Value Adding News - October 2009Welcome to Maxell Consulting's newsletter - Value Adding News.
The newsletter is designed to help businesses increase their value, make their business more attractive or have greater confidence about the decisions they are making about the future of their business.
In this month's issue
Do you have enough cash to run your business?
Cash is the life blood of any business and when you run out of cash your creditors start to demand their “pound of flesh”. Many businesses have recently found that their creditors have run out of patience and called in the administrators.
A business is insolvent when it can no longer pay its debts as and when they fall due. This will depend on the timing of when your debts fall due and to what extent your future cash flow is reliable and certain.
But many business owners run their business on a “wing and a prayer” when it comes to managing the valuable cash resource. Below are some suggestions on checking to see if you have enough of the life-sustaining green stuff to keep your business operating.
- First check your forward cash flow plan to identify critical periods when cash will be tight:
- Draw a twelve month timeline of when all your debts (including creditors) fall due and identify your monthly commitments and cash payments.
- Determine the cash you will receive from all sources (including future loans, sale of equipment or other rebates) over the same period.
- Identify the months when cash payments exceed cash receipts
- Regularly check your forward cash position:
- Calculate the cash you have access to right now, including cash in the bank, locked in and committed orders and credit facilities.
- Add up your monthly commitments, including loan and credit repayments.
- Calculate how long your current cash will last by dividing your cash available by your monthly commitments. Do you have enough cash to last out the month?
- This check should be conducted regularly and reviewed by your management team.
- Develop a weekly chart of your cash in the bank compared with outstanding creditors and debts. Ideally your cash level should be steady or increasing, whilst your outstanding creditors should remain level.
Even if you know you have a cash flow issue, it is better to be aware of it early and plan to fix it rather than have your bank tell you they are about to commence liquidation proceedings. But an even better reason to implement effective cash flow planning processes is to grow the value of your business. A healthy cash flow is one of the most significant factors that contribute to the value of a business.
- On a monthly basis calculate your average days of outstanding debtors and compare this with your average days of outstanding creditors. This highlights whether your customers are taking longer to pay compared with how quickly you pay your debts. Remember the key in business is to not just what you earn but how long you hold onto your money.
If you would like to discuss your cash flow issues or understand your cash flow position, contact Maxell Consulting and we can confidentially discuss your situation FREE of charge.
Taking fun seriously! - audio interview with Naomi SimsonNaomi Simson says employees who are having a good time are going to care more about what they are doing, and by improving employee engagement you’re likely to see an increase in profit.
Naomi is an advocate of injecting fun into business life, and as she explains in a recent interview with Michael Schildberger of Business Essentials, happy employees will be more innovative and much more productive in the workplace.
Her company RedBalloon specialises in unusual experiences and gifts for business employees and customers, and Naomi shares her tips on growing a successful business in this interview which we are able to provide to you via our relationship with Business Essentials.
To listen to the full interview click here
Tracking inventory using spreadsheets
One of the worst things a customer hears is the answer "I am sorry we are out of stock of that item - is there something else you would like instead?". Of course the customer doesn't want something else - they want what they came for. And if you can't give it to them they will go elsewhere.
Maintaining sufficient stock to keep your customers happy is the primary purpose of an inventory management system. It doesn't need to be fancy - it just needs to reliably show what is in stock and what needs to be purchased.
A simple Excel spreadsheet that uses three separate lists can be used to track inventory:
1. A single sheet that lists what items are in stock and what the carrying value is at any one time.
2. A separate sheet showing the items that are added to stock.
3. A further sheet for items that are removed from stock.
You can streamline the system using a standard item list and some drop down boxes. That way you can add or remove items from stock by simply selecting from a drop-down list.
A report showing the stock movements of particular items can be generated using the database functions in Excel.
Of course setting this up and operating a spreadsheet such as this in a “manual form” can be time consuming and subject to errors. But it can be streamlined further using Excel Visual Basic macro code.
Having a reliable and accurate inventory system in place will not only help you satisfy your customers, but also help reduce your purchasing costs by preventing any overstocking of items and identifying slow moving products.
Having an inventory system in place will also increase the value of your business and make it attractive to others. Whenever a buyer sees a system in place, they will feel more comfortable about running your business without you around.
Do you have a reliable inventory system in place? How well do you monitor your inventory purchases and product stock levels?
Maxell Consulting can conduct an audit of your inventory systems to answer these questions and indicate which areas you need to focus in order to increase the efficiency and profits of your business.
Contact us now to discuss how improved systems can help increase the value of your business.
Client Case Study: Creating the right business at the startBackground:
- The director of a start up business had developed tools and processes for helping organisations to create "working relationships that work". It applied to customers, suppliers, employees and contractors.
- The director wanted to prepare the business with an exit strategy in mind and had identified that she would want to sell the business within the next 5-7 years.
- As the business was in an early stage of its life, the director felt that implementing the right systems and processes early would boost its value when she wanted to sell.
- To help the director develop possible exit strategies for the future and to identify what the business needed to put into place to get the value she wanted for the business in the future.
The “SaleReady” process was a major catalyst for:
Specifically the owner found the SaleReady process helped her to "...understand the various ways to create value and how to translate that into the business plan, and to u nderstand and plan for the cashflow requirements at each stage of the business."
- Moving the business owner’s thinking from a sole-person business to a larger business model, poised for reasonable growth over the next 1-2 years.
- Formalising and aligning the existing systems to grow the business.
- Developing a timeline for achieving this.
Contact Maxell Consulting to discuss how your business would benefit from the SaleReady process and getting your business prepared to sell for the price you want.
Next Month's Newsletter
- When should you sell your business?
If there is something you would like to find out about, let us know by sending us an email or by going to our Contact Us page and filling out the enquiry form. We want to provide you with the information and help that you need. We are only too happy to find out about what you want.
- Latest survey results: Succession planning trends between regional and metropolitan business owners.