All seven, at one per cent each

$97,200 on a $444,000 profit is an increase of 21.9%, from seven changes nobody in the business would notice individually.

Capacity throughout assumes 1.5 times cover, a 9% assessment rate and a seven year term. Change any of those three and the column changes with them.

Lever 1 of 7

Price

Every dollar of a price rise reaches the bottom line, because nothing about producing the goods changed.

What to actually do

• Take the ten customers you would be least sorry to lose and move them first. You will learn more from that than from any amount of modelling.
• Put the rise in writing with a date on it, rather than mentioning it. A quoted increase gets negotiated; a scheduled one gets absorbed.
• Check what you have not repriced since 2023. There is almost always one line that has been carried at an old rate because nobody looked.

How a lender reads it

A price rise that holds is the strongest thing a set of accounts can show, because it evidences pricing power a credit team cannot otherwise test. The version that reads badly is a rise followed by falling revenue and a flat margin, which says the market did not wear it.

Lever 2 of 7

Volume

Extra sales arrive carrying the cost of producing them, so you keep the margin rather than the revenue.

What to actually do

• Before chasing volume, work out what a ten per cent increase would absorb in debtors and stock. On this business it is $61,838 of cash you will not see this year.
• If you are growing and expect to borrow, have the borrowing conversation first, while the numbers still look calm.
• Grow the margin before growing the volume. Growing a thin margin quickly is how businesses get into trouble that looks like success.

How a lender reads it

Growth lifts capacity because capacity follows earnings. It can worsen the position that gets you the money at the same time: rapid growth with stretching debtor days and a drawn overdraft is a recognisable and unwelcome pattern, and it looks identical whether the business underneath is excellent or in trouble.

Lever 3 of 7

Cost of sales

The largest number in the business after revenue, and the one that gets the least attention.

What to actually do

• Put your cost of sales percentage against the ATO published range for your industry and turnover band before you negotiate anything. It takes an afternoon.
• If you sit inside the range, this is probably not where your next $100,000 is, and you have saved yourself a quarter of arguing with suppliers.
• If you sit outside it, take the three largest input lines and get one alternative quote each. Not to switch. To know.

How a lender reads it

A gross margin that improves and stays improved reads almost as well as a price rise, and often is one wearing different clothes. What gets tested is whether it holds: one good year with two ordinary ones behind it is treated as a good year rather than a new level.

Lever 4 of 7

Overheads

The smallest of the four earnings levers, and the first one every owner reaches for.

What to actually do

• Review one line a month rather than all of them in one week every February. Twelve lines looked at properly beats forty looked at badly.
• For each line ask three questions: what is this for, who decided, and would we buy it again today at this price.
• Do not remove a genuinely personal cost the year before you apply for finance. Identify it and evidence it instead. See the note below.

How a lender reads it

A credit team going through your overheads is doing two things at once: assessing the cost base, and looking for costs that are really the owner's lifestyle, because those are add-backs and add-backs raise the earnings the facility is sized on. A discretionary cost identified and evidenced is worth more to you than one quietly removed, because a removed cost is one the accounts no longer explain.

Lever 5 of 7

Debtor days

Real cash, released once, and it moves what you can borrow by nothing at all.

What to actually do

• Age the ledger and look at the tail beyond 90 days before anything else. That is the part a lender discounts out of the security position entirely.
• Ring, do not email. The businesses that collect fastest are the ones where somebody has the job of ringing.
• Before taking an invoice facility, work out what the ledger would release if it were simply run properly. Both sums take an afternoon.

How a lender reads it

The debtor book is read closely, and not for its size. What gets attention is the ageing profile and the concentration. A ledger mostly inside terms reads as a business with systems. One customer at forty per cent of the ledger is a different risk to forty at one per cent each, whatever the total says.

Lever 6 of 7

Stock and work in progress

Money buried where nobody looks, because it appears on no report an owner routinely reads.

What to actually do

• Identify what has not moved in twelve months and decide about it. Carrying dead stock at cost inflates the balance sheet without supporting anything.
• For a service business, the same money sits in work in progress: jobs done and not yet invoiced. It is usually worse, because at least stock is visible when you walk past it.
• Invoice weekly rather than monthly. It is the cheapest change on this entire list.

How a lender reads it

Stock is read sceptically and the question is always how much would actually sell. A business that writes down dead stock usually presents better than one carrying it, even though the write-down reduces the reported result. Work in progress is read harder still, because it is the line most easily used to make a year look better than it was.

Lever 7 of 7

Creditor days

The only lever that costs nothing to pull and can cost a great deal to get wrong.

What to actually do

• Check whether you are paying on the terms you actually agreed. A surprising number of businesses pay 30-day invoices in seven because that is how the run was set up.
• Move to agreed terms, and stop there. That costs nothing and offends nobody.
• Do not stretch beyond terms to fund the business. Suppliers talk to each other, and the ones who matter are the ones who can hurt you by withdrawing terms.

How a lender reads it

One of the most closely read numbers in a file, and the wrong direction is unmistakable. A creditor balance stretching against flat revenue says the business is funding itself from its suppliers, which is the cheapest and least stable credit there is. ATO debt sits in the same category and is read more harshly, because an arrangement is a matter of record.

What it was all for

The same business, the same request, before and after

This business wants a facility of $900,000. It already carries $180,000 a year of commitments. The offer is at 7.5%, it will be assessed at 9% over 7 years, and the cover requirement is 1.50x. Nothing about the request changes between the two columns. The only thing that changes is one per cent on seven levers.

The first ninety days

A document nobody acts on is a document nobody needed. This is the order we would go in, and none of it requires anyone’s permission.

Week one

Write down the seven numbers for your own business. Revenue, cost of sales percentage, overheads, and the three day counts. If you cannot get the day counts in an hour, that is itself the finding.

Week two

Price one day and one per cent of each, using the arithmetic on each page. You are looking for which lever is worth the most to you, which is not the same as which is worth the most here.

Weeks three and four

Pick the price move and put a date on it. It is the largest lever in almost every business and the one most likely to be postponed indefinitely.

Month two

Age the debtor ledger and deal with the tail. This is the fastest cash in the document and it needs nobody's approval.

Month three

Put your cost of sales against the published industry range, and start the one-line-a-month overhead review. Then book the same review again for next quarter.

What we can and cannot tell you

Andorra Advisory Group is a commercial finance brokerage and advisory practice. We build the analysis and the documents, and we arrange the facility where you want us to. Nicholas Clunes: Credit Representative Number 530711 is authorised under Australian Credit Licence Number 387856. The advisory fee is fixed, quoted before the work starts, and payable regardless of whether finance is approved or what the analysis concludes. Where a lender pays commission on a facility it is paid to The Lending Lab Pty Ltd; it is not payable on every transaction and the amount is not ascertainable at the time of quoting. You are free to take the analysis to any broker or lender you like, at the same fee.

So no lender is named anywhere in this document and no policy is quoted. The capacity and cover figures assume 1.5 times cover, a 9% assessment rate and a seven year term, stated rather than hidden, because the same earnings support very different facilities across ordinary settings. We give no taxation advice, no legal advice and no financial product advice, and we provide no audit or assurance services.

The one input none of this supplies is what your market will bear. The arithmetic tells you what a price rise is worth and how much volume it could afford to lose before it stops being worth having. Whether your customers would go is the question the whole first lever turns on, and it is yours.

General information only. Indicative, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria.