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Cut those costs and increase cashflow
Nick Roberts • July 19, 2015
Trying to reduce your outgoings can be a daunting prospect when you're stressed by falling turnover and running out of cash. Hindsight being such a wonderful thing, you probably realise by now that you should have put the equivalent of three months overheads aside for that rainy day, arranged for the preparation of monthly financials and prepared a budget and cash flow forecast to predict your current predicament but what can you do now to alleviate the pressure?
Follow these steps to alleviate cashflow pressure
- Reduce your drawings to the bare minimum. If this means cutting your personal outgoings so be it. Go through all your expenditure and prepare a simple budget and stick to it you'll be surprised at how much you can save! Give your credit cards to a trustworthy friend or family member to prevent impulse buying - it's better to be poor temporarily than go bust.
- Cut your staff costs where necessary. No matter how loyal your staff sometimes the interests of the few outweigh the needs of the many - there is no point in carrying on to the point where all the staff have to be made redundant. In addition, there may be easier alternatives such as reducing hours or contractors.
- Ask your landlord for a temporary rent reduction. Not easy to negotiate but many landlords are reasonable and recognise that it's better to have some rent and an ongoing tenant than none. You'll have to convince your landlord that you're not a goner and that you do have a future but that you just need temporary relief.
- Watch your finance costs. Are your interest costs too high? Do you know what these really are or is the true finance rate well and truly disguised? Are your borrowings appropriate to your circumstances and properly structured? Are you borrowing too much because you're poor at collecting your Accounts Receivable?
- Reduce your power costs. Have you compared power prices lately? Can you improve your insulation, get cheaper-to-run heat pumps, turn down your lighting and your heating down a degree or two by putting a jumper on?
- Downsize your car. Can you still afford to impress your neighbours with that V8? Do you really appreciate how much that depreciation is costing you? Do you really enjoy filling your tank these days? Do you really need to continue going to that main dealer with their continually high service bills?
- Review your telephone bills which have a habit of snow-balling to exorbitant levels. Are you on the right plan with capped Toll calls? Do you control and monitor staff calls? Have your mobile 'phone bills run away from you and are you making unnecessary excessive calls to mobiles? Are you on the right mobile plan with built-in calls?
- Cut out ineffective advertising. Why carry on paying for advertising which doesn't work? Monitor its effectiveness or target your advertising at your ideal customers to make it more successful. The most effective marketing is often virtually cost-free.
- Reduce your printing costs. Do you still need that letterhead now we're in the electronic age? Can you get your catalogues onto your website? Shop around for a decent colour printer and consider producing your own marketing material.
- Cut down on postage. Why send out your invoices, customer statements, reminders, newsletters, publicity material or catalogues in the post when you can send these electronically by email or text? How many businesses or private customers don't have email or a mobile 'phone these days? Even grannies and grandpa's are having lessons (and probably getting stronger glasses too!) on how to use cell phones these days!
- Look at your bank charges. Are you operating the best account for your type of business? Are you still sending out cheques or asking your customers for cheques? Still refusing to use Eftpos machines? Ask your bank manager for advice - competition seems to be hotting up in the banking world - my bank has just offered to reduce my charges completely off their own back -I 'phoned up to see what the catch was!
- Look at your freight costs. Although fuel costs are rising competition in the transport line is intense and you could achieve a substantial reduction so shop around.
- Review your insurance cover, both business and personal. Compare premiums with different companies and ensure you are not over-insured.
- Review your ACC cover. Does this conflict with your Income Protection insurance cover? Should you move to ACC CoverPlus Extra to reduce the cover (and therefore the levies) to the minimum?
- Estimate your Provisional tax. I'm still surprised at the number of business owners I meet who are still paying Provisional Tax Based upon profits not seen for a year or two! You can estimate and re-estimate your Provisional Tax as often as you like and there is no point in tying up sorely needed cash with the IRD. If your accountant hasn't helped you with Prov Tax get one who's interested.
- Check all your supplier bills personally before they are paid even if you have staff. After a while you will get a feel for costs and whether everything is correct.
- Fraud, both substantial and petty, is massively increasing. Be on the lookout for petty staff theft, external fraudsters and especially (with apologies to the silent majority who are 100% honest!) your bookkeeper who may be like one of the ones we keep reading about in the papers!
- If you have to pay the IRD late make an arrangement with them first to eliminate the penalties which can be done over the telephone normally quite quickly. The real rate of interest with the penalties added on is very unfriendly.
All these measure may not apply to you, but don't give in to your natural resistance to change. Implementing just a few of them will no doubt deliver some very pleasant surprises. So start saving now!
High, low or somewhere in the middle? Where to pitch realistic charge-out rates is a common question facing trades, service and professional businesses.
In fact it's probably one of the most difficult areas of business. You have to be careful not to underprice as this will reduce profits, but at the same time, overpricing could turn customers away.
Setting charge out rates is just as important as marketing and delivering a fantastic service. You can do these two things excellently and then undo the lot by setting charge out rates too low or too high. This means pricing is a complex strategy that should be carefully undertaken and reviewed.
Read more here
Do you wonder sometimes why your Council rates are so high and what they do with all the money? Especially when you see Council workers (as hard working as I'm sure they are) using leaf blowers on the Havelock North to Hastings cycle path?
Finding the money to pay your rates is hard enough as it is, but when you're in business and you have a bad year it's even harder, so did you know you can get a rates rebate if your income drops below a minimum threshold? The threshold level varies depending on your income and situation, but for example, a household with an income of $30,000 and one or two kids could get a $600 rates rebate. And then, even better, you can take the kids to Splash Planet and get in cheaply with a copy of your rates bill!
For further details click here, or email Nick for help if you're not sure what to do next.
n previous blogs we've talked about cutting ACC costs by switching to ACC Cover Plus Extra. However, you need to make sure that if you reduce the level of your ACC cover, that you have adequate life cover in the event of your untimely demise.
This is because ACC pay out Fatal Death Benefits, the amount of which depends on your income for ACC purposes and the amount of the ACC payout can be very substantial.
A spouse is entitled to 60% of the 80% ACC entitlement for 5 years whilst children (via the spouse) will receive the benefits until they turn 18 at 20% each up to 40% in total.
Take, for example, an earner on $80,000 income who dies an accidental death with a spouse and two children of 4 and 7. Collectively they will receive benefits of $1,049,600. If, on the other hand, the earner had reduced his ACC income to $22,464 the benefits would reduce to $368,410, a very substantial reduction indeed!
So, if you want to reduce your ACC premiums by switching to ACC Cover Plus Extra, you have three options:
Take care not to die accidentally!
Get adequate life cover
Stay single without any dependants!
If you need help with ACC, contact me at Accountancy + Business Advise Centre.
The availability of your annual financials is a wonderful opportunity to review your business performance. You can discover how to improve your business as well as refresh your enthusiasm and drive in the business.
Click here to read seven ways you can use your annual financials to improve your business.
Your annual financial statements have their uses, but by their very nature, they are far too historical to be of any use in managing or improving your business.
The most valuable financial accounts you can get your hands on are interim accounts prepared periodically - monthly for larger businesses or quarterly or bi-monthly for smaller businesses in line with your GST return periods. There is a strong correlation between the availability of interim accounts and business survival.
Find out here what having interim accounts to hand means for you
These are the four most common courses of action you can take if you can't pay your tax:
o get some advice (we'll be happy to help) and take action today!
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Preparing an annual cash flow forecast can tell you a lot about your business. It can warn you with plenty of time to spare that you're not going to have enough cash to survive the next year without getting additional working capital - which is vitally important to know. Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you're in a twilight business and it's time to move on.
Read more on how to prepare and read your forecast here.
Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you're going to make it through to retirement or maybe even successfully selling your business.
These are my top eight favourite things each and every one of us business owners should know about our businesses.
I've said this before (and no doubt I'll say it again) but I'm always surprised at the lack of simple systems utilised in owner-managed businesses. Using the word "systems" can be off-putting because people immediately think it's going to be too complex, too costly or too time consuming but a system can be very, very simple.
Using systems makes a huge difference to the way a business operate, read more here.