Shared from the 2/27/2017 The Age Digital Edition eEdition

How a financial detox can steer your business back on track


Jen Geale, the co-owner of Mountain Bikes Direct, was struggling for profitability.

Mountain Bikes Direct was on borrowed time. In theory, the online store should have been hugely profitable, but it was treading water at best. ‘‘We believed that as a business model, an online store for mountain bike parts could be successful,’’ says Jen Geale, who runs the business with her husband Michael. A second couple living in Canada also co-own the business. ‘‘We had deeper stock levels and varieties than our competitors, but for some reason, it just wasn’t happening. ‘‘We couldn’t understand it, because we were gaining market traction, customers and sales, but the books weren’t adding up.’’ The couple knew the market well, having owned a bike shop at the time they opened the online store, which they have since sold. ‘‘We weren’t making catastrophic losses, but we weren’t achieving consistent profit,’’ Geale says. While no one wants to fail, the Gold Coast couple said it was time to admit the business was not great, though not yet a total disaster. They wanted to see if it could be built into something financially sustainable.

So, two years under, they undertook a financial detox. ‘‘We knew there was no point growing the business if there wasn’t sustainable profit, and we hadn’t been good at things like controlling expenses.’’

The first step was getting the books up to date and start hunting for anomalies. They analysed the books themselves and identified a suite of ways to cut costs.

‘‘We hunted for what was causing the ups and downs in our monthly profit, and it was line items like advertising that wasn’t linked to a specific return on investment, a new software platform we had trialled that added up to $2000, other company expenses.’’

They introduced a wave of expense cutting. ‘‘We were ruthless. We also put a lot of effort into looking at ways to manage margins and pricing better.’’

It worked. Within a few months, the business earnings had stabilised and year-on-year performance exceeded their expectations.

‘‘Part of the success has been the fact that we now have enough scale to achieve repeat business,’’ Geale says.

All SMEs should undertake a financial detox process. They should consider whether they have a truly unrealistic understanding of their financial results over the prior year and use this to create a realistic plan, chief executive of Sprout Funding Mark Hearl says.

‘‘It’s all about understanding your financial vulnerabilities and cash flow pressures and creating a foundation to fund business growth. Many cash flow shortages could have been handled better if the business understood the revenue cycle and expense cycle,’’ Hearl says.

Once this is achieved, go through all your top expenses and see whether you can re-negotiate terms so that your biggest cash outflows from expenses better match up with your expected peak revenue periods. This is also a great time to assess whether you can get better pricing possibly via a competitive bid process, he says.

Next, assess the payment terms you offer your customers, and consider whether you need to implement progress payments for some clients.

‘‘For jobs that represent a significant amount of your time or revenue for a period, the resulting concentration risk can often end up creating an unforeseen cash flow issue if payment isn’t on time.’’

A common oversight when looking to make improvements is the importance of maintaining a disciplined approach to comparing your monthly or financial period results for the year, he adds.

Businesses with multiple loans in place need to assess the interest they’re paying.

‘‘It may make sense to streamline this area of your business and review the market for best offers. It’s easy to ignore late payments as you focus on your business, but this has a negative financial impact that you need to be diligent in addressing,’’ Hearl says.

Mountain Bikes Direct says the financial detox saved the business, and built it into something great. The company turned over $2.1 million in the last financial year and is experiencing year-on-year growth of between 40 per cent and 50 per cent in the past two years. It made the SmartCompany Smart50 list in 2016 and the Telstra Business Women’s Awards (Young Entrepreneur, QLD finalist) in 2016.

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