looking at the businesses financial KPI’s.

Results showed that although the number of customers had increased and the average sale per customer had increased, average debtor days had increased in proportion to creditor days. This was because the business didn’t have a consistent policy in relation to debtors and creditors. We devised strategies and procedures to ensure that additional financing would be a need of the past: we renegotiated debtor terms with customers, implemented policies with subcontractors to ensure they meet certain criteria, and, as an immediate result – the cashflow improved!

We also discovered a significant amount of revenue that had not been invoiced to customers (but all expenses related to it paid). If we hadn’t performed the health check, this revenue may have been forgotten altogether, or at least been delayed for so long that trying to get a customer to pay the invoice for work done several months earlier would be another stress altogether.

The future

The business now participates in our Plan to Profit program. Through constant monitoring, we are identifying issues as they arise i.e. trends that are not noticeable from the annual end of year accounts. As the businesses employees become more involved in the business through a level of accountability on what they perform, the constant monitoring of the businesses KPI’s challenges each employee to not only achieve their designated KPI’s, but to achieve an even better end result.

So, if you are sick of poor-paying customers, or your feel that are constantly hounded by your suppliers, or, you worry about whether you can pay your staff, or wonder if there is going to be anything leftover for yourself in your business, why not get SP Solutions to take the guess work out of your cash balances?

‘Rule your cash; don’t let your cash rule you’.

SP Solutions can advise you on how to grow your business into a multi-million dollar consume that’s far less reliant on you. Call (03) 9355 0500 or send us a message by clicking here.

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