Comprehensive financial analysis is a must for business coaches.

Too many business owners think that to get ahead financially they need to sell more and do more. However, this is incorrect most of the time.

Financial analysis must be a fundamental part of your business coaching methodology.

Why? Because doing more (pouring more into the top of the bucket) will not increase personal financial wealth if there are too many holes in the bottom of the bucket.

It can be very frustrating for business coaches and advisors when clients only want to focus on hitting a home run – meaning make more sales. Below is a great way to illustrate how it is more effective to fix the financial holes in the business before pouring more sales into the top of the bucket.

Here is a very simple financial analysis philosophy how to increase profitability – focus on the ‘power of the tiny 1% improvements’:

  1. Cost of Sale as a % of Revenue – FOCUS on increasing margins on stock, tightening up the ordering process, and reducing wastage.
  2. Overhead Expenses as a % of Revenue – FOCUS on eliminating expenses that do not add value to the customer or the business.
  3. Wage Expenses as a % of Revenue – FOCUS on improving daily/weekly planning and preparation to eliminate unproductive minutes to increase individual productivity by 15 minutes per day.

RESULT – As per table below a reduction of 3% results in an increase in operating profit by 75% ($30,000)

Detailed Financial Analysis to show increase in profitability
Detailed Financial Analysis to show increase in profitability

Beware being stuck in the ‘comfort zone’ – technician mindset thinking only need to sell more to get ahead

When you present the above financial analysis to business owners all agree it makes sense, however MOST state “yes that’s great but I don’t have time because I am flat out trying to keep everything running”.

This statement is the classic ‘technician mindset syndrome’ talking where the business owner does not want to get out of their comfort zone to sit down to work ‘ON’ the business to analyse the performance. The business owner is very comfortable working ‘IN’ the business, on the tools running around putting out fires.

Here is a classic ‘technician mindset’ strategy how to increase profitability:

  1. Increase sales – Ramp up marketing.

RESULT – As per table below investing a huge amount of blood, sweat & tears to increase revenue by 50% results in an increase in operating profit by 50% ($20,000)

Sales Analysis to show increase in profitability
Sales Analysis to show increase in profitability

Moral of the story

Taking the time to fill the holes in the ‘bottom of the bucket’ resulted in an extra $10,000 ($30,000 increase against $20,000 increase) operating profit!

For the business owner rather than investing huge amounts of money, blood, sweat & tears in marketing, recruiting more team members, doing more jobs, and doing more admin, just STOP!

Your priority as a coach and advisor is to ensure your clients take the time to review and understand their financial analysis numbers/scorecard to be able to:

  1. Identify where the holes are in the ‘bottom of the bucket (business)’.
  2. Determine what process needs to be implemented/tightened to fix these holes.
  3. Assign accountability to get it fixed – who & by when.

Financial Analysis Intelligence

TheCUBE business coaching software platform is designed to provide both the business and the coach with a clear view of the financial numbers. 100% full financial analysis transparency for all key stakeholders is required to drive intelligent decision making, and to remove ‘technician mindset’ guessing.

Don’t be fearful of the numbers – get excited by the numbers!

Matthew Jones
TheCUBE Founder & CEO

TheCUBE is a powerful business coaching platform allowing coaches to deliver greater results and life changing value to more clients with less effort.

Book TheCUBE demonstration today.

Time For Business Coaching Clients To Get Serious About Cash Flow

The number one aim when mentoring, advising or coaching business owners, is to ensure business sustainability. The oxygen driving sustainability is cash.

ASIC reported, for the 2018-2019 financial year, the number one cause of business insolvency and ultimate failure is ‘Inadequate Cash Flow or High Cash Use’. This is nothing new. What is alarming is that over the past three years cash flow as a cause of failure has increased from 47% (2016/17), to 49% (2017/18), and now to 51% (2018/19).

I struggle to understand, with more than 50% of business failure related to poor control of cash flow, why the majority of small business owners still do not take managing cash flow seriously?

When I question business owners why they are not investing appropriate time to manage their cash flow some common responses are:

  • Mate I need to be out there selling, without me the business stops!
  • You don’t understand my business, we are different to other businesses!
  • Yes I know it is important, but I just don’t have time!
  • There are not enough hours in the day!

And the list of excuses goes on.

Beware the Red Train

The problem is business owners who have all the excuses never see the ‘Red Train’ approaching. Once the red train hits, their cash is cleaned out of the bank along the way. The unsuspecting owner gets up, looks in the bank account, and only then notices it is empty – in the red. Bills and wages cannot be paid. At this point they state, ‘I didn’t see that coming’.

Business owners who do not take managing their cash flow seriously never see the red train coming. Due to a lack of understanding the following errors compound cash flow problems:

  • Incorrect decision making – spending money when they should be saving money.
  • Inadequate terms of trade – failing to identity the negative cash impacts incurred through delayed invoicing and extended collection terms.
  • Inadequate planning – failing to plan for large statutory liabilities such as GST, PAYG, superannuation and company tax.
  • Inadequate sales activity – failing to identify shortfalls in future sales required to cover future planned expenses.

Time to Get Serious – 13 Week Rolling Cash Flow Forecasting

Business owners who are serious about building a sustainable business monitor and manage their cash flow on a weekly, sometimes daily basis. The recommended method to manage cash flow is to use a 13-week rolling cash flow forecaster to enter all planned incoming and outgoing cash from the bank. The cash flow forecaster must contain all current invoices and bills, as well as future planned invoices and bills that will occur over the coming 13 weeks.

A rolling 13-week cash flow forecaster provides the necessary transparency required to identify any fast-approaching red trains early. This is critical to the survival and growth of all businesses.

Consistency is the Key

We recommend every Monday morning the cash flow forecaster needs to be updated with the current bank balance, along with who will be paying, and who will be paid during the current and coming weeks. Having one central document allows sales, payable and receivables to all be on the same page in terms of which jobs, clients, and suppliers require follow up. It is all about being proactive, not reactive.

To make it easy for business coaches and advisors to assist in managing their clients cash flow forecasting, TheCUBE has an inbuilt 13-week rolling cash flow forecaster. This allows full transparency between coach and client, which in turn drives educated cash flow planning and sustainability.

Make cash flow forecasting a priority today.

Matthew Jones
TheCUBE Founder & CEO

TheCUBE is a powerful business coaching platform allowing coaches and clients to work together easily.

Click to request TheCUBE demonstration today.