Understanding your revenue drivers
For your business to make money, you need to generate revenue.
You produce revenue through your usual business activity, by making sales, getting your invoices paid, or taking cash from paying customers. So, the better you are at selling your products/services and bringing money into the business, the higher your revenue levels will be.
But what actually drives these revenue levels? And how do you get in control of these drivers?
Knowing where your cash is coming from is more crucial than ever
As a trading company, you face the multiple challenges of a global recession, an increase in online consumer buying and a ‘new normal’ when it comes to trading, markets and buying expectations. The better you can understand the nature of your revenue and its drivers, the more you can flex, manage and control your ability to generate this income.
This helps your medium to long-term strategic thinking, and your decision-making, allowing you to be confident that you’re focusing on the business areas that deliver maximum revenue.
Import areas to consider will include:
- Revenue channels – where does your revenue actually come from? Do you create income from online sales and ecommerce, through retail sales in bricks and mortar stores, or through wholesales to other businesses? You may focus on just one of these channels, or it could be that you use a mixture of two, three or more.
- Revenue streams – your total revenue will be made up of a number of different ‘streams’ So, you might be a coffee shop, whose revenue streams include coffee sales, cake and pastry sales and lunch sales. Knowing which revenue streams you rely on, which are most productive and what return they are delivering allows you to make decisions. If 80% of your income comes from 20% of your products, perhaps you need to tighten up your product range and ditch some of the poor sellers. If you’re selling more services to one particular industry, perhaps you should focus more marketing in this specific niche, or downscale your sales activity in less profitable niches.
- Product/service split – Do you know which products/services are the most profitable in the business? Which products/services have been resilient to market changes (giving you some revenue stability) and which have adapted well to change? The more you can dive into your metrics and find the most productive and adaptable products and services, the greater your ability is to provide constant and evolving revenue for the business.
- Value vs volume – Is your revenue based on selling a high volume of products/services at low margin, or low volume at a high margin? Based on this, can you move your margin down to create a more attractive price point (and more value for customers)? Or are their ways to push volume up, shifting more units and boosting total revenue? By diversifying into new channels, new streams or new products/services you can aim to balance value and volume to create brand new sales – and higher revenue levels.
Talk to us about exploring your revenue drivers
If you want to boost revenue and increase your overall profitability, come and talk to us. We’ll review the numbers in your business, help you to understand your revenue drivers and will give you proactive advice on enhancing your total revenue as a company.
Get in touch to kickstart your revenue generation.
Maximising your cash reserves
The Covid-19 crisis has highlighted the inadequacy of current cash reserves for many businesses. They simply don’t have enough cash to sustain the business in a crisis.
Now is the time to make permanent change to your business processes and cost structure so you can build those reserves. At the same time, business owners need to be part of a world solution, and that means paying our bills on time where possible.
11 strategies to maximise your cash reserves:
- Invoice your customers immediately upon supply of products and services. The faster you bill, the faster you’ll be paid.
- Shorten your payment terms, e.g. from 20th of the month to within 7 days of invoice. You’ll need to reflect any changes in your Terms of Trade, in key customer contracts, and on your website.
- Invoice directly from your accounting software. This can enable faster payment.
- Negotiate prompt payment discounts with your suppliers. Don’t be bashful, there is no harm in asking.
- Get better at collecting the money you’re owed. Ask nicely to be paid by customers as soon as an invoice is overdue. The fast cash is in the 30-day column, not the 90-day column.
- Outsource proactive debtor management to a collection agency. This can be surprisingly cost-effective.
- Perform credit checks on new customers and make sure your Terms of Trade give you as much protection as possible if a debt goes bad. For example, put personal guarantees in place.
- Develop a personal spending budget and stick to it. This will reduce cashflow pressure on the business.
- Take costs out of the business where you can, but only where you should. This is an ideal time to review every line item in your Profit and Loss Statement. The shift to working online may allow you to change spending patterns.
- Have clear spending limits for team members who incur expenses on behalf of your business and regularly monitor these.
- And finally, prepare a Cashflow Forecast. Know what’s ahead of you and understand how positive changes will improve your cash reserves going forward.
Cash is oxygen for your business. Contact us now so we can help you put a cashflow improvement plan in place.
“The more a business owner knows about their cashflow, the more empowered they become.” – Nick Chandi
What lovely news to get – GoFi8ure have been announced a Finalist in the ICNZB 2020 Bookkeeping Business of the Year award.
Leading the way in the accounting / bookkeeping industry has been part of our DNA since the day we started and we are so proud of all our accomplishments that we work so hard to achieve. To be named a Finalist is very humbling and we would to like to extend our congratulations to the other amazing Finalists of the 2020 Excellence Awards. #hugabookkeeper
Key numbers to focus on in your business now
As a business owner, it’s always been helpful to have an understanding of accounting – but in the post-lockdown world, it’s never been more important to have a good grasp on your finances.
With the business world irreparably changed by the impact of coronavirus, your business is facing a ‘new normal’. Priorities have changed, customer behaviours have mutated and revenue streams have had to evolve and pivot in order to create a viable post-lockdown business model.
To track, monitor and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.
Getting to grips with your financial reports
Whereas in the past, extra cash in the business may have been seen as a surplus that needed to be spent on something, COVID-19 has shown us that having these reserves is vitally important for the survival and long-term health of businesses.
To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports and dashboards and ‘see the genuine story’ behind your financial position.
So, what are the key reports to focus on? Let’s take a look:
- Budget – your budget is the financial plan that’s tied in with your strategic plan. In essence, the budget is your approximation of the money it will take to attain your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.
- Cashflow Statement – a cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, allowing you to aim for a ‘positive cashflow position’ – where inflows outweigh outflows. In this ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.
- Cashflow Forecast – forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cashflow holes may appear weeks, or even months, in advance – and that gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.
- Balance Sheet – the balance sheet shows you the company’s assets, liabilities and equity at a given point in time. In a nutshell, it’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity). The balance sheet is useful for seeing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up and what the company is actually worth – all incredibly useful information to have at your fingertips when making big business decisions.
- Profit & Loss – your profit and loss report (P&L) Your P&L gives you an overview of the company’s revenues, costs and expenses over a given historic period of time. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out (rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts).
Talk to us about accounting and financial reporting for your business
We’ll run you through the key reports in your accounting software, and can help you track performance, take action and prepare your company for surviving the new business normal.
Successfully implement change in your business
Research by Kotter International found that more than 70% of change projects within a business fail. Why is this?
The research findings show that employee engagement is the biggest factor. Whether it is a small change to one or two processes, or a company-wide change, it’s common for staff to feel intimidated by it.
So what can you do for successful implementation of change? Here are the principals from Kotter’s 8-Step Program:
1. Get the team onboard
Build support and create momentum behind the changes you are making by communicating the benefits with the whole company early on.
- Start honest discussions with your team and give dynamic and convincing reasons to get people talking and thinking about the change.
- Demonstrate what would happen if you didn’t make the change and what else it could affect in the future.
- Request support from customers in this instance who may love the product, outside stakeholders and others known in the industry to strengthen your argument.
Kotter suggests that 75 percent of a company’s management needs to support a change in order to succeed.
2. Form a powerful coalition from all areas of the business
Share the support you have from all areas in the business (not just the leadership team). Visible support from key people within the organisation will bring others on board and create a sense of urgency. Give these people key roles in the change process to help progress it.
Once formed, your “change coalition” needs to work as a team, continuing to build urgency and momentum around the need for change.
What you can do:
- Identify the influencers in your organisation for this change, as well as your key stakeholders.
- Ensure that you have a good mix of people from different levels within your firm.
- Ask for a commitment from these key people.
- Work on team building within your change coalition.
3. Create a vision for change
Create an overall vision that helps everyone understand why you’re asking them to do something.
What you can do:
- Develop a short summary (one or two sentences) that captures what you “see” as the future of your organisation.
- Create a strategy to execute that vision.
- Ensure that your team leading the change are all on the same page.
4. Communicate the vision
Embed this in everything you do so it is not lost in the day-to-day operation but a powerful part of this.
What you can do:
- Talk often about vision and change.
- Make sure the vision is applied to all aspects of the operations. For example, ensure it’s added to the training and induction program and is encapsulated into the relevant job descriptions and evaluations.
- Address people’s concerns and anxieties about it openly and honestly.
- Lead by example.
5. Remove obstacles
Check constantly for processes and structures that need to adjust to allow you to execute the vision and help the change move forward.
What you can do:
- Look at your organisational structure, job descriptions, and performance and compensation systems to ensure they’re in line with your vision.
- Recognise and reward people for making change happen.
- Identify, or hire, change managers whose core role is to deliver the change.
- Identify areas or team members that stand in the way of change, and find solutions.
- Take action to quickly remove barriers rather than letting them fester.
6. Create short-term wins
Create short-term targets – not just one long-term goal. Each “win” that you produce can further motivate all the staff especially if it’s a big change requiring a longer process and help keep them on task.
What you can do:
- Reward people who help you meet the targets.
- Look for sure-fire projects that you can implement without help from any strong critics of the change.
- Don’t choose early targets that are expensive. You want to be able to justify the investment in each project.
7. Build on the change
Keep looking for improvements to the system to ensure the long term goals are achieved.
What you can do:
- After every win, analyse what went right, and what needs improving.
- Set goals to continue building on the momentum you’ve achieved.
- Develop a culture of continuous improvement.
- Keep ideas fresh by bringing in new people to lead the change.
8. Anchor the changes in your culture
Finally, to make any change stick, it should become part of the core of your organisation. Make continuous efforts to ensure that the change is seen in every aspect, giving it a solid place in your organisation. It’s also important that your company’s leaders continue to support the change. This includes existing staff and new leaders who are brought in.
What you can do:
- Talk about progress every chance you get. Tell success stories about the change process, and repeat other stories that you hear.
- Include the change ideals and values when hiring and training new staff so it is enforced from the start.
- Publicly recognise key members and enablers of the change.
- Create plans to replace key leaders of change as they move on. This will help ensure that their legacy is not lost or forgotten.
Dealing with uncertainty – tips for business owners
Whether you’re in full lockdown, restricted trading conditions or back to ‘business as usual’, there’s still real uncertainty for business owners. We’re trading in challenging times at present. And knowing what step to take next is a key worry. We know that you invest more than simply time and money into your business. It is more than a job but part of your identity.
So, how do you get more clarity around your future plans? And how do you work on the short-term future of the business, when sales, income and cash are in short supply?
Focusing your efforts in the right places
Planning the next business move is difficult at the best of times, but it’s doubly problematic when we have so little clear idea of what a post-COVID19 business world will look like.
It’s difficult to plan when we don’t know what will be possible. What regulations will be in place once you can begin trading? Will the market have changed dramatically? Will you be able to trade over borders and continue to be an international operation? Will you have enough cash to actually operate?
As a business owner, you’ll be continually thinking of new business-critical issues to add to this list – but the reality is that you CAN’T control all these elements. This sense of mounting uncertainty is likely to raise your stress levels and make you more anxious.
So, how do you overcome these worries and find a practical solution?
Try to focus on the things you can control:
- Identify the things that matter to the short and long-term success of the business
- Find the things you can control and over which you have some influence.
It’s too overwhelming to try and work on everything at the same time. Instead, try to focus on the one thing you can achieve each day.
- Review your overheads and costs – one way to reduce your cashflow worries is to reduce your spending. Look at your controllable overheads and see if there are ways to negotiate better terms with suppliers, cut down on expenses or pause any subscriptions.
- Talk to debtors and creditors – if you can bring down your aged debt, that will help your overall financial health. Talk to any late-paying customers and agree when these debts will be paid. And talk to suppliers about extending payment terms, if possible.
- Consider alternative revenue streams – if your current business model doesn’t work well in lockdown, are there other online services that you could diversify into? Any new revenue streams will help to bolster your income and cash position.
- Update your website and marketing – having a great online presence is vital during this crisis, when most goods and services will be purchased online. Give your website a refresh and make it easy for potential customers to find and buy your services.
- Catch up with your team – maintaining contact with your employees is vital if you’re going to nurture team spirit. The more engaged your team is, the easier it will be to embrace change together.
Talk to us about other strategies for dealing with uncertainty.
If you’re uncertain about the impact of COVID-19 on your business, please do come and talk to us. We’ll help you get in control of your finances, prioritise the right elements of your business and find a strategy that prepares you for trading in the post-coronavirus market.
How to create a cash flow forecast for your business
A cash flow forecast is an important tool for business planning. And right now, understanding the cash coming in and going out of your business is vital.
A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you’ll have in the bank at the end of a period.
It will give you an understanding of what the revenue drivers are in your business, and give you visibility of your expenses and the things you can control. Having this information in a forecast will also allow you to plan for different scenarios, work out your priorities and understand the outcomes of different options such as diversification.
A cash flow plan can give you a proactive tool to deal with uncertainty. If you are seeking funding in the form of a loan, applying for business support or just establishing your long term survival, you’ll need a cash flow plan.
What information do you need?
We can help you to create a plan for your business. The plan is only as good as the data you have. So here’s what you’ll need to get started:
Understanding where your cash is coming from
Start with revenue from sales – break your sales figures up by product line and across channels. This will show you where the cash is coming from. For example:
- Does 80% of your revenue come from only 20% of your products?
- Do you sell to different markets and does one deliver more revenue than others?
- Are some of your products high value but low volume or low value at high volume?
The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?
Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.
Understanding expenses – where is the cash going to?
This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills, and electricity.
If you have a bank loan, include the details such as the length of the term and the monthly payments.
Your cash flow plan should also include tax payments when they are due and any capital expenditures.
Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship in order for you to scenario plan.
Controlling expenses – what costs are fixed and what are the variable costs that you can control? You may not be able to stop fixed expenses like rent, power and internet, but you could reduce the cash going out on petrol and travel, cleaning, and even directors’ drawings.
Making informed decisions in your business
A good cash flow forecast will collate all the data from your business in one place. It will allow you to plan and work out how long your business can weather a storm. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials or investing in growth.
It’s worth remembering that a cash flow plan is a different tool to a budget. Here’s one example: a budget will show sales but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.
Want to get a handle on cash flow in your business?
If you’re not certain of how to get this information from your accounting software, talk to us about which reports to run. You may need a combination of accounting software reports and projected figures.
Use the information above to source the data you’ll need and get in touch. We can help you build a plan that gives you cash flow projections to assist your decision making.
What can you do to prepare now, for a return to business?
In the context of the Covid-19 outbreak, the duty to remove or minimise health and safety risks in your business has become harder. When lockdown measures ease, businesses will need to have a plan on how they will manage risks and protect workers and customers before they start operations.
At Alert Level 3, workplaces can be reopened if the work cannot be done from home and the workplace can operate consistently with public health guidance.
Many businesses are still unable to operate under Alert level 3. Businesses will be required to work from home unless that is not possible. If you are one of the businesses that are able to return to work, you will need to think about the following safety measures:
Keeping your workplace, and the people you work with safe
- Strict hygiene measures – disinfecting surfaces and allowing people to have easy access to soap and water and/or sanitiser so they can maintain high levels of hygiene. Reminding staff with posters about how to reduce risk will be important too.
- Social distancing for employees – the goal is to limit the interaction between people. Can you set up split-shifts for staff or ensure that only essential workers come to the workplace in order to reduce interactions?
- Social distancing for customers and suppliers – offering online purchase and contactless delivery. If people come into the business, have a plan for a managed entry system, with space for people to maintain a safe distance from others.
- Contact tracing – you’ll need to record who is working together and any other people such as suppliers, customers or a tradesperson who you have contact with.
- Providing protective equipment, if it is required – you may not need PPE equipment but if it is necessary, you’ll need to be able to supply workers with the items they need.
- Have a plan to respond to suspected infection – make sure everyone can identify symptoms (fever, cough, sore throat and shortness of breath). Unwell people should stay home.
- Employee engagement – work together to discuss and agree the new working arrangements.
- Have a plan for managing employee absences – who is essential to your business operation? Have a plan in place if staff are unable to work.
- Communication with customers – you’ll need to consider how you will communicate with customers.
At Alert Level 3, workplaces can be reopened if the work cannot be done from home and the workplace can operate consistently with public health guidance. However, there cannot be contact with the public.
For more information on what business can operate and how to comply visit the Ministry of Business, Innovation and Employment website.
Provisional Tax – how does it work?
If you had to pay tax of more than $5,000 in your last income tax return, you may have to pay provisional tax for the following year. Provisional tax is like paying progress payments on next year’s income tax.
The amount you have to pay relates to your expected profit for the year. In practical terms, the amount of provisional tax you’re expected to pay is based on the tax you were liable for in the previous year, often referred to as residual income tax (RIT).
Even if you are not required to pay provisional tax, you may still elect to do so, to spread your tax obligations over the year. This can help you manage cash flow and take away the pressure of paying a lump sum at the end of the year.
For a new business, the first-year provisional tax payment can be tough. You must pay last year’s income tax at the same time as the first instalment of next year’s provisional tax. There are a couple of ways we can help you reduce the pain.
If you are self-employed or a partner in a partnership you may be entitled to a discount of 6.7% on your first year’s income tax. This is to encourage you to pay tax early and relieve the financial strain before you must pay provisional tax for the first time.
COVID-19 and provisional tax
In order to shrink compliance costs for smaller taxpayers and allow them to retain cash for longer, the government has introduced some tax relief measures that affect the normal rules for provisional tax:
- The threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This means any current provisional taxpayers with provisional tax payments of less than $5,000 will have until 7 February following the year they file to pay their tax bill.
- Depreciation for commercial and industrial buildings is reintroduced from the 2021/22 income year. If you are a building owner, you will be able to adjust provisional tax payments immediately in anticipation of additional deductions that become available.
- If your business is affected by COVID-19 and:
- you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds.
- if you are unable to pay tax by the due date, Inland Revenue has discretion to write-off penalties and interest. You may be eligible for a UOMI (use of money interest) write off.
It’s important to keep your tax plan current. If circumstances change for your business, we need to adjust your plan. Let us know as soon as you can about the situation for your business.
Please ensure you check with your Accountant regarding the information above – they are best to advise you on this.