by MHolland | Jan 3, 2025 | Business Tips, Cash Flow, Systems
Is a 1% improvement really worth the effort?
Absolutely. In fact, tweaking your margins by just 1% could send your profits soaring by 10%—or more. It is not magic; it is math.
And for businesses with tight margins—like construction companies, property managers, and flower growers—it can mean the difference between barely scraping by and thriving.
Here is how small changes can lead to big results.
Why Margins Matter More Than You Think
Your profit margin is not just a number—it is your business’s pulse. Margins tell you how efficiently you are turning sales into actual profits. When margins are thin, there’s little room for error. But when you tighten them up—even slightly—the ripple effect on profits can be dramatic.
Imagine this: You are running a $2 million business with a 10% net profit margin. That is $200,000 in profit. Increase your margin to 11%, and now you are pulling in $220,000—a $20,000 bump without adding a single customer or working extra hours.
The 1% Fix in Action
Where do you find that magical 1%? Here are three quick wins:
- Raise Prices Strategically
Do not panic—this does not mean scaring off customers. Even a small price increase (1–3%) can have minimal impact on demand while significantly boosting margins. Communicate the added value your business provides to justify the bump.
- Cut Costs—But Smartly
Focus on expenses that do not directly impact quality or customer satisfaction. Negotiate better supplier terms, switch to more efficient tools, or streamline processes to lower labor costs.
- Reduce Waste and Errors
Errors and inefficiencies can quietly drain profits. Automate billing, optimize inventory, and double-check quotes to avoid costly mistakes. Every dollar saved goes straight to your bottom line.
The Hidden Multiplier Effect
What is so powerful about the 1% fix? It is scalable. Once you start thinking in terms of incremental improvements, you will spot more opportunities. Trim expenses by 1%, increase prices by 1%, and boost efficiency by 1%, and suddenly you are stacking gains.
For example: A property management company cutting vacancy times by 1% while raising rents slightly could see profits snowball over a year. Similarly, a construction firm reducing rework by 1% while negotiating better supplier rates can watch margins grow without adding overhead.
Check Your Numbers—And Keep Checking Them
The key to making this work is knowing your numbers cold. Regularly review your financials—especially gross and net margins—to track progress. Look for trends, red flags, and quick wins.
Better yet, work with an accounting partner (like us) who can highlight opportunities you might miss and help you implement changes that stick.
Ready to Boost Your Profits?
Small changes drive big results. Whether it is tweaking pricing, streamlining operations, or cutting waste, the 1% margin fix can deliver the 10% profit boost you are after—without overhauling your business.
Thanks for reading…
by MHolland | Dec 27, 2024 | Business Tips, Cash Flow, Systems
Budgets! That word can imply a lot to many people—extra work, restrictions (who wants limits in business?!), confusion (where do I start?), and procrastination (who has time at this time of year?)
With all that in mind, for those of you ready to create a budget for 2025, here are some simple guidelines to get started.
Know Your Fixed Costs
The starting point for all budgets is your fixed costs. Review the general expenses on your Income Statement for the past 12 months.
These expenses recur every month, regardless of sales volume, and include items such as:
- Rent
- Insurance
- Office and management salaries and wages (production wages can be treated as part of your cost of goods sold)
- Telephone
- Bank charges
- Vehicle expenses
- Marketing (discretionary, depending on goals)
To determine budgeted fixed costs, analyze your expenses over the past 12 months. Either calculate a monthly average or allocate costs by the month they occur (e.g., $3,000 for June insurance).
Take time to review each expense. Ask:
- Are we getting good value?
- Can we switch suppliers to save money or gain more value?
Know Your Other Balance Sheet Costs
Include additional costs not on the Income Statement, such as:
- Capital expenditures for vehicles, equipment, and technology.
- Principal portions of loan repayments.
- Dividend distributions to owners.
Know Your Gross Margin
Gross margin percentage is critical for determining your break-even sales.
Formula:
- Sales – Cost of Goods Sold (COGS) = Gross Profit
- Gross Profit / Sales = Gross Margin %
Example:
- Sales: $100
- COGS: $40
- Gross Profit: $60
- Gross Margin % = 60% ($60 / $100)
How Much Profit Do You Want to Earn?
Next, determine your profit target for 2025.
Example:
- Fixed costs: $120,000
- Additional costs:
- Dividends: $60,000
- Loan repayments: $10,000
- Capital expenditures: $20,000
- Retained cushion: $60,000
Total costs = $270,000 ($22,500/month)
With a 60% gross margin, break-even sales = $270,000 / 60% = $450,000.
Prove It! Work Backwards
Sales: $450,000
- COGS (40%): $180,000
- Gross Profit (60%): $270,000
- Fixed Costs: ($120,000)
- Net Profit: $150,000 (33%)
Subtract other costs:
- Capital expenditures: ($20,000)
- Dividends: ($60,000)
- Loan repayments: ($10,000)
- Cushion: ($60,000)
- Net: $0
The Final Number – Break-even Sales
Break-even sales are your “magic number.” Allocate monthly targets based on seasonality or divide evenly across 12 months.
Share this target with your team! Post it in meeting rooms and make sure your sales team knows your goals.
In Summary
- Determine fixed costs ($120,000 in this example).
- Add loan payments, dividends, capital expenditures, and cushion ($150,000).
- Know your Gross Margin % (60%).
- Calculate Break-Even Sales ($450,000).
Your break-even sales are your success threshold. Maintain consistent gross margins and control expenses to ensure a healthy business in 2025.
Thanks for reading—here’s to a prosperous 2025!
by MHolland | Dec 20, 2024 | Business Tips, Cash Flow, Selling Tips
Growing your business one customer at a time in the cold marketplace is expensive and slow…
Want to reach more customers and grow your business? Partnering with associations and non-competing businesses is a smart way to do it.
These alliances can expand your reach, boost credibility, and create win-win opportunities.
Here is how to make it happen…
Why Strategic Alliances Work
Alliances let you tap into existing customer bases. For example:
- Associations: They have large, engaged networks. Partnering gives you direct access to their members.
- Non-Competing Businesses: They serve the same customers but offer different services. Together, you can provide more value.
Think – a landscaping company teaming up with a property management company to offer bundled services.
Find the Right Partners
Not every business or association is a fit. Focus on those with similar goals and values. Ask yourself:
- Who already works with my ideal customers?
- Do their services complement mine?
- Are they respected in their industry?
For example, a church accounting service could partner with a non-profit software provider. Both serve the same audience but solve different problems.
Create Mutual Benefits
Successful alliances benefit both sides. Your proposal should show what is in it for them.
- Revenue Sharing: Offer referral fees or profit-sharing for leads.
- Customer Value: Combine services to create a better solution.
- Shared Marketing: Split the cost of campaigns to reach more people.
For example, a customs broker partnering with a logistics company for seamless cross-border shipping.
Leverage Associations for Credibility
Associations are gatekeepers. They can boost your credibility fast.
- Attend their events to network.
- Sponsor conferences to highlight your expertise.
- Offer value, like workshops or webinars for their members.
A flower grower might team up with a horticultural association to offer tips on sustainable farming. It is a win-win.
Use Technology to Collaborate
Digital tools make partnerships easy.
- Shared CRMs: Use systems like HubSpot to manage referrals.
- Co-Branded Content: Create joint blogs, emails, or social posts.
- Virtual Events: Host webinars or live Q&As together.
These tools save time and amplify your efforts.
Build Trust and Stay Connected
Strong partnerships need trust.
- Communicate often. Keep your partner updated.
- Deliver results. Do what you say you will do.
- Review and adjust. Check in to ensure the partnership works for both sides.
Happy partners stick around.
Measure Success
Track results to see what is working.
- How many leads or referrals did the alliance bring in?
- How much revenue came from the partnership?
- Are customers responding positively?
Use the data to refine and grow.
Final Thoughts
Strategic alliances are powerful. They open doors, create opportunities, and strengthen your business. Start by identifying the right partners and reaching out.
Thanks for reading…
by MHolland | Nov 13, 2024 | Business Tips, Cash Flow, Selling Tips
When it comes to sales and marketing, many businesses are tempted to treat price as the ultimate selling point.
But does focusing solely on price really drive the best results?
Studies suggest that it may not be the deciding factor we think it is. Instead, it is just one component of the larger value customers consider before making a purchase. Here, we will explore why focusing beyond price can increase profitability and customer loyalty.
The Myth of Price as the Driving Factor
Price is frequently believed to be the single most important aspect of a customer’s purchasing decision. However, data tells a different story. According to one survey, only 15% of customers make decisions solely based on price, while a whopping 68% leave a business because they feel that it is indifferent to them. This insight challenges the notion that lower prices alone can attract and retain customers.
Customers prioritize factors that give them a sense of value beyond mere cost. They want solutions that address their needs, along with a positive experience. As a result, focusing exclusively on price often overlooks the real motivations behind a purchase.
Understanding Customer Decision Factors
When considering a purchase, customers typically weigh various elements. Here are some of the top factors besides price:
- Quality: Customers want products or services that meet their standards and last over time.
- Customer Service: Excellent customer service adds significant value, as customers want to feel acknowledged and supported.
- Convenience: Easy access, fast delivery, and flexible payment options all make a company more appealing.
- Warranties and Guarantees: Risk reduction through warranties offers peace of mind.
- Personalized Assistance: Many customers appreciate knowledgeable advice and support, especially for more complex purchases.
These factors combine to create a perception of value that transcends the simple dollar amount.
A Closer Look – Why Customers Leave
In the same survey, customers were asked why they chose to leave a business. The reasons were illuminating:
- Convenience accounted for just 3% of customer losses.
- High-level relationships—such as a shift to a trusted friend or family member’s business—represented 9%.
- Product/price/time concerns accounted for 15%.
- Finally, perceived indifference—the impression that a business did not genuinely care about its customers—was the leading cause, at 68%.
This shows that price is not the primary reason customers leave; rather, it is the lack of personal engagement and attention. When customers sense that a business does not value their patronage, they quickly turn to a competitor that does.
Real-World Case Studies: Price Is not Everything
Many businesses that consider themselves in “price-sensitive” industries have discovered that focusing on non-price factors can boost their profitability. Here are two examples:
- The Electrical Goods Market: This industry might seem entirely price-driven, but an independent study found that only 18% of customers based their purchases on price. The majority were more interested in features and the benefits those features offered. Nearly half (42%) of customers made their choice based on the product’s features and the perceived advantages those features would bring them.
- Hot Chicken Store vs. Chain Franchises: An independent chicken shop found itself struggling against larger chain franchises with more purchasing power, which allowed them to offer lower prices. After a strategic decision to raise prices rather than try to compete, the owner saw an increase in profits. This pricing decision allowed him to focus on differentiating his business, highlighting a customer experience that set him apart from his competitors.
Both examples illustrate the power of shifting focus away from pricing wars and toward creating a unique value proposition.
The Cost of Discounting
Many businesses use discounting as a strategy to boost sales, but the math behind it may surprise you. For example, if your profit margin is 30%, a 10% discount requires an astonishing 50% increase in sales to maintain the same profit. In other words, discounting is often less effective than anticipated and can even harm long-term profitability.
In contrast, increasing prices can enhance profits without major losses in sales volume. At a 30% profit margin, raising prices by 10% means you could afford a 25% decrease in sales volume before profits fall below previous levels. While discounting can make a quick sale, it is rarely a sustainable way to grow profits.
Shifting the Focus to Value and Service
So, what is the alternative to relying on price as the primary marketing tactic?
Focusing on value-driven service, tailored customer experiences, and a unique business identity can be far more powerful. Here is how:
- Better Service, Better Sales: Companies with a focus on “awesome service” give customers a reason to stay, pay a higher price, and return. High-quality service not only leads to immediate sales but also creates long-term loyalty. In fact, studies show that improving customer retention by just 5% can increase profits by as much as 25%.
- Understanding and Meeting Customer Needs: When customers inquire about price, it is usually just the beginning of their decision process. Businesses that can look beyond the price question and explore customers’ needs—such as specific product features, customization options, or delivery requirements—demonstrate an understanding and commitment that resonates with customers.
- Training and Consistency: It is essential to train employees to deliver consistent, high-quality customer service. Programs like “Towards Awesome Service” can empower employees to engage with customers more effectively, creating a culture of service that naturally stands out.
Your Action Plan to Move Beyond Price
By broadening the scope of your business strategy, you can differentiate yourself from competitors who focus solely on pricing. Here are some steps to start:
- Evaluate and Adjust Pricing Policies: Review your approach to discounts and consider how adjusting prices might impact your bottom line. Avoid excessive discounting, which can erode long-term profitability.
- Invest in Customer Service Training: Equip your team to offer service that goes beyond customers’ expectations. Programs focused on “awesome service” can be especially beneficial.
- Ask the Right Questions: Train staff to go beyond quoting a price when interacting with customers. Encourage them to ask about the customer’s specific needs, preferences, and timelines.
- Consult with a Financial Expert: An accountant or financial advisor can provide insight into effective pricing strategies that support profitability without undercutting value.
In Conclusion
Price, while important, is rarely the most compelling reason customers choose to buy from a particular business. Often, they are looking for a positive experience, a feeling of value, and a sense of connection with the business. By shifting focus away from price and toward quality, service, and a unique customer experience, your business can stand out in ways that drive customer loyalty and profitability—without racing to the bottom on price.
Thanks for reading…
by MHolland | Nov 8, 2024 | Accounting Software, Business Tips, Cash Flow, Cloud-based Accounting
I have written in the past about the need to switch from manual cheques to online bill payments…
While cheques seem secure (you are using paper and pen, after all), online bill payments deliver awesome advantages in speed, security, and cost.
Cheques are risky. Online bill payments are secure.
That is a flip in your thinking, right?
Let us go through the seven benefits.
Benefit One – Fast and Simple
Online payments happen fast—no more waiting on the mail or bank delays. Payments are instant, freeing up time and simplifying the process.
- Quick Processing: With online payments, funds transfer immediately, bypassing the hassle of mailing and clearing cheques.
- Effortless Transactions: Forget about writing, signing, and mailing cheques. A few clicks, and it’s all taken care of.
Benefit Two – Stronger Security
Cheques can be lost, stolen, or altered. In other words, ripe for fraud. With online payments, digital safeguards work to protect your accounts, making fraud much harder.
- Top-Notch Encryption: Banks and payment platforms use advanced encryption to keep data secure.
- Around-the-Clock Monitoring: Banks and payment platforms monitor for unusual activity, flagging anything suspicious.
- Two-Step Authentication: Extra security steps add a second layer of defense, reducing the risk of unauthorized access.
Benefit Three – Lower Costs
Running a business means watching expenses. Cheques require printing, mailing, and processing fees that can add up. Online payments save money by cutting out these extra costs.
- Goodbye to Printing and Postage: No need to pay for cheques, envelopes, or stamps.
- No Lost Check Headaches: Online payments remove the risk of lost cheques and the hassle of reissuing them.
Benefit Four – Control Cash Flow
Online payments let you manage cash flow with precision. Scheduling and automating bills helps avoid late fees, and you always know when money is moving out.
- Easy Scheduling: Automate recurring payments to ensure bills are paid on time, every time.
- Predictable Cash Flow: Set dates for payments so you know exactly when funds will leave your account.
Benefit Five – Go Green, Save Green
Online payments aren’t just convenient—they’re better for the environment. They eliminate the paper waste from cheques and the carbon footprint of mail delivery.
- Paper-Free Payments: No more cheques, no more envelopes—just instant, eco-friendly transactions.
- Reduced Emissions: Skip the postal service and the delivery truck, keeping your operations lean and green.
Benefit Six – Streamlined Record-Keeping
Online bill payments mean clear, organized records. Every transaction is digitally recorded, making bookkeeping a breeze and audits smoother.
- Automatic Record Generation: Online payments create a digital record, reducing errors and streamlining account reconciliations.
- Easier Audits: Digital records make it simple to trace and verify expenses.
- Software Integration: Syncing with accounting software like Xero or QuickBooks reduces manual work and ensures your records are up to date.
Benefit Seven – Build Better Relationships
Prompt payments build trust, and online payments make timeliness easy. Vendors know they’ll be paid on time, and customers appreciate a straightforward, reliable process.
- Reliable Vendor Payments: Scheduled payments keep you in good standing with vendors and partners.
- Customer Convenience: For customer-facing payments, digital options make it easy and fast—an experience customers love.
In Summary
Cheques have had their day, but online payments are faster, safer, and more efficient. For businesses focused on improving cash flow and cutting costs, going digital is a smart move.
Switching to online payments means easier financial management, stronger security, and streamlined operations—making every transaction simpler for you and your business.
Thanks for reading…
by MHolland | Jun 20, 2024 | Accounts Receivables, Cash Flow, Cloud-based Accounting
When is a sale a sale?
When the services are completed and you send an invoice?
Okay, that may be when you book the sale in your accounting ledger, true.
Consider this…
A sale is not a sale until the money hits your bank account.
This is not how we do it in accounting unless we are running a cash business.
I have witnessed many businesses get aggressive in selling just to report impressive top-line growth.
What gets missed are these things:
- Time it takes to collect.
- Customer satisfaction.
- Credit worthiness of your customer.
- Your Gross Margin (I will explain…).
- The accuracy of your invoice.
- Did you fulfill what was agreed upon?
- Follow-up.
Time To Collect
The longer it takes to collect the less likelihood you will collect.
On a graph it will look like a Black Run downhill ski slope. As time goes on the percentage declines drastically.
Again, a sale is not really a sale unless you can collect it!
Customer Satisfaction
What the heck does customer satisfaction have to do with getting cash in the bank?
Well, when you think about it, an unhappy customer/client will likely resist paying you on time.
This loops back to number 1 above, “Time to Collect”.
This is a toxic cycle where an unhappy customer ignores your invoice and then refuses to pay down the road.
One way to avoid, is an outgoing customer satisfaction survey at the point of sale or shortly after.
Unhappy results can be nipped in the bud before it is too late.
Credit Worthiness of Your Customer
Have you done a credit check?
I remember checking the books of a business in a small town that sold electronics and home appliances.
Their sales were terrific! As in, off the charts for a small-town store.
The problem was that (on further examination of their accounts receivable) the sales staff were paid solely on sales commissions. It did not matter if the customer paid or not.
Credit sales were accepted often without background checks.
We discovered a TV had been sold to a fellow in prison! 😊
Hmmm, try collecting that one without backup!
Can these really be considered sales? More like store theft…
Your Gross Margin
Look at your Gross Margin as a main Key Performance Indicator by product line every week/month.
I know that this has less to do with, “when is a sale a sale” and more to do with cash in the bank.
Why?
Because if gross margins are declining it means:
- Discounting is happening.
- If discounting is happening, margins will be less, and perhaps not enough to cover your fixed costs.
- It also could mean that the business is less competitive and getting desperate to make sales at a lower margin.
The Accuracy of Your Invoice
Sales invoices should be sent out with 100% accuracy and fast. At the point of sale or rapidly after.
If you send out invoices that are inaccurate, your customers may, again sit on them, and refuse to pay.
The longer they are outstanding, remember the likelihood goes down that you will collect.
Did You Fulfill Your Agreements?
If the expectations of the sales transaction were not met, or there was any underperformance, then your customer/client may refuse to pay.
And often they do not tell you when they are irritated by underperformance, They just do not pay.
Again, a sale is not sale until the money hits your bank account.
Follow-up
When should you follow-up on your sales?
Within days.
Ask the correct person (usually an accounts payable clerk at your customer’s office) if they:
- Received the invoice.
- Have any questions?
- Is the invoice accurate?
- When can you expect payment?
By being proactive you set the stage for early payment.
The follow-up on their promises!
And keep following up. With persistent, firm kindness.
The old cliché “the squeaky wheel gets the grease” is applicable in getting paid on your receivable.
Remember, a sale, from a business point of view, is not a sale until it is in your bank account!
Thank you for reading…
