Identifying cross-selling opportunities for your business

Cross-selling occurs when you sell other products or services from across your product or service range in addition to your customer’s initial inquiry.  You know that if someone buys a product or service from you, they probably also need another product or service.  So make sure you ask them, each and every time.

To help you create cross-selling opportunities within your business, go over every major product o service and ask:

  • What else can I offer the customer to go with this purchase?
  • What else could I offer that would add value and make the use of this product or service better?
  • What else, when coupled with this product or service, would help them get the most of out it?

From here you can create ‘cross-selling checklists’ for each item.  These checklists can give you guidance as to what best to suggest to customers. It should also become compulsory, a ‘performance standard’ for every single sale.  Fast food chain giant McDonalds knows full well the financial value of cross-selling!

You can even present a checklist to customers after they’ve decided on their purchase. I.e, “So that we can help you best, is it okay if we run through a quick checklist just to make sure we’ve covering everything you need?”

Another idea: Focus on cross-selling just one item every month or week.  For example, you could offer a ‘monthly or weekly special’ to every single customer every time for that month.  This item would be one of your ‘what everybody needs’ type of products or services.  Offer it with every purchase.  Be comfortable asking this question because in effect, you may be saving the customer money.  If the customer says no, it doesn’t matter.  You already have a sale in any case.  And if the customers do say no, you still know you’ve given them a better service by asking if they need anything else.

Many people will find it easier to say yes than no.  This is particularly true if the item has a low dollar cost.  And you don’t really need to increase each sale by much to have it significantly affect your profitability.  Because of that, you could offer every customer a low dollar item special.  And if you know the item is a good one, that’ll be of some value, you can feel confident that this is adding value and truly offering service.  Some people feel that adding on products or services to a sale is being a bit pushy.  However, it is vital to understand that you can only truly serve your customers if you fulfil their needs and delight them with the outcome of their purchase. 

It’s also important to note that these items would otherwise have been purchased elsewhere if the customer hadn’t been reminded.

Failing to Plan = Planning to Fail

Regardless of whether it’s a 120 page document or a 4 page ‘Action Plan,’ the point is planning is essential to the successful growth and development of your business, your team, and your long-term future.

When business owners are asked, ‘What are some of the positives about being in business?’ many reply:

Being my own boss, Independence, Financial reward, Greater income, Lifestyle and more free time, Personal satisfaction, A challenge, Building a future, Control.

When asked, “What are some of the negatives about being in business?’ many reply:

Long hours, Stress, Financial risk, Personal risk, Less time for family, Dealing with customers, No holidays, No sick pay, Feeling out of control, Staff, Full responsibility, Tax, Paperwork, Bad debts, Fighting day-to-day fires

Interestingly, the negatives always far outweigh the positives.

Staff and customers almost always land on the negative list, and many business owners also mention a sense of isolation.  This is a situation that must be reversed for you to realise your dreams within your business.  Business planning can help you do that.

Business Planning is designed to MINIMISE the NEGATIVES and MAXIMISE the POSITIVES

A Business plan is designed to help give back to you an experience of all the positive reasons why you went into business. 

The two most critical points you need to know are

  • Where you’re going
  • Where you are now

You need to establish where you’re going which involves identifying say in 2 years’ time, what you want your business to be like.  What kind of turnover, profits, number of staff, location, equipment and resources, debt levels, and so on.  Another important question is, what will you be doing? Will you be still involved on a day-to-day basis, or will you have replaced yourself with a manager? Or perhaps you plan to sell the business by that time. Regardless, what about YOU?

To gain greater clarity on these issues, this can be taken a step further.  What levels of income, profits and lifestyle would you like to achieve from your business? Once you have those issues clear in your mind, it’s time to turn back and review the business.

Now consider what turnover and profit the business needs to be doing to deliver that. What does it need to be like to fulfil your goals? So, rather than you, as the business owner, giving the business all your energy and resources, what returns would you like the business to provide?  From here, the business plan maps out HOW to achieve those goals.  That is, what strategies and ideas will be used in every area of your business to take the business from where it is now to where you want it to be in a certain period of time.  As such, a business plan can provide clarity about your future and the future of your business that most business owners lack.  This can place you ahead of your competitors as well.

A Business Plan maps out where you are now, where you want to be and the strategies to get you there.

Small Business Failure – What to watch out for

Some statistical research on the reasons why small businesses fail provides interesting results.

32.1% of small businesses fail due to poor management of financial activities. 

Not been properly funded or failing to keep a tight reign on debtors and creditors are examples of such issues.  It there’s one area that’s a weak link for most businesses, this is it!

The vast majority of business owners and managers do not have a great deal of formal financial management skills or training.  Let’s face it, not everyone is an accountant!  And often because of this, finances are not a favorite.

Further, most business owners prefer to complete the work the business does instead of fussing over the details.  As such, financial control is one of those detailed areas they often avoid.

In this instance, proper controls may not be in place, proper reports telling the owners literally how much profit (or loss) they made at the end of the day.  Or a business could experience profitable years on paper and have solid debtors; however, due to poor control of those debtors, the business remains cash poor on a day-to-day basis, making payment of creditors a juggling act.  This places the business, large or small, under financial strain.

These sorts of controls and reporting are crucial for the management of monies in and out of the business.  Without it, failure is a serious possibility.

14.6% of small businesses fail due to a lack of management competence or experience.

Business owners are often very good at doing the technical work of their business.  In this instance, a lack of experience in actually managing a business can be its downfall – being good at what a business does not not necessarily guarantee that the person will be good at managing the business. 

12.4% of small businesses fail due to inflation and economic conditions.

These are conditions affected largely bu internal government controls on currency and interest rates and by other world-wide financial mechanisms.  These conditions can also be altered by the effects of weather, or natural disasters on an area. even pandemics.  Obviously, these factors are outside your control as a business owner.

12.3% of small businesses fail due to poor books and records.

It’s staggering, don’t you think, that the seemingly small task, although a detailed one at that, of keeping good books and records of sales, expenses, etc., can literally bring about the failure of a business!  You see, keeping detailed financial figures and records can be an issue some business owners or managers avoid.  This is very dangerous too.

Operating a business without good records means you never know how much money you have in the bank, where that came from, or who and what you owe, and so on. You have to know where you stand financially at all times.  Without that, keeping your customers happy will be difficult, let alone making sure you’re profitable.

(Note: The statics mentioned in this article defines ‘small business’ as those businesses with less than 100 employees).

If you’re having problems in an area of your business, you usually CAN do something about it.  With the right help, you can get each of the above factors in order.

Strategies for improving your cash flow

Analyse your business cash flow by asking the four key cash flow questions 

  • What is my cash position?
  • How much do I need for tax and super commitments and loan repayments?
  • How much do I have available to spend?
  • Has my business improved?

There are 7 Considerations for maximising cash flow.

To maximise cash in consider:                                                               

  • Pricing 
  • Volume
  • Debtors

To maximise cash out consider:

  • Assets
  • Expenses
  • Inventory
  • Staffing
To improve your cash flow you must examine your business details to figure out what is working well and what can be improved.

ACTION PLAN

  • Highlight those areas of your business cash flow that are concerning you.
  • Use the 7 cash flow considerations to identify ways you may be able to improve your business cash flow.
  • Use your financial reports and data to explore your business cash flow and identify areas that can be improved.
  • Implement your cash flow ideas and track their progress regularly by comparing current business figures against your previous business figures to see if your business cash flow is improving and also check it against your target results.
  • Keep refining your business improvements.
Use the Business performance check in the ATO App to identify how your business is performing against other similar businesses in your industry.

Financial Performance – How do you measure it?

Previously, I discussed the cash flow statement and how making observations from comparing cash flow statements over two years can raise questions about the financial position of a business and its cash flow.  In this article the focus is on reviewing the financial performance of a business by looking at the income statement.

A very efficient way of looking at financial performance involves comparing the figures from the income statement over several years using what is known as ‘vertical analysis’.

You can generate a report with prior year periods from your accounting software or even download the information into an excel spreadsheet.   You can put as much detail into this analysis as you have available or as you believe will be useful.  However, you would clearly benefit from having more detailed lists of the different expenses such as wages and salaries, rent, electricity, stationery, insurance, motor vehicles and so on.  Whatever further details are available for your analysis will enhance the understanding that you obtain from this process.  

What will vertical analysis tell you?  The information you obtain from vertical analysis is about any changes in the relative importance of revenue and expenses items over time.  The % column is calculated using the sales revenue figure as a constant benchmark of activity for each year, so sales revenue is always 100% and all the other figures are calculated as a percentage of sales revenue for that year.

The technique can be used in any sort of business whether it is private, public or not-for-profit.

‘Ratio analysis’ is another useful tool that may add to the findings of a vertical analysis as discussed below.

Ratios are a way of combining figures from the same and sometimes different statements to uncover relationships that we believe are meaningful.  In the income statement there are many ratios that we can ‘tease’ out of the data – the list will vary depending on the nature of your business.  Common ratios used by businesses to assess performance are:

Profit as a percentage of revenue – also know as ‘profitability’ or ‘profit margin’.  The ability to turn a dollar of sales into a profit is a key requirement in any business.  The ratio tells you how much profit you are making on every dollar of revenue.

Gross profit (GP) as a percentage of sales revenue – this ‘GP margin’ is mostly revenue for businesses that sell a physical product.  It represents the extent to which the business has ‘marked up’ the cost of its basic product in order to be able to make a profit on its sale.  When examining this ratio, it’s important to look for industry benchmarks – as some industries have higher mark-ups than others!

Expense ratio – every expense can be expressed as a percentage of the sales revenue figure, telling you if its relative size has become greater or smaller and leaving you to determine the implications of this change.

EBIT (earnings before interest and tax).  This is a measure of how well the business performs its core activity, but calculated before you extract from it the mandatory costs of having debt (i.e. interest) and paying tax.

The focus of these measurements is on the efficient use of resources to generate sales, as well as how well assets con be converted into cash.

The Cash Flow Statement – How it can help you understand Cash Flow

Financial reports can provide valuable information as to how your business has performed over a given period, its financial stability and its cash position.

Accountants tend to refer to financial reports as ‘statements’ and the formal accounting reports comprise three core financial statements.

  • the balance sheet (sometimes referred to as the statement of financial position);
  • the income statement (sometimes referred to as the profit and loss statement);
  • the cash flow statement

These three statements are a set and are all needed for the full story.  Therefore, to read one or two without their companion reports is a mistake.  All three contain different information and, together, tell the full story of the:

  • financial position (balance sheet);
  • financial performance (income statement); and
  • cash management (balance sheet and cash flow statement)

for the same trading period.

Having an understanding of accounting is vital to business success

The cash flow statement tells how the business used and generated its most important asset – cash.  Cash management is just as important as being able to generate profit.  The cash flow statement tells the story of cash in and cash out of the business under three separate sub-headings.

Cash flow from operations (trading or carrying out the core business including managing accounts receivable and payable and inventory).

Cash flow from investing (buying and selling non-current assets (e.g. building new premises or selling equipment)).

Cash flow from financing activities (raising or repaying equity or long-term debt).

The cash flow statement can be examined in isolation but it’s also good to compare the cash flow statements across the two years.  The observations can trigger questions like:

Why is cash flow decreasing?

Are the new assets contributing to the operating capacity of the business?

Sometimes a business may pay off long term debt but then end up with an overdraft and overdrafts are generally a more expensive form of debt than a loan facility.

A business owner should observe and perform these sorts of analysis to learn more about what is going on in their business from a financial perspective.

Price – Is it Really an Issue?

There are just so many other issues involved in a purchase decision that it’s naive to think price really is the driving factor for all customers and potential customers.  Instead it’s simply another significant element of your marketing and must be considered as that – a part of your marketing whole, rather than the beginning and the end!

What do you you look for when you shop?

First and foremost, you’re probably looking for something that solves a need or a problem you might have.  Something that offers good quality could be important, too.  Ideally,you’d probably want to buy from a business where you receive excellent service.  Value for money and price could be important, warranties, delivery times, how you pay and much much more.  These are just some of the items that could be important to you as a customer.

It’s easy to see that most people never shop on price alone.

In the search for some answers, one survey found that when people where asked why they choose not to deal with a business or to leave a business and go to a competitor, 68% said ‘Perceived Indifference’.  This is when customers or potential customers feel you or your team members are indifferent toward them.  Indifferent meaning they’re given the impression you couldn’t care less if they purchased from you or not.

It is obvious that some industries are more price-sensitive than others and it may therefore vary for your business.  But it’s critical to remember that in every walk of life all over the world, people really do purchase along these lines. 

Focusing on customer service, improving what it is you do, doing something out of the box or different, and offering genuine advice on how a product or service will make a difference in a customer’s life – rather than just price – will increase your sales.

Customers who feel they’ve been served well, received value for money, and got good service will often buy a product or service without overly considering the price.  Contact Metta from Align Business Life Coaching to find out more.   Get your business earning you more money today.

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