#smallbusinessturnaround

[usnewsper-business]

From Struggling to Thriving: Build My Burgers' Inspiring Turnaround Story #restaurantsuccess #smallbusinessturnaround

[infinancialcontrol]

November Newsletter

Hi, and welcome to the November newsletter. It is hard to believe Christmas is just round the corner as another year seems to have just flown by.

This month we put your business banker under the microscope, and see if they are on the money. We also look at turning a business around, where we list some small achievable steps that can make a big profit impact and finally managing your Foreign Currency risk.  In a global economy more and more businesses have some exposure for Foreign currency exposure and it is important to take steps to minimise the risk so it doesn’t eat into your profit.

I hope you find this information useful

 Your business banker – are they on the money?

Cash and cashflow are key for any and every business. Money keeps your business ticking over and the person who can most influence your access to external cash, is your business banker.

Banks usually assign a business banker to every business turning over more than one million dollars, so if you have some scale about your business there is every likelihood you have been assigned a business banker. It is their job to understand your goals and to make banking easy for you.

With constantly changing business and cash conditions it’s crucial to have a good business banker as your partner.

But do you know your business banker? And if you do, how can you tell yours is up to scratch?

What makes a good business banker

1.       They’re in regular contact – it might be once a quarter, once a month or in the case of some clients, once a week (or more), but it should be regular.

2.       They should take an active and authentic interest in your business.

3.       They understand your business, and its cash cycle. They know roughly how many days normally pass from when you purchase stock to when you receive payment from your customers? And if your business banker understands your cash cycle, then –

They will offer products and terms on loans that match your business’ requirements

They will think beyond the ‘now’ to other products and services that may suit you later. These products may not be their own, but they don’t care. They genuinely want to help you.

They introduce you to other people within their business who may know how to help you.

4.       They are flexible – where there are short term limitations. They have the flexibility to support you with extra cashflow – provided you can show you can pay it back.

When it comes to your business banker, a strong relationship and regular contact is important. Some business bankers only turn up for the annual review. You need more than this.

Don’t wait until your cash flow situation is desperate

If you don’t have an existing relationship with your business banker  and you go to the bank when you urgently need cash it is probably too late. Your bank manager won’t know enough about you and your business to take a risk. If they don’t understand your business they can’t offer you cash quickly when you’re in a tight spot.

If your banker understands your business and you have had regular discussions about your current cash flow and potential requirements, then they will be far better placed to assist you when things get a little tight, providing you meet their lending criteria.

And finally, don’t let the relationship be entirely one sided. As a business owner, you should also take the initiative to maintain the business banking relationship and stay in regular contact with your banker.

Business performance: Small changes can make a significant impact on the performance and results of your business

Many business owners dream that their businesses will suddenly have a huge growth spurt or a big direction change. They might wish for overnight success, or easy passage through a difficult patch.

Unfortunately, the reality of running a business isn’t quite so magical, and improved business performance or results are usually made up of many small improvements (and hard work) which all add up to something bigger.

Here are some ideas for a few small changes you can make, or actions you (or your staff) can take which could potentially have a big impact on your business:

-          Make five extra new sales calls a week

-          Call five existing customers each week and see how they are going. Customer follow up and service often leads to more sales

-          Find ways to save 5% on the cost of production and increase your gross margin

-          Increase prices by 2%

-          Provide a tempting value-add to your product that customers are prepared to pay a premium for

-          Cut your overhead costs by 2-5% by reviewing all your suppliers regularly to make sure you are paying competitive prices

-          Remind debtors of upcoming commitments just before they are due, to increase the chance of being paid by the due date, reducing follow up time and putting funds in your bank account sooner

-          Pay accounts on time to take advantage of discount terms offered by suppliers

-          See if suppliers have steps in purchase quantities. If there is a discount for bulk then work out if this could save some dollars

All these initiatives on their own might seem small but when aggregated can have a big dollar effect on your bottom line.

The best way to do this is with financial modelling. This lets you play with different scenarios and helps you establish which actions have the biggest potential impact on your business. A good finance or accounting expert can help you with financial modelling.

We have recently been involved in a successful business turnaround.

Much of this business’ new success came through measuring and making sure all the small things were done and closely managed. There was no single action that turned things around but efforts across all areas have turned a struggling business into a financially successful one.

 Taking a position on Foreign currency

Whether we like it or not, all businesses who import or export goods to or from overseas are affected by the vagaries of foreign currency.

A change in foreign exchange rates can increase or decrease the price you pay your supplier.

A change in foreign exchange rates can change how much you receive in AUD from your debtors if you invoice in foreign currency.

A change in foreign exchange rates can change your margin if you have a price list in a foreign currency and pay for goods in a local currency.

There are many ways a change in foreign exchange rates can impact on your margin and profitability. Whether you like it or not, we are operating in a global economy and foreign currency exposure comes as part of transacting with overseas suppliers or customers. It’s called Foreign Exchange risk (FX risk).

How do you manage FX risk?

It is difficult to know how currencies will move relative to one another. There are so many different factors involved on a global scale, nobody can predict the direction currency is moving in, not even economists and traders (though they may try to convince you otherwise).

When you look at the forecasts produced by the big banks, they often have opposing views of where the Australian Dollar is headed compared to other currencies.  

Foreign Exchange (FX) rates and management of FX exposure is unlikely to be your area of expertise. So, what can you do to manage and minimise the impact of foreign currency on your business?

Protect yourself and your business against exposure to foreign currencies

Yes, it’s possible to do this.

You can buy forward exchange contracts, for the amount of currency you are expecting to receive, to convert back to Australian Dollars (AUD). This sets the foreign rate at an agreed contract rate you can buy from your bank. It’s also known as hedging.

When you have a forward contract, you have certainty about the price you are going to pay (i.e. the exchange rate at which your foreign currency will be converted to AUD). This means you can set prices and calculate the costs of your product with some certainty.

Forward contracts won’t necessarily give you the best rate (in fact, it’s unlikely), but they will give you a set rate. A set rate provides certainty for planning and cash management. It would be foolish to attempt to make money from foreign exchange trading when it is not your primary business. Bigger businesses than yours have suffered trouble when they have tried this.

Once you have a forward contract, you have certainty of your future income or expenditure, even as exchange rates move around. It’s possible that you may have received more (or paid less) money had you not hedged your FX risk. But you’ll never know for sure. Knowing your potential income allows you to plan, budget and not fear exchange rate movements. If you leave your foreign exchange risk unhedged, there’s always a risk that if the currency moves in the wrong direction you could find yourself losing money – which will have a negative impact on your business.

The best person to talk to is your business banker who understands how to manage foreign exchange risk and can get the ball rolling for you.

If you have any questions regarding the points raised in this week’s newsletter, or you would like to know more about our services, contact Peter McLean at In Financial Control.