With interest rates rising, stock delays, and the ever-increasing cost of living, it is vital now more than ever for businesses to be top of their numbers. We outline below some current issues which may possibly be eating away at your business’ profit.
Wages and Superannuation Increase
With the cost of living increasing and the ongoing challenge of finding staff, comes the pressure to increase wages.
If your business was to provide a 2% increase plus the additional 0.5% Superannuation increase, the cost to a business with a $500,000 payroll is an additional expense of:
If this is something you are facing within your business, how will your cover this additional cost?
Stock Delays & Shortages
We are noticing with many of our clients the need to increase the stock held within the business, due to the delays on receiving imported supplies. The real financial impact for businesses receiving stock from China is yet to be seen. If you currently have stock of $200,000, many now are required to have an additional $50,000 – $100,000 in stock in case of extended delays or supply issues.
The cost of holding additional stock from a cash flow perspective would be:
- Having excess stock equates to extra expenses for the business, as it can lead to a shortfall in your cash flow and result in additional storage costs
- Having inadequate stock can result in lost income in the form of lost sales, while also weakening customer confidence in your ability to supply the product
- Having incorrect stock means potential missed sales, write-offs, mark-downs, and poor customer service.
No one is a stranger to the recent surge in fuel prices. For businesses which own motor vehicles, this is a significant problem. For example, if you have 3 cars within your business and the fuel cost 12 months ago was $70 per vehicle / per week ($10,920), this expense now would now be looking more like $130 per vehicle/ per week ($20,280). Therefore, this cost of fuel alone would be an additional $9,360 per annum reducing your business earnings.
If you were to review your business to account for the above price changes (without reviewing the pricing of your goods and services), what profit would the business have lost?
Our recommendation for clients is to review the following:
- Review the products and/or services that your business offers and review your profit.
a) Do you sell goods or services that are not generating a profit? If you are utilising a loss leader pricing strategy – evaluate if this is still the best strategy for your business in the current market.
b) Do you need to increase the price on some or all your products/ services? How will you effectively communicate this change to your clients?
- Identify and reduce wastage
An effective way to reduce costs when reviewing your business is to identify wastage and determine whether it can be eliminated or reduced. See below some tips for waste reduction in small business:
- Print items double sided when possible
- Do not print emails
- Take notes on used paper
- Recycle printer cartridges
- Eliminate single use cups and cutlery
- Use recycling bins
- Communicating increases in prices
a) Most customers are aware and understanding that prices need to increase. However, the way this is communicated to the customer is the key.
b) The most effective way to communicate a price increase with your client base is to:
- Clearly explain the reasoning behind the increase
- Contact the client directly in a personalised manner
- Let the customer know well in advance of the increase
- Ensure everyone within the business is aware of the increase before contacting the client
- Assure the customer that the increase will help maintain the high quality of the service and/or product
- Thank the client for their business