Quick Assessment of your Survival Skil l s
Have you got what it t akes t o survive in t ough t imes?
your prices your first course of action when sales begin to
Unless you can come up with several other options ... other than
dropping your prices you?re headed for trouble.
With 18 years working with 18,000 Small to Medium Enterprises,
through the good times and bad, we can tell you from experience ...
t his is not t he way t o go.
You need another plan, a more effective strategy to hold out against
your competitors in a tough market. If you?re not working on your
strategy right now ... you might just be leaving it too late.
There are several essential factors that will determine your ability to
survive the downturn:
1. Know what these factors are
2. Know how to measure them
3. Know how to interpret the numbers and help make the decisions
required for survival
This is your guide to understanding these critical factors. Your guide
to the steps needed to develop a Survival Strategy. It?s written in
plain English and there?s no accounting jargon. The worksheets will
make your numbers easy to understand. Then if you still find you
need assistance, you can speak to your local CFO On-Call at NO
So what are t he 7 ways t o keep your business sust ainabl e?
7 St eps t o a Sust ainabl e Business
St ep 1
DON?T PANIC ? If you start now, you?ve got a head-start on your
St ep 2
WHAT ARE YOUR TRUE COSTS ? Have you thought of everything?
Take the Costing Challenge to find out!
St ep 3
PROFIT & REVENUE - Find out where you are REALLY making money
(It might not be where you think!)
St ep 4
NARROW YOUR FOCUS ? Survival in a tough market means going
back to basics
St ep 5
CASHFLOW ? The secret to keeping the life blood of your business
St ep 6
BORROWING ? How to make your Bank Manager smile
St ep 7
GET BACK TO DOING WHAT YOU LOVE ? You?re good to grow!
St ep 1- Don?t Panic!
Why this is Crucial to your Survival!
1. You Cal l t he Shot s (You Can Make a Difference)
Deciding to take action in response to a crisis puts you back in
control of the situation.
2. You?l l Make Good Decisions (Clarity brings Creativity)
Panic won?t help you make the clear-headed decisions you want to
make right now.
3. You?re t he Leader (Don?t Panic the Herd)
Your staff will be looking to you for leadership ? show them
(through your words and actions) that you?ve got a plan (or are at
least working on one) and they?ll become your greatest asset in
surviving and thriving through tough times.
Take Rat ional Act ion Now!!!
Certainly easier said than done, but there are people relying on you
to make good decisions about their future as well as your own.
Predict ing t he
unpredict abl e?
Few economic experts
seem to agree on how
things will pan out. The
best you can do do is
make your business as
bullet-proof as possible.
If you sit and wait it may
too late to act? Stay
ahead of the curve and
Get back your sense of control by Taking Rational Action Now while
the future is still uncertain.
Does your business f it eit her of t hese cat egories?
You?ve been in business less than 5 years or you?re in an
industry that everyone is saying will suffer with the slowdown
and you?re not 100% sure if you?ve got a heal t hy business?
You?ve been in business for years ... and you?ve seen a
recession come and go.
Whichever, working through the action items will show you where
things need improvement and where you?re already doing a great
St ep 2 ? What Are Your True Cost s?
Quick Quest ion - How do you decide what t o charge f or
your product s or services?
Pricing is one of the most complex areas of running a business. It?s also
where business owners typically spend the least amount of time. Many
business owners fail to understand the true costs of producing and
selling their products ... or the true cost of delivering their services.
Using t hese Simpl e Pricing Guidel ines wil l hel p avoid t he Pit f al l s.
Determine the cost of delivery of the product or service to
customers excluding overheads.
Know your Overheads so that you can work out your
?Break-even' situation and how much you need to sell.
Decide how much profit you want and calculate this into the
Know your Margin and report on it regularly to ensure it is not
being eroded by increased costs.
Know your customer satisfaction levels. Dissatisfied
customers won't pay premium prices.
Regularly review prices. Make small increases to cover
increased costs. It is much easier to make small regular price
increases at intervals throughout the year ... than one large
increase say just once a year.
The Cost ing Chal l enge
Here?s a Simpl e Exampl e t hat shows t he ?True Cost s?of
running a business...
How a Transport Company with 10 Trucks wastes $120,000 a year:
In addition to being on the road, the Drivers need to complete
their paperwork in work hours.
The Business Owner charges out their Driver?s billable time.
Let?s say $100 per Hour.
How much time does each staff member take to complete
their paperwork? 15 minutes per Job
If the time spent completing paperwork has not been included
as billable hours to a client ? that?s $25 per Job not charged
With 10 trucks completing on average 2 Jobs per day ? That?s
$500 per day not being charged out 48 weeks = $120,000 per
The company could employ an Administration Assistant to
complete all of the driver?s paperwork for around $45,000 per
Making a $75,000 Saving!
The question to ask here is:
Are you sel l ing al l t he hours
you are paying your st af f
Write down everything you
can think of that?s a cost to
selling your product or
St ep 3 - Prof it & Revenue
Which one is driving your Business?
Considering Profit & Revenue in the context of an uncertain economy,
it stands to reason that Prof it needs t o be t he driving f orce in your
The important point to realise in relation to Profit, is that every dol l ar
you save is a dol l ar st raight ont o t he bot t om l ine. Whereas every
dollar of extra Revenue (sales) may only be a matter of cents onto the
bottom line, as a sal e carries wit h it direct cost s and overheads.
We?re not suggesting you shouldn?t be working on Revenue Growth,
but if you?re not making much in the way of profit right now, focusing
on growing the Revenue side of your business, will only put further
strain on your cashflow. With business borrowing currently being
restricted ? increasing your Profit first will allow for sustainable
Finding the answers to these 2 questions will put you in the powerful
position of knowing where to focus your energies for maximum
Increase Prof it - How t o Col l ect t he Inf ormat ion YOU Need
This is much easier t han you t hink!
There?s 3 Questions you?ll need to ask, your Profit & Loss Statement is
where to find the Answers.
1. What is our Revenue this past year?
2. What is our Cost of Goods Sold/ Direct Costs?
3. What are our Overheads?
Making savings in your Cost of Goods Sol d/ Direct Cost s and Overheads
will directly lead to an increase in profits.
No hasty or rash decisions required here ? just go line-by-line through
your Profit & Loss Statement and find where savings can be made. Next
up ... How t o Ident if y Savings
BONUS MATERIAL: To see how your business is performing in relation to
other businesses in your industry there are Industry Benchmarks
available from your nearest CFO On-Call
Increase Prof it s ? How t o Ident if y Savings
Cost of Goods Sol d/ Direct Cost s
What t ypes of Expenses are cl assif ied as Cost of Goods Sol d/ Direct Cost s?
Purchase of stock to sell
Movement in stock held
Freight costs to get goods into and out of stock
Labour costs relating to production of a service or product
Importing costs e.g. duties etc
Stock adjustments/ wastage
Purchase returns and allowances
How t o get Cost of Goods Sol d/ Direct Cost s under Cont rol
1. Look at what you are Buying - i.e. products and services and spend
some time investigating and negotiating better deals and more
efficient ways of delivering. One example is a business that
delivers goods to customers weekly. They managed to agree with
most of their customers to drop back to fortnightly deliveries ? a
50% cut in one of their major costs! Think laterally about better
ways to achieve the outcome.
2. Don?t underestimate your value as a Customer- never be afraid to
shop around for other suppliers. If you are a good customer they
will be bending over backwards to supply you at the right price.
Increase Prof it s ? How t o Ident if y Savings
This is an area where you can make massive savings. Do a review of all
overheads and ask yourself these questions:
Why am I spending this and
what ?value?does it deliver
onto the bottom line?
Should I cut it out?
How could I do this
differently to achieve a
Who else could deliver this
product or service and how
much would they charge?
St ep 4 - Narrow Your Focus ? It ?s Time t o Take Act ion
Your second Act ion It ems were:
1. Which are your most Profitable Products or Services?
2. Which are your most Profitable Customers?
Now you need to Take Act ion based on what you?ve discovered.
The 80/ 20 Rul e ? 20% of your cust omers, product s or services wil l
provide 80% of your business.
You?ve looked at what you?re selling and to whom. You?ve determined
which products, services and customers are making money and which
aren?t. If you want to maximise profit, you?ll need to grow the profitable
lines and customers.
Concentrate on the customers who are your most profitable and products
and services that provide 80% of your profits.
You may need to sack some cust omers ... or discont inue some product
l ines or services ... in order to focus on the ones that are really making
you money. This is not t he t ime t o have cashf l ow t ied up with slow
moving product lines ... or services that are expensive to deliver ... or
customers who are slow to pay.
Get Back t o Basics! If you?ve grown your business in a direction that?s no
longer viable, correct your path now to focus on your strength. This will
f ort if y your business t o weat her t he st orm t hat may l ie ahead.
Do you need help deciding your most profitable customers, products or
services? A FREE consultation with a CFO On-Call will identify the
strengths & weaknesses in your business. Call 1300 36 24 36 (Aust) or
0800 180 400 (NZ)
St ep 5 - The Secret s t o Managing Cashf l ow
There are 3 Things you can do t oday to improve your cashflow.
Here?s t he Secret ...
Your precious cashflow is more than likely being held up in one of
t hree pl aces:
1. Your Debtors/ Customers ? are your customers dragging out their
payment terms? Your debt collection strategy may need a review
to get your cashflow moving again.
2. Your Suppliers ? have a strategy in place to ensure you take
advantage of every day of credit available without straying from
your terms. This will allow you to keep the money in your bank
account for longer. Negotiate better terms with suppliers or talk
to an expert about your options.
3. Your Stock on Hand or Work in Progress ? look for efficiencies in
your company?s ordering system and job completion procedures.
Example - invoice jobs on completion not at month end ? or
introduce progress payments. Consider installing a Job
Management or Stock Management System to ensure purchasing
and work in progress have set parameters that can be easily
interpreted and managed.
Next Up... Cashf l ow
The next few pages will
help you understand where
your current cashflow has
Cashf l ow Worksheet
1. Cal cul at ing Average Days Receivabl e
This is the average number of days it takes your customers to pay you.
Compare this to your stated terms of trade.
Accounts Receivable: $510,000
Time Period: 365 days
510,000 / 3,200,000 x 365 = 58
2. Cal cul at ing Average Days Payabl e
This is the average number of days it takes you to pay your suppliers.
Are you paying too soon, and not taking advantage of every day of
credit in your trading terms?
Accounts Payable: $150,000
Direct Costs: $1,900,000
Time Period: 365 days
150,000 / 1,900,000 x 365 = 28
St ock & Work in Progress Worksheet
3. Cal cul at ing Average Invent ory Days
This is the average number of days stock sits on the shelf or materials &
labour are tied up on WIP.
Think of stock as $100 notes stacked up on the floor.
Stock on Hand/ WIP: $360,000
Direct Costs: $1,900,000
Time Period: 365 days
360,000 / 1,900,000 x 365 = 69
Taking steps to reduce your Average Days Receivables and Average
Inventory Days or Work in Progress Days can have a huge impact on your
Next up we?ll show you how to use these calculations to show the
number of days on average your money is not in your bank account .
CFO On-Cal l can act ual l y show you how much money woul d be back in your bank
account if you make changes t o any of t hese numbers.
Cal cul at ing t he number of days money isn?t in your Bank Account
Is it now cl ear exact l y where your cash is?
If you know where your cash is there?s No Need t o Panic, you just needto
improve your methods for getting it back into your bank account.
If you?ve not got enough information in your accounting system to
complete the previous Cashflow Calculations then there?s also No Need to
Panic. Be aware of the time lag between you paying for goods and your
customers paying you.
This will show you where your efforts need to be focused for survival, and
then it?s onto sustainable growth once you?ve got your profitability sorted
Go back to Page 13 for three simple tactics for Managing Cashflow.
If you?d l ike t o l earn more, downl oad our CashFl ow eBook f rom
www.CFOonCal l .com.au/ how-t o-cont rol -your-business-cashf l ow
St ep 6 - Borrowing t o Grow (Is it necessary?)
If you?re considering Borrowing from the Bank while our economy is
uncertain - you?re in reality going to need to prove your ability to pay the
money back. You?ll need Budgets, Recent Financials and Forecasts.
Looking at your ability to unlock cash from within your business may be a
much simpler and ultimately more profitable exercise.
Firstly, you?ll know EXACTLY where you stand financially ? an incredibly
empowering position to be in.
Secondly, you?ll know any decision you make is based on the facts rather
than wishful thinking - it?s not a good time to be taking big risks or going
off on tangents with your business. Focus on your profit.
Finally, it?s important to realise in relation to cost savings every dollar
saved is a dollar straight onto the bottom line, whereas every dollar of
extra sales (revenue) may only contribute a matter of cents onto the
Bottom Line, once direct costs and overheads are attributed.
If you?re borrowing just t o sel l more wit hout working on your
prof it abil it y you may be headed f or t roubl e!
You?ve st il l got t o pay it back in an uncert ain economy.
St ep 7 ? Get Back t o Doing What You Love
Having taken the time to work through the numbers, you can now feel
much more confident, that it?s not all doom and gloom for your
This eBook was written to help you understand where the real
financial problems lie within your business and how to identify simple
ways to fix them. You can be sure that business owners like yourself,
who understand the importance of having a system of solid financial
management, will be the businesses to survive the uncertainty ahead.
Not only will you survive; you and others who apply these principles,
will be the fortunate business owners set for sustainable growth.
Now you can get back t o doing what you l ove. You?re Good t o
CFO On-Cal l ? How can one hel p you?
As a business owner, you may not need a full-time CFO. But you
almost certainly DO need more expertise than you get from an
in-house bookkeeper/ number cruncher, and more help and ongoing
advice than an annual trip to your accountant.
So a CFO On-Call advisor can become your Chief Financial Officer ?
but part-time. They can help with internal financial control and
direction for your business. That could be every now and then, once a
week or once a month. It?s up to you.
You can have al l t he benef it s of your own CFO, f or a f ract ion of t he
cost of hiring someone f ul l -t ime!
They will be always available, face to face or on-line, to help plan
strategic direction with you, discuss new ideas ... and be your
right-hand financial guru ... whenever you need help.
Best of all, they bring ?big company?experience to your business.
All CFO On-Call people are qualified management accountants from
bigger businesses, but unlike most tax accountants, they?ve worked as
senior financial controllers in leading companies and know exactly
how to improve financial performance.
See www.cfooncall.com.au or www.cfoncall.co.nz
To enquire call: 1300 36 24 36 (AUS) or 0800 180 400 (NZ)