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Reduce Your Commercial Risk

The SV Partners Commercial Risk Outlook March 2016 predicts that nearly 50,000 businesses across Australia, or 2.1%, are expected to face adverse financial events within the next 12 months. The top 3 nominated causes of failure are inadequate cash flow, poor strategic management of business and lastly trading losses.

This report highlights to me how important it is to understand what is happening in your business now and where it is heading. Spending a little more money on appropriate systems and professional expertise in your business will go a long way to avoiding the issues that SV Partners warn about. Businesses should have:

  1. A management system which integrate most or all of the business activities. One feature of these is that they enable costs to be tracked more accurately at each stage of the business and problems are highlighted more quickly.
  2. Regular management reporting – not just profit reports, but other analysis of the key business drivers which might include:
  • Gross profit margin by product or service;
  • Sales orders taken;
  • Number of leads and conversion rates;
  • Labour utilization on chargeable work.
  • Material spoilage rates.
  1. Forecasting forward profitability and cash flow so that future cash requirements are known in advance and can be planned for.

Risk

A well-managed business will reduce the risk of falling over the precipice. Even for smaller businesses, management systems are highly affordable today and outsourced CFO services will provide the relevant professional expertise for a fraction of the cost of a full-time person.

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