Suite 6, 142 Bundall Rd, Bundall QLD 4217

07 5646 4050

info@ignitionaccountants.com.au

Cash Flow Management and Dangers of Discounting

Hi there fellow business owners,

We’ve seen some strategies for increasing sales and reducing costs, but there are ways we can better manage our cashflow to really help us achieve cashflow freedom.

Small changes can result in a significant increase in your cashflow over time. 

Cashflow issues can’t be fixed overnight, but there are lots of different strategies you can implement to improve your cashflow. 

This is an area we love to help our clients with, and we can help you identify which strategies and tactics will have the biggest impact on your cashflow.

 

Strategies and Tactics that will have biggest Impact on your Cashflow

 

Here are just a few ideas:

  1. Have a robust process for debtor collection and enforce your payment terms. Outsourcing your debt collection to a third party might be a good option.
  2. Get credit references or personal guarantees before offering credit. Make sure you set credit limits and consider adding a provision for late payment fees and interest charges to your Terms of Trade.
  3. Regularly monitor stock levels and sales trends. You should be utilising technology for inventory management.  
  4. Review supplier contracts and negotiate better terms for payment or delivery of goods.
  5. Create budgets and forecasts and review actual results against these regularly.
  6. Create a personal budget and stick to the monthly drawings amount.

 

It can be tempting to offer discounts to increase sales when they’ve been dropping. However, often you can be more profitable by holding your price and accepting the reduction in sales volume than you would be by discounting a product.

For example, let’s say you’ve been selling 10,000 units at $100 each, with a cost of $60, so your gross profit is $400,000.

If you were to discount your price by 10% and still sell 10,000 units, but now at $90, your sales revenue will be $900,000. With a cost of $60 per unit, your gross profit would drop to $300,000.

Alternatively, if you accept the drop in sales, selling 9,000 at $100, your sales revenue is still $900,000. However, you only have to pay for those 9,000 units, so your gross profit will be $360,000. Still lower than before, but better than it would be if you discounted the product by 10%.

 

Make sure you perform a cost-benefit analysis before deciding to discount products or services so you truly understand the implications and the best option for you.

Watch the video here where I talk about this in Cash Flow Management and Dangers of Discounting

 
 

 
 

Mick

I’d love to help you achieve your business dreams, please don’t hesitate to contact me;
07 5646 4050
mick@ignitionaccountants.com

 

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