The Seven Financial Levers
What is more important – profit or cash? If you want to turn your business around, grow and scale up it is cash because growing a business sucks cash!
Understanding the cash effect of the following financial levers and the inter-relationship between them will help you get a handle on how cash flows through your business model and into your pocket.
The 7 critical financial levers available to improve the cash position of a business are:
1
Selling Price
You can increase the selling price of your goods and services. This should lead to an increased gross margin and more cash.
2
Volume
You can sell more products/services at the same price. This should maintain gross margin and increase cash.
3
Cost of Goods Sold (COGS) / direct costs
Reduce the price paid for raw materials and direct labour. This should increase gross margin and more cash.
4
Operating Costs
Reduce operating expenses. This should increase net profit and lead to more cash.
5
Inventory / Work in Progress (WIP)
Reduce stock holding and work-in-progress. This should release cash tied up in stock in your warehouse.
6
Accounts Receivable
Speed up debtor collections. This leads to cash in your bank account quicker.
7
Accounts Payable
Slow down payments to creditors. This slows down the outgoings of cash from your bank account.
Lee Milward
Chartered Accountant & Business Coach
I have been helping businesses turnaround for over 25 years as a chartered accountant and I have never seen instability like this before. Economic uncertainty, lockdowns and supply side challenges have caused unprecedented challenges for business owners. Some businesses have highs and lows like a rollercoaster, causing major headaches, whilst other businesses suffer for a variety of reasons including lack of supplies or labour. It has never been more important to effectively manage cash flows, renegotiate with your bank, suppliers and other stakeholders, evaluate your revenue streams and plan ahead.
From a financial management perspective there are many levers you can pull to stabilise or grow your business even in such turbulent circumstances. I have created a guide with my 8-step process using sound financial principles, which are simple enough for anyone to follow.
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Download my FREE guide, The 8 Essential Steps To Turnaround Your Business below and start taking control of your business today!
