OBT recently advised a wholesale and retail business that was experiencing large fluctuations in its sales, profits and cash flow.
The business supplies goods to mining and rural businesses and is required to carry large stock holdings and significant credit accounts. Heavy rains also caused damage to the business’s stock and premises and it was unable to supply refrigerated goods for a period of two months.
The owners, William and Laura, wanted advice on how to improve their profit, better manage their cash flow and prevent the loss of income from future unplanned events.
Our case study highlights the importance of small business owners understanding the true costs of running their business and factors influencing their profit and cash flow. It also provides guidance on how to structure funding arrangements for unique business circumstances and how to use insurance as a means of protecting business income.
Our Client’s Issues
- Unsure of breakeven sales level.
- A lack of understanding the benefits of ratio analysis and budgeting.
- Funding shortfall.
- Inadequate business insurance.
1. Breakeven Sales
William and Laura, with support from their accountant, completed a breakeven sales analysis. This enabled them to pin point the minimum sales required to cover their business expenses:
- Total fixed business expenses $350,000
- Average gross profit margin 55%
- Minimum weekly sales required $12,250
2. Improving Profit
To better manage their stock, William and Laura, with support from their accountant, completed a series of key profit ratio calculations. This included Gross Margin Return on Inventory and Gross Profit Margin. It was agreed they would upgrade their stock management system to improve their gross profit margin and to reduce shrinkage.
3. Improving Cash Flow
To improve their cash flow, William and Laura, with our support, completed a series of key
cash flow ratio calculations. This included Debtors and Stock Turnover and a Flow of Funds Statement. It was agreed they would prepare a cash flow budget every year to determine their funding requirements.
4. Finance and Business Disruption Insurance
William and Laura’s OBT Financial Adviser was able to negotiate an extension on the their overdraft limit to meet their working capital requirements. They also purchased new Business Disruption Insurance to protect their business from a loss of future income.
William and Laura also completed our Business Life Plan to determine their business growth and succession objectives.
Seeking advice early will mean the difference between your business thriving or simply surviving. Call our friendly team on 07 5462 2277 to find out how, together, we can help make that happen.
DISCLAIMER THIS INFORMATION IS OF A GENERAL NATURE AND SHOULD NOT BE VIEWED AS REPRESENTING FINANCIAL ADVICE. USERS OF HIS INFORMATION ARE ENCOURAGED TO SEEK FURTHER ADVICE IF THEY ARE UNCLEAR AS TO THE MEANING OF ANYTHING CONTAINED IN THIS ARTICLE. OBT ACCEPTS NO RESPONSIBILITY OF ANY LOSS SUFFERED AS A RESULT OF ANY PARTY USING OR RELYING ON THIS ARTICLE.