Customer Segmentation

Customers are a prime focus in any business. With this in mind, you should ask yourself how much time is spent on analysing your customers? The Customer Mix is a term used to acknowledge that there are multiple classifications for your customer and as such many different requirements. To break your customer mix up into classifications is known as segmentation. The different customer segments often may attract different sales and marketing pitches but also often command different costings. Pending on how you choose to segment your customers you can track and follow product or service types sales patterns. At this point it starts getting a little crazy because there is just so much analysis and data to deal with when evaluating customer segmentation. If you imagine there are quite a few things that are driven from this one set of data. Sales behaviours, Purchasing behaviours, Advertising Channels, Product Mix, Cost Base, Internal Overhead allocation, customer service time, social media engagement.

Customer and Market Segmentation Pic

A Customer Mix analysis is quite common amongst medium and large business and is tabled religiously at executive meetings. Small and Medium business (SME)’s whilst not formally would still have a form of breaking up their customers and intuitively know of the basic breakup of the customer mix. As with a lot of other facets of business the owner/owner manager retains a lot of the knowledge base without formally documentation. This lack of documentation is a barrier to SMEs gaining accurate and detailed feedback from this or any form of analysis. Thankfully in this day and age with the advent of cloud computing and the availability of user friendly accounting this type of analysis is now readily accessible.

The first step is to find patterns within your customer base, these can be quite straight forward like demographics i.e. age, sex, location. Where it gets a little more complex is when we have combinations of these demographics drive the segmentation of customers for example the following might be classified as Playstation Warriors

• age: 24-38,
• sex: male,
• location: capital cities,
• marital status: single,
• disposable income: high,
• occupation: white collar,
• Platform: Playstation

A key determinant for these segments are Customer Value (how much customers may be worth) and Customer Needs (what your customers need and expect). In your analysis there will always be certain groups that overlap each other and a decision needs to be made whether to recede the current groups and make the requirements more tighter or to create a whole new to avoid overlapping.

Without overwhelming you simple steps are the key to gaining bite sized insights initially. Without over complicating it a recommendation of 3-5 segments will allow value to flow through from this exercise without creating an overload of information. Keeping it simple would be to segment based on location i.e. Metro, Regional and International or potentially B2C, B2B and Government. As mentioned above the key drivers are Customer Value and/or Customer Needs. If you use this as a yard stick you will find that it will give more clarity and direction when setting out to undertake this exercise. If you have been in that industry for a while it should generally come instinctively to you, however it is still a worthwhile exercise to undertake when using value and needs as a driver for the segments.

Segmentation can also be applied to products using the same drivers being value and needs. Ofcourse this is not limited to the two but for simplicity’s sake I would recommend challenging yourself. A word of caution, from the outset this appears to be a simple task though when you get stuck in the middle of it and take into consideration all the unique and one off transactions you undertake you may be poised with a little more than you anticipated. A fantastic way to get your head around where you see customer value and needs. It is strongly recommended that customers are actually consulted on their thoughts. Often there is a perceived notion by owner/managers which is not always 100% in tune with customer’s perceptions. Best to be safe and take full advantage of undertaking this exercise and maximise the insights offered to you and your business.

Happy segmenting.

What is the Significance of Cash Flows?

As owners and managers we deal with cash flow day in day out! Though do you find that you get caught up in the day to day operational activities within your business and neglect the ins and outs until it can’t be held off any longer? Sales, marketing, working in the business and a quick glance at the bank balance to make sure its not in the red.. sound familiar?We are all guilty of this and its really easy to do so. Below we take you through a technical account of cash flow.

So what is cash flow? It is simply a stream of cash inflows and cash outflows, which changes the cash account, during a specific course of a business. Cash inflows means increase money or revenues and cash outflows are the expenses of a business.

 

Cash Flows Statement

The statement of cash flows categorizes cash inflows and cash outflows into operating, investing and financing activities.

Significance of Cash Flows Statement

Taking into consideration the importance of the cash, it is not unanticipated that the statement of the cash flows has become one of the most important financial statements. The statement of cash flows gives managers, analysts, commercial lenders and investment bankers from beginning to end explanation of the changes that happened in the firm’s cash balances.
Owner-managers may use the statement of cash flows to provide evidence the cash creation by operations, and investing and financing policy.  The parties like banks (creditors), investors (owner’s or Shareholders) may use it to decide such effects the firm’s capability to increase dividends and its capacity to give debt with cash from operations. They also make a comparison of cash from financing to cash from operations activities.

Cash Flows Statement Elements

The cash flow statement start from the operating activities, followed by investing activities and then financing activities.
Cash Flows from Operating Activities:

It excludes all transactions relating to investing and financing cash transactions. The cash inflows from the operating activities include the sale of goods or services and bank interest loans. The outflows include the payment for inventory, employee’s salaries payment, and any interest expense.

Cash Flows from Investing Activities:

It is the cash inflow from the sale of, machinery, plant, and property.  The cash outflow occurred due to the purchase of property, equipment, plants and machinery.

 Cash Flows from Financing Activities:

The financing activities have relation with liabilities and owner investment in the business. The cash inflow is from the short term and long term borrowings. The cash outflow is due to the return of borrowed amount.

 

The cash flows statement has some changes in financing, investing and operating activities for the larger more corporate companies. The above information is just for the use of small and medium businesses.

3 parts of your business that suck cash?

Cash is king as the old saying goes. And boy is that a truth you live and die by as a small business owner. While there are some things that owners can do like creating buffers, frequenting online banking and utilising your credit card for extra terms. These are good behaviours and they will definitely help but when it comes down to the crunch there are three main areas that are what drive your cash flow situation.

  1. Creditor terms – negotiating and extending terms in the outset is imperative.
  2. Billing / Invoicing – clarity on your expectations of what, when, how and where to pay is always a great start. Invoices need to be raised on a timely basis.
  3. Stock / Resources – slow moving stock, bulk buying stock on promotion and purchasing assets that don’t get utilised enough to warrant a purchase or hiring full time staff when there is only a half days work to be done.

The above are what the banks and accountants use to measure your cash turnover. This is indicative on the relevance and its importance to its weight in driving your bank balance. CubedBiz bookkeeping will no matter how big or small your business. keep a close eye on your payables, receivables and stock turns.

Gazelles? Is that really what they call Small Businesses these days..

Small and medium enterprises (SMEs) are known for their growth spurts, flexibility, unique ability to adapt and adjust to any niche opportunities. As such they have been labelled as ‘gazelles’ according to Nandan (2010) in his research note from Monash University. While this is true for some a vast majority struggle with this and a major contributor is the lack of training and experience in managing a SME and lack of management accounting information. Further Nandan (2010) suggests that SMEs just as the corporate enterprises should utilise and appreciate the role of sophisticated management accounting techniques and systems to enhance the management of scarce resources and increase customers and owner-managers value.

CubedBiz is headed by a Management Accountant whom is offering this skill set to service the small and medium business community. We have adopted more advanced techniques intertwined with strategy such as

  • value chain analysis,
  • activity-based costing,
  • balanced scorecards,
  • target costing,
  • total quality management (TQM),
  • lean accounting and more.

These techniques translate strategies into key performance measures allowing financial and non-financial indicators to show what is great and needs improving.

 

Reference:

Nandan, R. (2010). Management accounting needs of SMEs and the role of professional accountants: A renewed research agenda. Journal of applied management accounting research8(1), 65-78.

Why do small business owners struggle with bookkeeping?

Business is going well… I love spending time with my customers…

Does this sound familiar? Most small business owners will delay and avoid their bookkeeping duties until the end of the week, fortnight, month and even quarter when the shoebox ships out to their accountant.

When business is going well why do we have to pay attention to the detail in our bookkeeping and not take shortcuts to focus on more important things like selling? It is better to record more rather than less detail, in order to have ‘some’ data available. Chances are in the future analysis will need to be done to identify what exactly drove the success in your business at that time. Further this can be used to magnify the success by spreading this behaviour across more of your business whether they are extending out to other products or services.

Bookkeeping is an activity that is often learned while on the job for most Small business owners. These skills are learnt in the midst of setting up your business and often only done to maintain customer billings and keeping creditors at bay. Once you start hiring staff, payroll becomes another daunting task that needs to be completed. Not to mention the Payroll Tax, PAYG and super payments that needs to be paid on top of the respective mandatory paperwork. With the added pressure of potentially creating more work by undoing then redoing coupled with the penalties associated with failing to get it right the first time.

Sounds like a lot doesn’t it? Without scaring you completely silly, many do manage to cope and others choose to have it done for them by professional bookkeepers or outsourcing the payroll functionality. There comes a time however with the multitude of scenarios you need to let someone take care of it for you. For example when your business strikes up a growth phase or an opportunity presents itself and you need all your time devoted to managing and making a success out of what is dealt to you at that time.

Accounting is often described as the language of business. In the early stages one can go without paying much attention to it. However, with growth and experience you will soon find that business decisions need to be quantified and justification via cold hard facts is what separates success and disappointments. As an owner you need to be able to read the financials of your business and read into all that it’s telling you. Simple things like keeping an up to date bank reconciliation, debtors or creditors ledger can have a great deal of influence over some behaviours  that could optimise your purchasing, allow for clarity on which customer(s) you want to promote more frequently to etc.

By having your information entered in correctly the first time allows the current and future periods to be accurately analysed and forecasted. All of a sudden you have moved from being reactive to your current state of affairs to being proactive and purposefully making decisions along with tactically setting up for a few quarters in advance.

At CubedBiz we just can’t hide the excitement and passion we feel about our services and the unlimited potential we bring to our clients. Just waiting for you to take the next step and give us the opportunity to get you off your back foot and striding forward with purpose.