Well, we’re into a new financial year and many of us I’m sure are hoping this next one is going to be better. So what can we learn from last years figures and how can we use that to improve our results. We can’t improve what we don’t measure… but what should we measure? Every business is different however there are some standards that everyone needs to understand and keep a regular eye on… let’s explore a few…
The first and most obvious is of course the Profit & Loss or what I believe many more appropriately call, the Income & Expenditure statement. On it’s own it tells us how we are travelling and if set up correctly will highlight our overall profit margins on the goods or services we provide. I like to compare the last month with the year to date totals using a % comparison to the turnover to quickly highlight recent trends which gives us more opportunity to correct things going forward…. for example it could highlight that wages are blowing out unnecessarily. Something I often find is that many business owners don’t really understand their Balance Sheet, and I get asked the question … where is the Profit? A simple explanation showing the changes on it leaves most relieved with a better understanding of something not normally discussed with them or explained that well.
Do you know your Margins, and Mark Ups… what is the difference you might ask? A Margin is a % of your Turnover, whilst a Mark Up is a percentage added to your purchase cost. The $ figures is essentially the same but the % is based on different numbers and therefore different. Try some sums and see what happens.
How well do you budget, or plan for each months income and expenditure targets. A simple exercise like this can help keep a lid on spending as well as higlighting potential challenges that could be overcome if the budgetted figures (or goals) are adjusted.
Next is your cashflow which needs to be forecasted for the next quarter at least. Often this can help you manage your finances ahead of predicatable low times. Using a simple spreadsheet I show my clients how to make this a little more scientific than just a gut feeling.
All of this information will help you calculate your “Breakeven” point, or when it is each month that you start making money for yourself, rather than the taxman, your suppliers and employees and everyone else that want’s a slice of you.
There are many more numbers to know about, but let’s look at those next time…just remember, you can “turbocharge your business systematically”… take it one step at a time and make sure you complete these steps first.