Here, we discuss the challenges of increasing profits whilst facing decreasing sales, strengthening cashflow and recognising customer’s own cashflow challenges.
Read on for our 5 key suggestions for managing profits and cashflow in times of market uncertainty.
Questions clients have asked through times of uncertainty:
How can we increase profits – especially when facing decreasing sales?
How can we strengthen cash flow whilst being considerate to our customers’ own challenges?
We say: Both profit and cash flow are key to growing the business and effectively serving customers. In times of uncertainty – more than ever - we need to strengthen business fundamentals, to exercise professional control over what we have power to make happen.
Sales is vanity, profit is sanity and cash flow is king. Every client during the unusual period of COVID-19, from start-ups to established globals with over 100 years of successful trading history had been forced to pay more attention to these two factors than ever before.
Let us look briefly at five super-important areas that contribute to profit and cash flow.
1. Margin improvement
Consider direct and indirect costs. What costs are fixed, and which vary depending on volume of sales? Which costs are discretionary – removable when near or below breakeven? Under direct costs, identify opportunities to improve product purchasing and direct labour productivity. Pricing strategy and price differentiation is also key to margin improvement.
Many are the strong arguments for fixing costs, not least to scale-up with confidence in a reliable resource base (e.g. people, plant, equipment). However, in times of uncertainty, it pays to run lean, to be able to bring in resources when and as necessary.
2. Cash flow management
Consider your invoicing and credit control processes, your clarity on payment terms and consistency in calling in overdue invoices.
Consider your enquiry-to-conversion process and the proactive touch-points in the customer journey. Conversion can often be increased by improving the follow-up process. Consider at each of those touch-points the consistency of message around your value proposition.
4. Cost efficiency
Consider clarity of roles, responsibilities, interdependencies, and teamwork. If you are asking “why teamwork is important” when talking about profit and cash flow, for most businesses the largest cost-line is salaries and related benefits. A high performing team is efficient and effective – a business’ strongest resource for driving cost efficiency in all corners of the organisation.
5. CRM system for greater visibility of customer needs and sales pipeline
Use a CRM system to (a) track prospects through the different stages of the sales process (b) measure conversations for more new business, (c) provide greater internal visibility of sales activity.
Contact us for support to develop your Profitable Growth Action Plan for increasing profits and cash flow.
Jim Rathbone
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