I know this year has been one of the most challenging years in business, with the pandemic and lockdowns, and just the disruption to business. But here’s the thing, many of you could be making decisions that lead to a healthier, more profitable, higher cash-generating business, however, you’re allowing your ego to get in the way.
We were working with a client, about six months ago, and when we started working with them (E-commerce business) and we analyzed their P&L and we went through, we realized they were selling 50% of their products on eBay, and 50% through their own online store. What was interesting was that the products that they were selling on eBay, once we took out the eBay commissions and freight and the rest of it, were actually losing the money.
There was a negative gross margin, about negative 3.2% to be exact. And we went deeper and we did a deep analysis of this, and the no-brainer decision was to stop selling these products on eBay.
But the challenge for the owner was that 50% of their cash coming through the business was coming from that source and they couldn’t comprehend that if we cut that side of the business, how it would actually improve profitability, how it’d actually put more money in their pocket.
And so with some coaching and mentoring, as well as a whole heap of financial analysis, they eventually made that decision. And what that’s meant is that the cash position of that business, month on month now, over the last four months since they made that decision, has improved.
In fact, while we’ve seen a decrease in overall revenue, profitability and cash at bank has gone up.
And that’s the name of the game.
I don’t know any business owner that got into business to not make money.
All of you got into business to make money.
And what’s critically important is that you need to understand that when there’s a part of your business that’s not making money, unless it’s, you know, a lost lead or something like that, you need to shut it down because unless you do, it’s going to make the rest of the business harder.
So you might have some high income and high profit generating products or services and some low ones. We want to try and eliminate the low ones, if that’s possible, without harming these high income, high-profit margin parts of the business.
But it takes a degree of emotional intelligence and it takes a degree of removing the emotion from the decision and relying on the metrics and data that you’re given in order to make those decisions.
It sounds really simple, but I understand that for many of you, it’s not easy at times.
If you need some help with this, that’s what a trained CFO can do for you.
Not every part of your business is going to be easy, and you may need to let go of significant amounts of revenue in one area in order to generate significant amounts of profit in another.
You need to have the right analysis, done in a timely fashion to help you make those decisions.