The Power of One...

I had a meeting with a new start-up the other day and it was very clear from early on that she needed help with more than just preparing her accounts and tax returns.  The business she is starting is a dance school, and this will be the first time she has run a business, therefore understandably she needed a lot of guidance before starting to trade.

I started with talking her through the ‘Power of One’ report that we produce for our clients in order to help them consider the 6 key drivers in their business. The report also reveals how making small incremental increases can make a significant improvement in the cash position and the profitability of a business.

The first key driver was in respect of the prices that the business charges customers and to make a point that at regular intervals she should be increasing the prices and be thinking about how she can put together packages to sell at a higher price.

The second key driver was to sell more to customers, for example to sell clothing and merchandise, or by putting on exclusive dance shows etc. She now has a plan to review her offerings on a quarterly basis to make sure she is maximising the returns from her customers.

The third key driver looked at reducing the cost of goods sold which in this case, was mainly in respect of her freelance teachers to ensure she had agreed the best terms possible and maybe get a discount by booking block lessons with them. Another option discussed was to think about paying them based on the number in the class which would keep her margins consistent.

The fourth key driver looked at keeping the overheads to a minimum without affecting the level of service to customers. She was speaking to the landlord to make sure she could get the maximum amount of rent free, we also agreed that she would do a full review of all of her other costs and moving forward, she will get 3 cost comparisons for all her costs so she knows her overheads are being kept at the absolute minimum.

We then looked at the fifth element which is cash generating drivers and as credit was not given to customers we wanted to make sure she was getting paid as quickly as possible and to look at using online payment services, such as izettle or sumup, so customers were able to pay by credit card when booking lessons and to take deposits if there was a waiting list for certain classes.

The final driver was to take as much credit as possible from suppliers to ensure sufficient cash was kept in the business.

Now that the client is aware of these steps, it has been possible for us to prepare a cashflow forecast for the business for the next 12 months. This was very important for her to do to get her thinking about any peaks and troughs in the cashflow going forward especially when the rent-free period came to an end.

After helping guide her through the forecast it was vital to show her some of the Profit First methodology and I explained how she needed to open separate bank accounts to move her profit, owners pay and taxes into, coming out of her main bank trading account.

We still need to look at the % to allocate to these bank accounts but at least it made her think about taking her ‘profit first’ and whatever was left in her main bank accounts was what she was left with to run the business (operational spend)... I explained to her that starting with the system now will massively impact her financial situation, should she wish to open more studios in the future

Written by Lee Manning - Partner at Raffingers

If you want to discover how making small changes to your key drivers will make a huge impact on your business, or would like to implement Profit First into your business, please get in touch with Lee Manning at lee.manning@raffingers.co.uk