The path to profitability, asset protection & prosperity in the Victorian Transport Industry
With transport-related business insolvency rates increasing year-on-year, it’s critical to business survival that owners have a clear picture of their numbers, clear strategies for making those numbers work, and a commitment to executing those strategies.
June 2016
In May, Matthews Steer Partner and Director Adrian Misiano was one of the high-profile speakers at the Victorian Transport Industry’s State Conference in Lorne, providing attendees with tools to write their own financial story.
With transport-related business insolvency rates increasing year-on-year, it’s critical to business survival that owners have a clear picture of their numbers, clear strategies for making those numbers work, and a commitment to executing those strategies.
Profitability is dependent on banker confidence and having the confidence to grow your business, and is reliant on budgets and strategic plans based on a clear understanding of the businesses numbers. It’s vital to understand not just the costs associated with your business, but the cost culture of your business, and there is no value to strategic planning, targets, goals and KPIs, without a commitment to action and measurement of your business’ performance on a regular basis.
Put quite simply: write the script for your business and then act it out. Don’t write the script and stick it in the bottom drawer.
Daily statements to live by...
- A dollar of costs saved equates to a dollar of profits - there are no costs to achieving that saving. A dollar of sales is worth less than a dollar of profits - it costs the business to fulfill the terms of the sale.
- When reviewing the profitability of your business, broaden your focus. When faced with financial challenges many business owners resort immediately to cost cutting and downsizing. But there are other areas over which to cast the microscope:
Review the culture of cost management, for example understanding who has authority to spend and how the business manages that authority internally. Understanding the culture of cost management can exert a far greater impact in turning your business around rather than simply cutting people.
Review how wastage in your business impacts your bottom line. Team members spending the business’ money as if it is their own can have a major impact on your bottom line.
Identify inefficient processes within the business. If 10 employees who are paid $30 per hour waste just two hours each a week on inefficient processes, unnecessary meetings, etc, that can amount to a business loss of $288,000 over ten years!
Implement alternative wage structures, such as weekly or monthly wages over hourly wages, so your employees are motivated to maximise their efficiency.
Understand what drives cost in your business. How much do your employees or contractors cost, are they accountable to KPIs and do you have the training, technology and culture in place to allow them to achieve these KPIs? What is the cost of a sale in your business – are you using the most cost-effective suppliers, do you offer volume discounts and early payment discounts, have you minimised waste? And what are your business overheads? Are you taking advantage of the current economic climate to negotiate with suppliers and are you leveraging all the entitlements and grants available to your business?
Review your team. Is everyone committed to helping the business achieve its goals and objectives? Does everyone associated with your business, from employees to contractors, suppliers and even clients understand that the success of your business will mean success for them?
Break it down...
At the end of the day, a profit and loss statement is a one-dimensional snapshot of your business. It’s vital to break your business down into units: balance sheet, cash flow, cost management, staff efficiency, contractor and customer relations holistically, and understand what revenue you make each hour, what costs you accrue each hour, what costs and revenue you accrue each kilometre, tonne or whatever your measure may be.
Making small changes in a number of areas can ultimately have more impact in turning your business around than resorting to cost cutting and downsizing.
The next step is to undertake a Financial Needs Analysis, looking at the NOW, the WHERE and the HOW: where your finances are now, where you want them to be in the future and how you’re going to get them there. The gap between the where and the now may well be filled by the sale of your business and, with Baby Boomers selling up in their droves, we could be looking at a buyers’ market in the coming years meaning it’s vital you make your business stand out from the pack.
Establishing an ‘investor-ready’ business involves setting budgets from the bottom up based on your microscopic understanding of your numbers, leveraging available government grants, preparing your business for crisis or succession, recognising and making smart acquisitions that enhance your business, and minimising risk all make it easy for potential buyers to bolt your business onto their own, maximizing the value of your business.
Your business needs to generate your private wealth. Ask yourself: are you geared to maximize your private wealth and have you protected the family jewels?
Once you are comfortable you have the right structure in place, the next step is to ensure your profits and assets are protected.
If you’d like to undertake an obligation-free one-hour asset protection review please contact Adrian Misiano on 03 9325 6300.