Good day. Good day and welcome to the Business Made Easy podcast where we
make business easy. Jason Skinner, your host here on the podcast that is all
about giving you a better business, making more money, and having a better life
as a result. Thanks so much for joining me. How are you doing? I hope, ah,
everything is going well out there whatever you’re up to. If you’re driving in the
car, uh, I hope the traffic is not too bad or, uh, working out at the gym. Uh, that’s
some — that’s a foreign place I haven’t been to for some time.
I’ve got to tell you, I got to get back into my health and fitness side of things. I
really have let that slip of light. I’m actually going to do an episode, podcast
episode on being healthy in your business because it does make such a big
difference and it’s an area that I’ve got a, a hand on hot, put my hand up, and uh,
confess that I have been a little lacking in lately.
We got a great episode today but before we get into that, if you have not already
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free to, to jump on there at businessmadeeasypodcast.com/community.
And before I get into today’s show, if you have a question that you would love
answered just to help you along with your business or even if it’s an idea that
you wanna flash around or something like that, feel free to always drop me a line
at [email protected] I’m helping listener’s questions. If
they’ll send me an email in, I’ll certainly answer your questions and help you to,
get over that stumbling block that you might be, you might be experiencing in
Also,if I answer — if it’s a fairly detailed answer that we need, we’ll actually make
a podcast episode out of it. And I do love to share listeners and case studies and
experiences on, on the show as much as possible because it really does help to
take away the theory and put into place some practical application and I guess
you can learn from others. I’m a big lover of learning from others and other’s
experiences and traps and trials and things that they’ve had along the way as
So, feel free to drop me a line at [email protected] and I will
be waiting there to help you and I answer all my emails myself. I also do have my
support team. I do answer mail. I do control my inbox and answer my emails so
feel free to, to do that. If you’re new to the show, welcome. Thank you so much
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you get each episode as it comes out each week. I release them on a Friday
morning at around 6:30 am Australian time. So, it’s gonna be Thursday evening
in the states and it’d be going into the evening in the UK as well, I believe so.
Alrighty. Let’s get in today’s episode. We are going to have a case study today
and, with the permission of these people that I helped recently they’ve given me
permission to use this information so there’s no confidentiality breaches here. I
always ask permission to do that. I’m going to keep their names and relevant
details, anonymous anyway.
But, I thought it was really interesting case study in how you can get out a kill to
with your business and how you can really struggle along in it. It deals with the
area of cash flow and profitability, etc, and you’ll see how just hoping for the
best really isn’t a good idea in business.
We have the situation with many businesses that I see where and not just ones I
see, they’ll all out there, but many businesses where people are really good at
what they do but they’re not necessarily good at business or, running a business,
or understanding the fundamentals and dynamics that are going on behind the
Thankfully they don’t because then I wouldn’t have a job. Then we wouldn’t
have a podcast, see but in all seriousness, I do like to teach people these skills
because when you understand and know these skills, you really get a good feel
of what’s going on in your business. And it gets that way after you practice these
skills and things over a period of time that you can actually just by talking, I can
actually sort of get a feel for someone’s business and what’s going on and it’s
just through asking some relevant questions.
I don’t even need to see financial statements initially and that’s because over
time you learn to see what the drivers and the metrics that are in business that,
are causing different results and different outcomes with people. So, just
through asking questions and that sort of thing as a preliminary, you can get a
pretty good feel of where to start looking and start digging down in a business to
find out where it’s performing and where it is not performing or what problems
And this case study today of, of William and Laura, is an interesting one because
they had a business which was quite seasonal in nature so it has peaks and
troughs seasons and that can be good and bad. It’s good in the peak season
because obviously the, the money is flowing in and the sales are happening and
it’s a busy time for all but, in the off season, in the quiet season, not so good
because you’re sort of scratching around and wondering what to do.
And so it’s sort of you get from feast to famine in, in that sort of businesses and
there’s a lot of those around too particularly in say, agriculture and farming and
then a lot of physical, um, bricks and mortar type businesses as well can suffer
that type but William and Laura had this business and it was a product — I’m not
going to reveal any details — but it was a, fairly solid product that was packaged
and sold. So, you could go in and buy it off the shelf as well so you could
physically go and buy their product but you don’t necessarily need their product
all year round.
And, when they came and saw me they were just not sure of why their business
wasn’t performing. They were getting sales. They were moving stock but they
just seem to never have any money in the bank. And always seem to be sort of
putting their hands to their mouth in terms of, you know. They just get on top of
things and then slip back again and they really weren’t sure about what to do.
So, I sat down with William and Laura and we just had a chat and discuss
business and it turned out that their business was quite cyclical. So, they did
have sort of these peak times where their product was in need and they were,
supplying it. But then they had these other periods of time where it was fairly
quiet. And so, we sort of had a chat about that and how that worked and I’m just
going to sort of take you through the approach that I went through with them to
help them through to come out at the other end with a better understanding of
their business and a more profitable and bigger bank account at the end of, the
day as well.
But, pretty well the very first thing we sort of sat down and do is just to get an
understanding what the business was about. What did it sell? Who was it’s
customer? And how long they’d had the business and the trading history.
I like to get to know what loans and bank debt and that sort of thing are around.
Are we paying off leased cars, and equipment? You know, where is our money
actually going? So we sort of wanna get a bit of a feel for that. But after sort of
getting a general overview, it became clear that they really didn’t know how
much money they were making in each sale that they were making.
They said they really had no idea of their break-even point. Now, the thing with
business is that, it’s not so much the dollar value of what you sell. It’s not the sale
value of what you sell that is important. Although it’s not the critical number I
should say, it is important obviously. But, it’s the margin that you’re making on
that sale and the money that’s dropping you out of the bottom of the business
when you are after you pay all your overheads and all your bills and things like
So the very first thing that they had no idea of their break-even point. So this is
the point where the very next dollar in sales that they actually make is actually
going to now start generating profit. And that’s a really important calculation to
do in understanding your business because up until that point, you are still
paying for your overheads and your costs and all those sorts of things.
So, you aren’t actually making money until you get to that break-even point. And
then once you get past the break-even point, the point past that up to where
your sales are that is your what we call your margin of safety. So that means
you’re buffer if you like, that you now are in front and you’re starting to
generate good, profits from. So, I mean these guys, just had no idea about and
understandably, but they had no idea about their break-even points. The very
first thing we needed to do is sit down and work out exactly where their
break-even point was in their business.
So, we sat down and we did that and for the previous financial year. Now this is a
calculation that you need to do all the time and I did an episode on break-even
point back in episode forty. Go to businessmadeeasypodcast.com/episode40,
you’ll come across, that episode and I talked about break-even point in-depth in
this. I’m not going to get too bogged down in, in how to do it. Today was more of
the process of what we did to help them.
So, once we identified their break-even point, we’ve realized that their margin
that they were sort of making was a little bit on the light side and they could be
making more from each sale than they actually were. So really, I mean that was,
that itself was a refreshing number for them to learn because they could knew
that they had to get at least that many sales per week or month or whatever it is
to actually be able to make money,generate a good profit.
So the very first, I guess, action point out of that was calculate the break-even
point, work out what they were doing in sales and where they sort of set that,
they’re clearly too low. So we look at pricing strategies in that instance for them
and worked out how to increase their prices and add value to their transactions
without actually sort of causing any reduction in their margins at all. So really
really important point in step one is to sort of know what that break-even point
Where they wanted to look at, so increasing the process itself was enough to
increase so that had a knock on effect obviously to improve their margin and
how much they’re making on each sale which obviously improved their
profitability and the money that was dropping out of the bottom.
But the next thing we wanted to sort of look at was because of the seasonality of
their business that we wanted to see where the peaks and troughs were in their
cash flow because with the bank account, it’s like a bucket of water, there’s
money coming in and out of it. I always use the analogy of you car and you know,
as the business gets bigger it’s like the size of your car. And then the fuel in the
tank that’s the cash flow going in and out of the car.
So as your car gets bigger, you need more petrol, more cash flow and we spoke
in-depth about cash flow back in episode seventeen and also on episode fifty
two where I discussed the difference between cash flow and your profit. So you
can get those by going to businessmadeeasypodcast.com/episode52 and then
the same with businessmadeeasypodcast.com/episode17 for more info on cash
flow. But it was really, it was really important for uh, William and Laura to work
out exactly where the peaks and troughs were happening in their cash flow.
‘Cause they got no idea whether they could, they could use the money to live on
So I sat down and did a detailed cash flow statement for them. And we
absolutely mapped out based on the prior trading history, mapped out a road
ahead for the next twelve months and what that would look like, ’cause it’s so
important to have this document because you can see before it actually happens
um, a cash flow statement gives you this, the ability to be able see where the
peaks and troughs are in your cash flow and where you’re going to need more
cash or where it’s not so important to carry as much cash where you can either
payouts and dividends or put some reserves away or whatever.
And what became really apparent for William and Laura was that when I did this,
when I went through this part of the equation for them, is in those peak times
leading up to those up to those peak times, there was a big I guess timing
difference between when they have to pay for their actual supplies, to pay for
the products ‘cause they have to stock out.
They know the peak time’s coming so they’ve order ahead, so they’ve got stock
on the shelf. They cannot sell it if they haven’t got on the shelf so they would
order up. But the way they were, they’re more or less paying virtually cash as
though ordering for the goods and services, for the the goods that they’re
buying in but when they were going to — so that, that was money going out of
the bank account but then it would take time for customers to come in and buy
the goods and then take some time to pay and then you know as things going
with, with customers terms.
So it was a big disparity but money was going out but it was a long time before it
was coming in. So, they’ll face with the sort of a dilemma there, they’re either
had to go to their suppliers and say,”Hey, um, look, we’ve been buying from you
for a fair period of time. We’ve typically paid cash, can we get sort of more
favorable um, trading terms?” So you know, that was an incentive there to, I
guess for them to be able to keep the cash in the bank longer so they didn’t have
to pay for the goods so soon.
And then the other option as well was to get their customers paying more
timely. And that’s where you need to look at what’s the average number of days
that your customers are taking to pay you. And I spoke about that in both those
cash flow episode as well, fifty two and seventeen. So that was an important
thing and what were able to do there with, William and Laura is actually look at
tightening up their trading terms with their customers.
We realized that they weren’t going to lose sales because they ask for their
customers to pay on the spot. But they just weren’t doing it. They were having
the business is always just had trading terms and you know, there’s a thing, it’s
the customers just take their time to pay and they’ll get away with whatever
they can while you let them.
So we had to do some work there once we’d identified the cash flow peaks and
troughs. And we’re able to tightened that up which meant that they were able to
pay for their goods, take thirty days to pay for their goods but they were able to
get the cash sooner rather than later back into their bank account once they’ve
sold them. So really critical that the those metrics are looked out and cash flow
statement budget really does work well.
One of the options on the table for William and Laura also was to look at some
form of cash flow funding during those peak times or drought times if you like,
where, where they needed to have that extra cash to keep their overheads and
things pumping along. I mean the business was profitable but there were times
where there was just not enough money in the bank and they were finding they
were having to put money in- out of their own pocket.
And one of the options that you can look at there is an overdraft facility with
your lender, with the bank and I say overdraft here very cautiously. I’m not a big
fan of overdrafts because what I’ve seen historically, is that they, never get paid
off and they turn into long-term debt. The whole concept of an overdraft is a
short-term funding facility that the bank give you at an interest rate which is
usually higher because it is short-term and not largely secured. It’s a lending
facility that gives you the, the cash, the fuel in the tank if you like, to get you to
the next station.
So it’s just a short-term loan that you can draw on to fund and pay for your
purchases. So, in this case if William and Laura, weren’t able to negotiate the
trading terms with their suppliers and they weren’t able to change the way their
customers were paying and they were still having these peaks and troughs, this
is where an overdraft may have been suitable fix for that problem to give them
the ability to trade through that difficult time.
And then when the profits and cash coming back in, you pay the overdraft back
but it does, you got to know it does have interest on it. And what I typically find
is people don’t manage them very well. They don’t pay them back and that’s
why I would strongly recommend if you did look at an overdraft type facility that
you look at it in conjunction with doing a cash flow statement.
A detail cash flow statement so you can see before it all happens, before you
spend the money, before you borrow the money where it’s going to get paid
back and how it’s gonna get paid back et cetera and you’ve got an understanding
of the true cost of those facilities. But yet, tend to be our last resort the
overdraft if possible, but in this case we didn’t need to.
We were able to negotiate those trading terms and more favorable trading
terms and be able to help them out that way. So, there’s too many things that
we’ve been able to do to help them. Firstly, find out their break-even. Find out
where it is, at what point they start making money and, and how can we improve
that margin. And, we’re able to worked out that there was some scope for price
increasing and we were able to do that.
Now, I do have some complex modeling that can go on behind this and I do have
some really useful tools that I use to actually model this sort of thing for you.
But, it’s really about giving you a general concept today of how this works. So
the break-even as said, and then we looked at their cash flow and adjusted their
trading terms and made sure that their trading terms were working. And the
other thing that — the third point and, I guess, the factor we’re really able to help
William and Laura with was they weren’t doing anything majorly with their
website and the website part of the business.
Now, if you think historically in a business that’s quite seasonal in particular, if
it’s a quiet time, in one country or one location, because of the season or with
the weather that that’s, about then it might be actually a peak time in another
country and vice versa. So just because the physical trading conditions where
you are a one way, it doesn’t mean that, they’re that way everywhere. And so
there’s geographic considerations to think of like you know, can your product or
service to be sold to a broader market outside of your immediate area? Can it be
sold over the internet? Is it something we could market online and actually take
to a greater audience and in your typically quiet times, can we sell that item in a
busier time so in a busy time somewhere else?
So this was something with William and Laura we did work out that, that their
website was pretty well atrocious. It wasn’t a mobile friendly or it wasn’t sort of
you know, ready to do anything great with. And so we, we sort of sat down and
mapped out a strategy, a digital strategy for them whereby they could now bolt
that into their physical business and really grow and take advantage of, of the
online marketplace as well.
And that has just been and absolute game changer for them and their business
and there’s still a long way to go with it. And that we’re still brawling a lot of it
out but even the early results of just having a freshened up website and
everything sort of happening and falling in place and e-commerce systems and
things being put in to be able to mesh with the physical business so that, it can
all happen seamlessly.
It doesn’t matter where sale happens. It could be online or in a physical sense on
the walk in traffic. There’s one system that can cater for all aspects of that. So,
that’s a really important thing that they’ve been able to do as well. So William
and Laura, I’ve got to say are extremely over the moon in terms of what’s
happened, for them in terms of their business.
So I really have been able to turn that around and cash flow is starting to come
back. They’ve got a plan as well. They can sit down each month and look at what
they budgeted for. What they projected was going to happen and then with
their growth and the like and then they can actually compare to what they
actually did because with the whole thing we’ve got them doing now also is
regular financial statements.
So they actually have a bookkeeper who prepares the financial statements for
them and we have given them the tools, et cetera to analyze that data or and be
able to get some meaningful information from that data rather than just prepare
financial statements for the sake of it which we don’t wanna do because let’s
face it, accounting is boring enough.
We don’t need to be just preparing accounting numbers for the sake of it. We
want to be able to read them and get some information from them and make
informed, strategic decisions from those numbers. So there you go, William and
Laura, just some simple steps there.
We did their break-even. We looked at their cash flow. We mapped it out what it
was looking like. Where it was falling over? What we could do to ask some
questions around, what we could do to improve their cash flow. What ideas we
had that we could improve their cash flow which we came up with the adjusting
the payment terms and the customer’s terms.
And also a digital strategy in terms of being able to take advantage of the
technology and the webs, the web well, dealt with them. I don’t think that’s
technical term, but the online world where we’re able to sort of expand their
geographic location and their demographics so yeah, it’s just a win-win or
There you go; there’s some of the benefits of, I guess getting in and analyzing
your business and, working out what’s actually going on under the hood. And if
you’ve got any questions on that at all, as I say, you can always drop me a line,
[email protected] Love to hear from you and I hope that’s
given you some practical things that you can do for your business to get it
running and ticking along nicely as well. It is really like turning dials at the end of
the day, business. It’s really — you just get one dial right and then you’ll listen a
bit more, go along a bit more further and listen again and you get to adjust,
adjust another dial and it really is getting that recipe right along the way.
It’ll always change the business world is changing all the time and I have a saying
that if I was going to — if I’m gonna sail around the world, you just sort of set
your sailing boat up and then sit back and just float around the world. Your basic
— the weather conditions are changing all the time. You have to change your
rigging. You have to change your sails your spinnakers and all those.
I’m not a very nautical sort of person but that’s a good example I think of
business as well in a good analogy that you — that the business environment is
always changing and you’ve got to be changing with it. And that’s why you got to
love what you do as well, you know? You gotta be passionate about it and
dynamic and get in there and really give it a good make, produce the results that
Alrighty, well, that’s all I had time for today. Thank you so much. If you’ve
enjoyed this episode, please head over to iTunes and hit me up for a review. I
would love, love your feedback, it helps with the show. It helps the show get
found and I always love to hear if you’re enjoying the show too because, the last
thing I wanna do is produce a podcast that you’re not enjoying.
So I’m here for you and thank you so much. I’m here to help you. Just drop me a
line at [email protected] and until next week, I’m gonna
hand you over to Mia and she’s gonna take us out. Take us out, Mia. Here’s to