McDermott Financial Solutions | What’s the impact of being one percent better?
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What’s the impact of being one percent better?

Kaizen is the Japanese word for gradual continuous improvement. It simply means change for better. So, how does this apply to you and your business?

As you begin to make plans for 2018, I’d like to challenge you to commit to making a series of 1% gradual continuous improvements in your business across the board.

For example, what if you were able:

  • to raise prices or increase volume by one percent?
  • to decrease cost of sales/goods sold by one percent?
  • to reduce operating expenses by one percent?
  • to collect your receivables 1 days faster or pay your accounts 1 days slower?

What would the cumulative effect be on your business?

Let’s pretend you have a business that looks like this:

On the balance sheet, you can make the same impact on your cash position in the business.It’s amazing to see how a 1% change in your business can impact your net profit in such a dramatic way. As you know you have two ways to make improvements in revenue by either raising prices or increasing volume. The greatest impact to your net profit/cash flow comes from improvements in revenue and to a slight lesser degree cost of sales and operating expenses.

Hopefully, you now see the power of Kaizen and how small 1% changes can have a huge impact on your profitability and cash position. If you’d like to discuss this more with one of our profitability coaches, please get in touch.By collecting your AR one day faster, you can impact your cash position by almost $14,000. In a similar way, you can impact cash by paying one day slower by over $8,000. That’s a $22,000 cumulative difference. While I’m not recommending you pay outside terms to your vendors. There’s no benefit to paying early if your terms are net 30 days unless your vendor offers a discount.

 

 

Bill McDermott
bmcdermott@mcdfs.com
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