Posts

You’ve got a fabulous idea for a new business but are unsure about which business model you should work with. We take a look at B2B vs B2C to help you decide if selling to customers is right for you, or you’d prefer to sell directly to other businesses instead.

What Are the Differences in Selling B2B vs B2C?

You are in business to sell your products or services and make a profit. You’ve got two choices when doing so: sell to the consumers who are the general public or sell to other businesses who will either resell your products or use them to make their products.

Depending on the products you sell, this decision may already have been taken away from you. For instance, if you sell pulp for papermaking, you are most likely going to sell to another business who can turn that pulp into paper. If you sell baby clothes though, you’re probably going to sell directly to your customers.

Let’s take a look at the main differences between both of these business models.

B2B or Business to Business model:

  • selling your product or service directly to another business
  • often requires large product quantities delivered on a set date
  • requires a long-term relationship between you and your buyers
  • involves more people in the buying decision and process
  • possibly selling your product at a lower price than a consumer would pay for it
  • less of a lead pool to grow to purchase your product or service
  • requires in-depth knowledge about and sharing of your product or service
  • a more complex and involved selling process
  • payments are often received a month or later after product/service delivery

B2C or Business to Consumer model:

  • selling product or service directly to individual customers
  • wide lead pool to target and sell to
  • top price for your product/service paid by the customer
  • small quantities sold at a time
  • fewer people involved in the buying process
  • short relationship with customers
  • customers interested in benefit to themselves
  • instant payment upon purchase
  • easier to sell to individual customers than large corporations

As to which path your business should take, it comes down to whether it would work for what you sell and if you are happy to sell that way. Remember though, that both business models will still require the standard business considerations: a website, good bookkeeping and financial management, a business plan, cashflow management and outsourcing. The good news is, we can help you with all of those! Get in touch with our team today to arrange a chat about your business and how we can help.

For many small businesses, the best way to increase profitability is to increase turnover, as there’s no limit to sales but there is a limit to how much you can reduce your costs.

Let’s look at how you can focus on each of the five ways in our profit increase calculator to achieve your goal of improving profits.

Increase Your Leads

By interacting with greater numbers of people, you’ll increase your chances of turning more consumers into customers – or at the very least, having them lead you to potential customers.

For example, if you own a convenience store and you can come up with some attractive signage out front to get more people into your store, you’ll increase your leads.

So what can you do to increase leads or make more people aware of your business? A few tactics you might consider using to increase your leads include:

  • Advertising – set a budget and increase how much your business is promoted.
  • Direct marketing – work out your target audience and market directly to them via email.
  • Network – attend industry events and conferences to meet potential customers. These may be moved online for the meantime.
  • Create a website – to open online and international opportunities.
  • Develop new distribution channels – think about using agents, licensing your goods, or using new distributors.

Convert More of Your Leads into Customers

How many potential customers walk out of your store, leave your website, or inquire about your services without making a purchase?

Just imagine if you could convert 10% of those people into customers. How many extra sales per day would that be?

A few tactics you might consider using to convert more leads into customers include:

  • Arrange training for employees – on sales conversion and sales closing methods.
  • Personally attending a sales training course.
  • Running demonstrations – for potential customers to see what you have to offer and how they could benefit.
  • Highlighting the benefits of your goods or services – through promotional material, your website, blog advice, social media platforms, and free trial offers.
  • Preparing incentives – for your staff to offer to potential customers, hopefully encouraging them to purchase.

Increase the Number of Items You Sell per Customer

If you can entice your customers to buy just one more item from your business each year, your sales (and hopefully your profits) will increase.

A few tactics you might think about using to increase the number of items you sell to each customer include:

  • Widening your product range – by asking customers what else they would be interested in buying from you.
  • Bundling products and services together – like adding after-sales help to certain products.
  • Increasing capacity and capability – for example, purchasing extra equipment to increase your capacity while hiring additional staff to enhance your capability.
  • Researching your competitors’ offerings – to find product or service opportunities.

Increase Your Average Sale Value

Can you come up with some ways of increasing the average value of each sale you make? Rather than hiking up prices, see if you can increase prices by small margins (like 1-3%) or find ways to sell higher-priced items more often.

A few tactics you might think about using to increase your average sale include:

  • Training your staff – so they’re confident offering complementary items and upselling more expensive goods.
  • Increasing prices across the board – would your customers notice a small price increase? Consider informing them and trying it, as the extra money will go towards your bottom line.
  • Advertising your higher-valued products or services more often.
  • Developing a premium product or service – and encouraging your regulars to go for it.

Increase Net Profit Percentage

A few tactics you might try to increase your net profit percentage include:

  • Identifying and monitoring your top five expenses in your budget reports.
  • Finding out where you can make savings and reduce costs.
  • Concentrating on higher-margin services or products.
  • Looking into alternative suppliers with cheaper supplies.

Review these five ways of increasing your profits at least every year. In the meantime, plug some figures into our profit increase calculator to test what you could change and the effects of those changes on your profit.

By using simple, practical steps, you can improve your business’s profitability. Chat to us to find out more. Click here to book a free chat with an MBP Business Partner.

Have you given any thought to which business structure is right for your business? We’ll be honest and admits it’s not usually the first thing that comes to people’s minds when starting or buying a business. However, the way that you structure your business plays a significant role in how it functions down the track.

In NZ, there are three common business structures, along with some which are not so common. We’re sticking with the most common of these structures today, though if you think another type would be better for your business, get in touch and we’ll help you sort it out.

The three most common NZ business structures are:

  • Sole trader
  • Partnership
  • Limited liability company

To help you decide which one you should choose, we’ll work through them individually.

Understanding the Sole Trader Business Structure

A sole trader structure involves only one person: you. It is the simplest structure in which you are the only individual who is liable for every part of your business. This doesn’t mean that you have to do it all alone as you can hire employees to help you run it. You’ll just need to register yourself as an employer with the IRD and meet the required obligations.

As a sole trader, you use your IRD number for tax purposes, filling in a personal tax return. You can claim expenses to lower the amount of tax you pay and generally, any business losses can be offset against any other personal income. Trading under your own name is fine, as the operational life of this business structure simply depends on you.

The advantages of choosing to become a sole trader include:

  • it is quick to set up with no red tape
  • there are no legal fees to pay during the establishment phase
  • you receive all the profits
  • you’ll have total control of the entire business
  • no business name registration is required
  • you can change your business structure easily in the future

Downsides to being a sole trader are:

  • you are completely responsible for all debts and claims
  • your assets can be at put at risk
  • harder to get finance should you need it
  • more difficult to sell as a working business
  • can be harder to grow a business using this structure
  • there are no shares to sell to raise capital
  • you are responsible for your KiwiSaver contributions

For further advice and information about this business type, get in touch.

Understanding the Partnership Business Structure

The partnership structure is often used by two or more professional individuals who already have experience in running a business. There are no rules regarding how much each partner can own, meaning an uneven split of 95% to 5% is acceptable. What does happen though, is the profits you receive and amount of work you are required to do often depends on the ownership percentage.

Instead of the partnership paying tax, each of the partners themselves is responsible for paying tax based upon the profit share they receive. To avoid problems, it is seriously recommended that there is a legally drawn partnership agreement which sets out all the details on how the partnership will be run.

The pros of choosing a partnership business structure include:

  • everyone shares costs and responsibility
  • relatively simple and low cost to run
  • each partner can focus on their specialities
  • you can offset losses against your other income
  • partners can bring in capital investment to the business
  • the running tasks of operating a business are shared

The cons of choosing a partnership can include:

  • each partner has an equal share in the business’ liabilities and debts
  • you need to make decisions with your partners
  • disagreements amongst partners are common
  • you can’t sell shares
  • you are responsible for your KiwiSaver contributions

To discuss if this structure is right for your business, get in touch with us.

Understanding the Limited Liability Company Structure

Commonly referred to as a company, a business with this structure is separate from the business owners. In other words, a company is a separate legal entity.  Any money earned will belong to the company and will pay its tax at the corporate tax rate. The shareholders then receive the profit from the company, who then individually pay income tax on this.

The shareholders, AKA the business owners, have less exposure to any financial or legal issues relating to the business.  So, while the company has full responsibility for all its own financial and legal obligations, the liability of the shareholders is less. This means a shareholder is only responsible for any personal guarantees they have given and losses to the dollar amount of their shares.

The advantages of choosing a company business structure include:

  • less personal responsibility for business debts and liabilities
  • easy to sell or pass on ownership
  • shareholder profit distributes are flexible
  • lower tax rate than top personal rats
  • easier to get funding approved
  • seen as a highly credible business structure by the market
  • easy to keep growing

The downsides include:

  • more red tape and paperwork to do
  • need to register business through the Companies Office
  • more time consuming to get up and running
  • higher establishment and compliance costs
  • often require more investment to grow
  • you are responsible for your KiwiSaver contributions

It is important to note, that the limited liability company is only one of three company structures. It is the most common one though. Others include co-operative companies and unlimited companies. To discuss which company structure is best for you, get in touch with us today.

Where to Next When Choosing a Business Structure?

While there is a simple tool available on the MBIE website to help select a business structure, there is no substitute for personal advice. As accountants and business advisors, we deal with these structures daily, putting us in the best position to help you make an informed decision. To make a time to discuss your business with one of our business advisors, book your free 30 minutes chat with us via our website now.

We’ve heard this before: the COVID-19 pandemic is an unprecedented global health and financial crisis that has caught many off guard. While the threats to human life are very real, the damage to the health of businesses is really just starting to show. In the coming weeks and months, many businesses will be in a fight for financial survival.

The seriousness of the disease and the lack of a vaccine (at the time of writing this) have prompted governments around the world to impose strict measures to contain the virus. These restrictions in people’s movements and the temporary lockdown of non-essential services have definitely taken a toll on businesses and families across the country.

While there has been a lot of talk on how to avoid contracting the virus and how businesses can operate safely to adapt to the current conditions, this article will focus on helping you manage the financial survival aspects of your business during COVID-19. Read on for our tips on cushioning the impact on your business.

Update Your Financial Records.

The first step in planning your financial survival in such a difficult environment is getting a crystal clear and up to date understanding of the financial position of your business. This means updating your financial records and keeping them in order as frequently as possible. Knowing things such as your cash position and assets that can be sold quickly will go a long way in helping you make informed business decisions. Good records build a solid foundation for a successful business. They’re also really important when applying for loans or government grants, subsidies and assistance.

Examine the Financial Health of Your Business.

Following on from the first item, it is important to get a good grasp of your business’ current financial health through a careful analysis of your books and statements. By looking at key financial figures, you will get an idea of how your business is doing. You can see fundamental factors such as the liquidity and solvency of your business which will help you decide on the best steps forward as you deal with the crisis and the aftermath. Chat to us for help with these financial pieces.

Improve your Cashflow.

A lot of businesses across the country are facing cash flow problems at the moment. If you are one of them, you’re certainly not alone. However, the key here is not letting the problem worsen or become unmanageable.

Preparing a cashflow forecast should give you some forewarning before issues even arise and will allow you to address them early on. By quantifying your forward bookings, forward orders, and work in progress, you will get to identify future cash flow and plan accordingly.

You can also take the following measures to boost your cash flow:

  • Identifying the demand for your products or services, so you’ll know where to focus on and where you can reduce stock orders
  • Cutting back on unnecessary expenses
  • Urging your debtors to pay you, negotiating on a payment scheme that will work for both of you
  • Seeking payment extensions or debt re-structuring
  • Invoicing as soon as you deliver the product or service
  • Seeking external investors or lenders
  • Taking advantage of financial support from your government

Increase Online Sales Where Possible.

With the government implementing stricter restrictions to prevent the further spread of the virus, you should find ways to move your products and services online – if you can – and continue to serve existing and new clients. The situation that we are in is forcing business owners to re-imagine their business and re-evaluate their business models. You’ve got to adapt and be resilient. It’s those businesses that will survive.

Survive 2020 by Managing Your Financials

It’s safe to say not many of us factored a global pandemic into our 2020 business plans. Although there is no foolproof strategy to get through what’s proving to be a turbulent 2020, the tips for financial survival shared here should be able to give you some guidance on minimising the risks to your small business.

Want some more help? Our team of advisors love to help businesses. We’ll help you develop a plan to weather the headwinds of the coming months, while saving you time and money along the way. Contact us today and we’ll work through it together.

At a time like this, money is tight for pretty much every business. Cutting costs can be a quick and easy way to improve the profitability of your business. Introducing well thought out cost saving tactics can bring immediate savings and ensure you remain profitable in the short term.

But it’s important that cost-control measures are carefully managed. Eliminating errant expenses is clearly beneficial, but indiscriminate cost-cutting could lead to a drop in quality, or poor morale if staff fear being made redundant or are not given the tools they need to do their job efficiently.

This risk is heavily reduced by identifying where you can safely trim costs, setting clear cost-reduction targets, and researching any cost saving tactics before making changes to your business.

Planning Effective Cost Saving Tactics

The first step towards reducing costs is identifying your major cost areas. These are likely to include:

  • Production
  • Purchasing
  • Sales and marketing
  • Financing
  • Administration
  • Facilities maintenance.

Start by assessing your profit and loss statement for the last six months and rank all your expenses from highest to lowest, working your way down the list and identifying areas where you can reduce costs. It’s a good idea to first focus on identifying cost-saving measures in areas where you’ll see the biggest return. For example, it’s smart to work toward saving 5% on a $200,000 expense rather than a slightly higher percentage on a lower-cost expense.

Trial New Ideas

You might find it’s difficult to anticipate savings without actually implementing new systems and processes. Remember that any changes you make don’t need to be permanent. If you aren’t sure if a cost-saving measure is suitable for your business, consider trying it for a few months then assessing the results. This way, you’ll soon get an idea of the real cost savings without having to commit long-term to new processes or changes.

Any new processes or systems should be benchmarked and frequently revisited to ensure they are still suitable for your business. Consider asking staff for feedback around any changes to make sure there are no hidden problems that could be costing you more than the cost-saving value.

If you are in doubt about any potential changes, ask an advisor. We are more than happy to chat through this with you.

Quick Savings

You might be surprised to find that significant savings can be made without having to worry about your quality and affecting performance. Here are the most popular ways to trim costs without making radical changes.

  • Eliminate unnecessary costs – start with waste reduction, heating costs, and utility charges.
  • Reduce inefficiency by identifying manual tasks that could be sped up with technology or completed less frequently.
  • Avoid frequent, small orders that cost more than larger orders and take additional time to complete.
  • Reduce travel expenses by booking air travel earlier and using cheaper accommodation on business trips.
  • Find alternatives to high-priced suppliers or negotiate better payment terms or discounts on purchased goods.
  • Revise your credit policies to encourage prompt payment.
  • Brainstorm quick cost savings with your staff – they might have some useful suggestions you may have overlooked.

Significant Savings

Once you have identified your major cost areas, you may want to investigate potential ways to save money by changing existing processes.

Some of the most common opportunities are listed below, but before adopting any changes you should be aware of any potential damage to your core business activities.

  • Cut payroll costs by outsourcing non-essential activities.
  • Redesign your existing processes to eliminate duplication, and cut time wastage.
  • Make use of current technology, or latest industry thinking.
  • Agree to long-term supply contracts, or guarantee a minimum purchase amount to secure better terms.
  • Trim back or revise your current product offering and remove poor-performing products.
  • Form strategic alliances with other businesses to buy larger volumes.
  • Consider subletting office space, or relocating to a more cost-efficient location.

There may also be other costs such as long-term, fixed-rate business loans or fixed-price contracts for raw materials that you may be able to reduce when these are up for renewal or tender.

Pitfalls to Avoid

Reducing costs can have a negative effect, so you’ll need to be sure that changes will not compromise your operational performance.

Some common pitfalls include:

  • Over-dependence on one supplier could put you at risk if your supplier fails.
  • Reducing your marketing budget could affect your marketing strategy.
  • Tighter control of business finances could leave you without a safety margin if cash flow becomes tight.
  • Cutting short-term costs such as training, research, and development, or advertising can lead to long-term weaknesses.

Employee Costs

Reducing employee-related costs is generally risky and counterproductive in the long-term. Reducing costs such as staff training or meeting times could lead to poor staff morale and reduced productivity.

Changing an employee’s terms and conditions can also create legal issues in some circumstances, so it’s always a good idea to get expert advice before making a decision. Making employees redundant could bring short-term costs and the risk of possible employment proceedings. It may also contribute to low morale.

These problems can be reduced by maintaining clear communication with employees. Introducing cost saving through improved practices and procedures will require a degree of employee ‘buy-in’ so it’s important your employees are aware of why you are making changes. Employees may need additional training and support over these periods.

Next Steps

  • Schedule a staff meeting to review your costs and brainstorm possible saving measures.
  • Commit to an ongoing cost-control and monitoring process (or delegate to key staff to manage the process).
  • Ask our advisors to assist you with cost-saving initiatives or brainstorm ideas.

Please get in touch with us to find out how we can help you to identify and implement some cost saving tactics. Click Here to book a free chat with an MBP Business Partner.