Business Analyst - June 23

Thursday, Tuesday, June March 23, 2022 1, 2022
ENTERPRENEUR
sell an existing product,
implementing smart
marketing tools, and
intelligent changes in the
product design can lead to
higher sales and increased
revenue.
Speed up recovery
function for the
accounts receivables
Making profitable sales is
not enough for the successful
running of a business. the
cash needs to be ultimately
realized for successful
operations. otherwise, there
may be actual losses behind
the profit.
For instance, if the
business profit amounts to
$2,000 and the expected bad
debt to be recorded in future
for the current period sales is
$2,200. It means there is a net
loss of $200. Hence, there is a
need to ensure the efficiency
of the collection; otherwise,
an apparent profit might be a
loss in reality. to increase the
efficiency of the collection,
the business needs to
optimize the process of credit
approval, formation of credit
policy, invoicing, following up,
and collecting the cash.
Work to enhance gross
profit (more relevant for
manufacturing business)
one of the ways to achieve
higher gross profit is by
increasing the price of the
product. However, that might
not be feasible in a
competitive economic
environment. So an alternate
approach can be to control
direct costs.
the biggest secret of
controlling direct cost lies in
the fact that if there is a
higher gross profit, the
business has space to offer
early payment discounts
while maintaining net
profitability. Hence, working
to enhance gross profitability
can be an excellent approach,
especially in manufacturing
businesses. Likewise, steps to
decrease direct costs involve
optimizing a production
facility that leads to
shortening of inventory days
and effective management of
working capital.
Product sorting for profits
(ranking for the products,
applicable in case of multiple
product portfolios)
Product sorting in terms
of higher profit is one of the
most important strategic
tools. It helps identify the
products/processes that add
maximum value in dollars.
once higher-margin products
are identified, business
resources need to be allocated
accordingly. this helps to
ensure the maximization of
business profitability.
Improve
marketing function
Some people think
marketing expense is just a
negative number in the
financial statement. However,
that’s not true in all cases,
dare I say in most cases. there
is a strong need to connect
marketing expense with sales
growth/additional revenue.
For instance, your
marketing expense for the
month amounts to $1,000,
and you’ve generated sales of
$3,000 directly as a result of
the allocated marketing
expense; that $1,000 is now
the cost of sales. It means a
return on the ad spent is
positive as you have achieved
additional sales amounting to
$3,000 and profit $2,000
($3,000-1,000) against
marketing expenses of $1,000.
the net margin is positive
and improves the business
margin.
So, why not double
marketing expenses from
$1,000 to $2,000 to achieve
even higher profitability.
However, you need to consider
other aspects of business
management like production
threshold, demand, supplies,
economies of scale (volume
discount), etc.
Additional steps to
improve working capital
management
Cash flow
forecasting
the purpose of cash flow
forecasting is to identify gaps
or surplus generated by the
business operations. If there
“The purpose of
cash flow
forecasting is to
identify gaps or
surplus generated
by the business
operations. if
there is a gap, it
helps to timely
control cash flow
or look for
external financing.
On the other
hand, if there is a
surplus, planning
can be done to
invest for
additional income.
is a gap, it helps to timely
control cash flow or look for
external financing. on the
other hand, if there is a
surplus, planning can be done
to invest for additional
income.
Send electronic
invoices to the
customers.
Electronic invoices speed
up the process of sales,
receivables, and receipts. the
delay in sending invoices
adversely impacts the
collection as there can be
extensive procedural
formalities at the customer’s
end. Hence, an electronic
invoice can lead to enhanced
collection processes.
Dynamic
discounting for the
customers
Cash discounts on the
payment of invoices can lead
to an early collection of the
funds. Although there may be
compromise on the net
profitability, you need to
balance between liquidity and
profitability. (taulia, n.d.)
Conclusion
Liquidity or cash flow
management is one of the
important aspects of
analyzing business
performance. Generally,
financial performance is
assessed with profit/loss.
However, that’s not a
comprehensive metric on
which to justify all of the
decisions of a business. there
is a need to analyze working
capital management and
ensure the working capital
cycle is completed in as short
a time as possible.
Your working capital cycle
can be shortened with certain
steps. these steps include but
are not limited to analyzing
product profitability,
optimization of the
production processes,
enhancement of the gross
profits, and improving
marketing efficiency.
Likewise, additional steps
include cash flow forecasting,
sending digital invoices,
dynamic discounting, etc.
I hope you enjoyed the
read. Hit me up and let’s keep
the conversation going! I read
all the feedback you send me.
Also, feel free to throw at me
topics you’d like to read or
hear my thoughts on.
You can always head to
my Calendly to schedule a
quick chat by going to
calendly.com
/maxwellampong. Or connect
with me your way through my
Linktree:
https://linktr.ee/themax.