We recently worked with one of our long-standing clients in setting his business targets for the 2020 financial year. The client is a builder who over the past 7 years has had slow and steady growth, which translated to additional profit, but not a relief of the cashflow.
- The business had experienced a significant increase in profit which meant there would be a large tax bill due in May 2020
- Understanding why there was profit in the business, but this money was not sitting in the bank account
- What sales target was needed and how the sales target would then translate to Net Profit and Cashflow
- Due to the size of the income and the expenses and intricacy of the business, the client needed to get a handle on how financial decisions would affect the long term cash flow and what that meant from a turnover function. For instance, the flow on effect of financing a new vehicle in the business or how a new sales team member will alter the sales targets required
We realised that we needed to provide knowledge and education so that the client could take a ‘helicopter’ approach to their numbers which would enable them to look at how big decisions affected their bottom line.
The solution was to prepare a Breakeven Analysis Dashboard which provided the client with a ‘big picture’ view of their business numbers and key business drivers. We utilised a modifiable format which made it easy for the client to see that when one of the key business drivers was adjusted, it would show the ultimate effect on the overall profitability. Ultimately, we had to have a solution that the client could utilise in the future to assist with business decision making.
The light bulb moment for the client was the realisation of how different Cashflow Profit was compared to Actual Profit. The tool helped the client to be able to review current business decisions (such as if he needed to finance a new vehicle or take more funds personally) and how that would affect the net cashflow. We anticipate that this will result in an estimated cashflow improvement of $150,000 in the business.