Trade Case Study
Sales up by $3m (50%) but cashflow a problem
Despite an impressive increase in sales from $6m to $9m (50% increase) our client in the building industry was having severe cashflow issues. Paying tax on time was a struggle and the increased sales had come with decreased profitability.
Advisory Accountants's Business Builder tools provide detailed diagnostics that are the key first step to addressing these kinds of business problems. Using up to date company financials we produced a company health check and diagnostic report.
Our analysis highlighted that:
- Gross profit margins had diminished.
- Overheads had increased due to the increase in sales.
- The Accounts Receivable policy was not adequate for debt collection.
- Pricing and quotations were reviewed. Pricing was revisited and an increase in prices was implemented.
- Individual projects were monitored against quotes to see if individual projects were profitable.
- Strict credit control procedures were implemented, terms of trade changed to allow quicker payment of accounts and to get higher up front deposits.
- Tax planning was done and forecasted tax payments were put into place so that the company could pay tax on a weekly basis rather than large provisional tax instalments.
- Overheads were looked at and cost cutting measures put in place.
- The client was trained to accept more profitable projects rather than any projects.
- The objective of higher profit projects rather than high-volume low-cost projects was implemented.
- New revised budgets and cashflow plans were implemented and we monitored the results monthly.
By putting the above in place, we are on target to achieve a $600,000 profit after paying working directors. Building on this excellent result, we have guided our client towards more diversified investments.
"Execution of a plan with an amazing result with the proper guidance by Advisory Accountants is like a breath of fresh air."