For any business that involves a level of seasonality, gaining a clear picture of profitability month by month can be challenging, given the peaks and troughs in demand. For this eCommerce floristry business, pre-orders for key calendar dates, such as Valentine’s Day and Mother’s Day, gave the illusion that the company was cash rich, but money in the bank at any given time is not always an indicator of profitability.
When the eCommerce floristry business originally approached Champion, they were seeking support with their statutory financial reporting requirements, to ensure their VAT returns were compliant. However, as our team began to analyse the client’s accounting processes from a strategic perspective, it became clear that the company was failing to consider financial risk and resilience and was not operating as efficiently as it could, so we were proactive in offering them our advice.
Orders for special occasions were often being placed several weeks ahead of time, generating a lot of revenue but the florist was a front-loaded business and that cost still had to come out. Moreover, stock was procured much closer to the order delivery date, due to the perishable nature of the product, which meant that the company could not control the purchase price of the flowers it had already sold. There was a need to forecast future overheads more accurately, as well as recognising the disparity between income and profit.
After drilling down into the company’s accounting processes and operational model, we were able to identify where sales success and incoming revenue were being misinterpreted as profitability. It was clear that they needed to define a break-even point for each transaction and consider how to improve profitability by cutting waste. For example, it had become standard practice for them to over order certain blooms to enable improved choice and underpin quality when making up bouquets. While this level of waste could be absorbed during quieter periods, at peak times, the amount of over-ordering – and therefore waste – grew exponentially and had not been factored into their pricing. As a result, they were paying a premium at peak times for large volumes of flowers that would go to waste, and we were able to help them recognise how this was eating into potential profit.
The business was so impressed with our advisory support, that it tasked our team with taking on its management accounts and year-end accounts. Our input helped the florist to identify a wealth of efficiencies that could be made, enabling the eCommerce business to keep a much tighter check on overheads and profitability, so that its success in terms of winning orders was reflected on its balance sheet.
Implementing greater controls saw the business move into a stable position quickly, strengthened their relationships with suppliers, reduced wasteful spending and created a more credible brand in a competitive market.
Josh Morris, head of management accounts at Champion Group, said: “Thanks to our management accounts service, the client was able to establish an accurate break-even point, taking into account rises in stock costs at key times of the year. They were able to put measures in place to achieve predictable overheads and reliable margins, aligning procurement requirements to achievable sales targets, thereby cutting expensive waste and putting them in a much better position to negotiate better prices with suppliers.
“We developed a really strong, candid relationship with the eCommerce business throughout our consultancy, adding value for the client and providing them with insights that enabled them to make beneficial changes. In this way, our involvement became a catalyst for improved business practice and meant the florist could grow their business successfully.”