As a foundation for growth of your business (once the exit strategy has been confirmed ), you need to make sure you have the right growth infrastructure in place or, put more simply have “got the basics right”. Without that, the pathway to sustained growth is frustrated or, at worst, growth stalls completely. Most business owners are already extremely busy running their business, so they need support to get this infrastructure in place.

Achieving an owner’s vision and objectives for their business requires all key elements to be aligned, then implemented to ensure success. The secret to ensuring growth is to review the commercial model collaboratively and critically (how the business makes money), then enhance this model to optimise Sales and Profit.

So where do you start? The old saying goes “turnover is vanity, profit is sanity and cash is king”. In today’s digital environment, this can easily be adjusted to cash flow. Cash flow is the only thing that matters. Establishing the cash flow requirements of the business and forecasting the business’s cash requirements over the next twelve months is critical; Do you have a cashflow forecast? (if not get one done – NOW!), If so, does it need to be updated?

By implementing the measurement of these three basic ratios, you will be well on the way to setting a solid foundation for growth.

1. Check your debtors ledger for any overdue payments, and closely monitor your debtor days KPI (the average number of days it takes your customers to pay after they have been invoiced). If this is higher than your credit terms, then your customers are using you as a bank!

2. Inventory levels, and stock turns. There is no point in having stock on the shelf that isn’t selling, and minimising levels across the entire stock holding will free up much needed cash to keep the doors open. The Stock days (or stock turn) KPI will help you monitor this risk.

3. Creditors is the next place to review. Ensure your suppliers are aware of your situation and keep them informed. They want you to remain in business, so they can keep selling to you. However if, like your customers, you’re buying and not paying, and they don’t know why, the credit will be cut off at some point. The creditor days KPI will help monitor this at a high level.

Measuring and reviewing these three KPI’s will provide you with the fourth critical KPI for cash, which is the working capital cycle. This will help you understand how long it takes from invoicing the customer, getting paid, and subsequently paying your supplier.

Reviewing margin is next. In some cases there are contracts in place, or competitive constraints that will mean prices can’t be changed, however this is unlikely to be across all customers and all products lines, so review the margins and adjust prices wherever possible.

These steps, when fully implemented, set the foundation for growth of your business.

If you would like more information on “setting the right platform”, please get in touch.