Control involves far more than simply tracking sales and comparing them to your current budget and previous years. Numerous events and situations can affect your business. For example, none of us could have foreseen the coronavirus crisis. Many companies that once felt secure and on stable ground are now struggling with tight liquidity and reduced earnings.
If you have a plan in place for dealing with unexpected events, you can reduce risks and increase security. Here are some tips to help you prepare better and become less vulnerable.
1. Make forecasts on an ongoing basis
Throughout the year, many events can impact the budget you set at the start. To keep your budget relevant, make regular adjustments. Depending on your industry, you should update forecasts for your most important key figures every three to four months. This gives you a more current overview and the opportunity to act in time if something changes.
2. Know your customers and look after them
Do you have enough customers to make your business sustainable? Can you add value to your products or services and thereby expand your market? Invest in your existing customers – it is easier and more cost-effective to get a current customer to buy more than to acquire a new one.
Make sure it is easy to be your customer. Stay in touch and always respond to enquiries. Ensure your customers feel heard. Often, people do not leave a supplier because of the price, but due to poor service.
Seek out new customers similar to your existing ones. Identify your most profitable customers and try to attract more like them. Understand what your ideal customer looks like by spotting patterns among your best ones.
3. Review costs and purchasing
If your company has a profit margin of 10%, saving 1 DKK is equivalent to generating 10 DKK in revenue. If it aligns with your business model, consider sharing costs with other companies – for example, on office space or materials. Use membership schemes for purchasing to access significant discounts. If you hold stock, ensure inventory levels match revenue to avoid having too much capital tied up for too long.
4. Keep track of cash flow
Prepare regular liquidity forecasts to ensure your business can cover future expenses such as salaries, investments and unforeseen costs. This helps you avoid unpleasant surprises and ensures you do not run out of capital at a critical moment.
5. Improve your liquidity
Take proactive steps to maintain and improve liquidity – for example, by encouraging customers to pay as quickly as possible, either in advance or at the point of purchase. If you invoice, send it immediately and use a 10- or 14-day payment term. Follow up with reminders as soon as a deadline passes. Have a reliable debt collection process in place for late payers. Conversely, when it comes to supplier invoices, it may be beneficial to delay payment as long as terms allow.
6. Raise your prices
Have you set the right price for your products and services? Identify which ones are selling best and assess whether prices can be increased. A higher margin will be directly reflected on your bottom line.
7. Prepare for the worst
What does your business depend on? What if a key supplier’s factory burns down and you cannot get your raw materials? What if a scandal hits your industry and customers lose trust in businesses like yours? What if a competitor halves their prices? Or if another crisis like the coronavirus pandemic occurs?
Stay informed about your industry, your competitors and the broader market. Make sure you have contingency plans for potential crises.
8. Ask for help
Do you have the right skills in-house? As your business grows, so do the demands on your team's capabilities. Do you need to hire more staff or seek external help? Don’t spend time on tasks you lack the skills for – the results will be subpar and time-consuming. That time is better spent focusing on your core business.
Get help with your accounts
At Azets, we can help you manage your accounts and make running your business more efficient and less stressful. Let us handle all or part of your bookkeeping and accounting, while you retain full visibility of your finances and key figures.
We can manage your payments, post your vouchers, and ensure your accounts are reviewed and reconciled. With our professional solution, you benefit from smarter and more efficient processes – freeing up time and energy so you can focus on making strategic decisions for your core business.
