Case Studies - Systems
The issue
Profit margin decreasing and cannot seem to increase prices.
"My wife and I run a specialised bakery with 32 different product lines (mostly with different prices for different customers), supplying wholesalers. Our largest customer was a larger bakery. What with additional hassle from the OSH (we had an unfortunate accident) and increased wages, our costs had been rising steadily but we found it difficult to raise our prices and our gross profit margin was decreasing. Our accountant at that time did point this out but wasn't able to pinpoint why or tell us what to do about it.
A friend mentioned Nick and he came to look around the bakery and at our systems. And although we had bought Quick-Books to produce monthly reports (which we never actually got round to) that was as far as it went. Nick said that we needed to look at our different product lines and determine whether they were all sufficiently profitable and offered to help. Nick then did a costing exercise, analysing our prices and raw material and labour costs and worked out how much it cost to produce each and every one of our lines based on the actual products we had baked and the costs we had incurred over the last six months.
What Nick found was that we were making losses on at least 10 of our product lines (eight of which were sold to our largest customer) and two of our wholesaler customers, especially the fancier lines which consumed more fruit and toppings. Although we were initially disappointed we soon realised we were, for the first time ever, in a position to do something about our falling gross profit margins. We approached the two wholesalers and explained we couldn't continue to supply at the existing prices and also went and met the buyer at our large bakery customer and showed him Nick's figures. One of the wholesalers refused to budge so we stopped supplying but the other agreed a reasonable price increase. The bakery dropped two of the lines but allowed us to increase prices in stages on most of the lines, not just the ones making losses.
Following our initial success, Nick also helped us to do some research on potential additional wholesale customers and then sat down with us and drafted a detailed marketing action plan where each and every step and who was doing what, and by when, was set-out. We knew exactly what our objectives were and what we had to do.
We were stoked. Within a few months our gross profit margin had increased by over 4%, about $75,000, and for the first time in years, the number of customers were increasing, not declining, so things were really looking up!”
The result
A clever way is found to increase the profit margin and attract more customers.
The issue
Financial mess and no systems - inventories and debtors out of control.
"Although our previous accountant was preparing our books and GST returns and sent us bi-monthly reports and graphs showing our cash flow, we were in a financial mess.
We never knew what we owed our suppliers or more importantly what we were owed by our customers. Producing a statement for a customer to show how much they owed us was a real hassle and some took ages to pay us (many months or even a year overdue). We never seemed to have any cash, we didn't know what inventory we held and often promised to sell the same inventory to different customers, much to our subsequent embarrassment. We were never in a position to re-order stock in time and we were at our wit's end. Our accountant never came to see us and we couldn't pay his huge bills anyway.
The minute we met Nick he knew what to do. He bought easy-to-use accounting software for us and sat down with us to plan an implementation timetable which included importing into the software all our customer, supplier and inventory details. He set a date three months in advance to go live and then trained us on the bits that were important that we do. Not content with that, he then found us a good bookkeeper to do the difficult bits of the bookkeeping so that the bank was reconciled at each month end.
It went like clockwork. All of a sudden we could print off a list of Aged Receivables to chase, we knew exactly what to pay on the 20th and we knew exactly what inventory we were holding. We saved huge amounts of time invoicing customers (no more laborious writing out the same old details on our sales invoices) and could produce statements in a flash. We found that we had lost control of our inventory which had increased by over $100,000 (that was one reason why we had no cash). We got rid of the customers who always paid late. Lastly, at a click of the mouse we could run off a monthly Profit and Loss report which (unlike the accountants’ reports) included the AR's, the 20ths and our inventory, which told us exactly whether we were making any money.
The end result of Nick's involvement was a $150,000 reduction in our bank borrowing and a $25,000 improvement in our profits, together with a lot less stress and more time to work on the more important areas of the business - thanks Nick, you're been great!"
The result
An easy accounting system is installed, bank borrowings decrease by $150,000 and profits increase by $25,000.
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Accountancy & Business by Nick Roberts
201 Endsleigh Road, Havelock North
Accountancy & Business by Nick Roberts is a trading name of Nick Roberts Limited.