Are you regularly reviewing your figures?
For small businesses it is really important for business owners to understand the figures. By reviewing your information regularly (at least on a monthly basis) means you can adapt quickly if necessary.
Lets have a look at some of the things you should be looking at:
Keep records up to date
In order to have accurate figures you need to make sure you are up to date with your bookkeeping so that the information is current.
If you're 6-9 months behind on bookkeeping you will not have any idea what the current position of the business is.
Can you answer these questions:
What are your sales so far this year?
What is your estimated profit so far this year?
Are these up/down/the same as this time last year? Do you know why?
If you cannot answer these starting questions the first action you need to take is to get your records up to date. If its time then consider hiring a bookkeeper or using accounting software which will help automate a lot of the bookkeeping processes.
Did you have a lot of year end adjustments from your accountant last year? If so, were these a result of doing something wrong or just missed them? Then it may be worth finding out to see if you should be changing how you are doing things so that your figures are as accurate as possible.
Take the time to review
I understand that when you are busy the finances are the last thing you want to think about. However, it is really important to take some time to look over whats happened over the last month as this can impact your business in the future.
If you use an accounting software system then many have reports at a click of a button - such as profit and loss account, balance sheet, debtors and creditors reports so will save you lots of time.
Think about setting a budget
Budgets are a great tool for business owners to sit down and decide where you see the business going over the next 12 months.
This can be as detailed as you like but in order for them to be of value they should be worked through carefully to make sure they are realistic.
Some starting points to think about:
Do you want to grow this year?
Do you want to earn a certain amount?
Do you want to increase profit?
When you have a starting point of what you want to achieve in the next 12 months then the next thing to think about is how will you be able to achieve this.
Will you need to advertise?
Do you need to take on more staff?
A new machine?
Get rid of loss making/low profit contracts/products and focus on generating more higher profit jobs.
By taking the time to document what your goals for the next 12 months are will give you something to review your actual figures to. It will allow you to see whether you are meeting your goals and if not why not?
Have a look at your sales
Sales will be one of the most important numbers to review as this is the core of your business and without them you will not be able to cover your overheads.
Some things to consider:
How are you doing in comparison to prior months, quarters, years?
If you have separate products or services do you know what % of each makes up overall sales?
Is your pricing right?
Have you looked at what your competitors are doing recently?
Review your gross profit margin
Gross profit is the profit on your product or service after you've taken into account your direct selling costs but before your fixed costs (overheads).
If you're a product business you may aim to make 50% gross profit on your sales (i.e. you sell it for double what it cost you). If you're a service business you may have a much higher gross profit margin as your sales is your time.
Some things to consider:
Are you achieving your gross profit margin? If not, why not?
Is this enough?
Is it decreasing? Is this because your costs are increasing?
Is there any inefficiencies that could be removed to streamline the process?
Have you reviewed your suppliers/buying/manufacturing processes?
Next will be the turn of your fixed costs or overheads - things such as rent, rates, telephone, stationery etc which are all important things to help your business tick along but don't always necessarily result in sales.
Here is a case of ensuring that costs are streamlined as much as possible and that you are getting good value for money.
Here are some of my top tips:
Shop around whenever your insurance, phone contracts etc are due for renewal. It very rarely pays to stay loyal these days.
Review your direct debits and monthly standing orders to make sure you are still using what you are paying for.
Make sure you cancel any contracts you are no longer using (e.g. that mobile phone allocated to the member of staff that left 6 months ago and you're still paying £30 a month).
Is that cost benefiting the business? I.e. spending £2,000 a year to advertise on a roundabout where you've never had a lead from it - could that £2,000 be better spent elsewhere?
You will never be able to reduce your overheads completely but its worth reviewing so that you can make savings where ever possible.
Its one thing getting a sale but its another thing actually getting paid for that sale!
Keeping on top of your debtors will mean you get the cash in quicker.
Here are some of my top tips:
Take deposits for bigger jobs.
Ask for payment up front.
For monthly customers on fixed fees consider getting them to pay a monthly direct debit.
Chase overdue debts as soon as they become due. Do not leave it another week - that's another week you haven't been paid.
If you use an accounting system some of these things can be automated to save you time such as setting up overdue invoice reminders and using something like Gocardless.
This is something that product businesses can have difficulty with. Its a fine balance having enough stock on hand to meet demand and having too much that you cant sell. If you have a product business then you need to make sure you are regularly reviewing what stock you have on hand and making sure your have systems in place to monitor. Holding stock can be costly to a small business - the cash used to buy it and the cost of storing it.
Some points to consider:
Have you got a stock management system in place?
Are you reviewing the items held?
Consider using slow moving stock as part of a promotion
Are you reviewing your cash position?
I'm sure you have heard of the saying - Cash is King - well its true, without cash the business could fail or will require you to put your savings in to keep it afloat.
Looking at the cash in the bank today is not enough. You need to know what you have coming in and out in the near future to see what spare cash you have available.
The easiest way to do this is to prepare a cash flow forecast - look at your ins and your outs over the next 3-12 months so you can see where there are any shortages (do you need to arrange an overdraft with the bank for a couple of months?) or any surpluses (that might be the perfect time to invest in that new equipment).
Having a good understanding of your cash flow will allow you to plan and adapt quickly if things change suddenly (such as a certain pandemic).
I hope the above has given you some points to think about and if you are not doing so already a starting point so that you can review your figures regularly.
If this all seems a little overwhelming then you might want to consider getting a bookkeeper or an accountant involved to help.
If you would like to find out more how I can help you review your figures regularly as part of my bookkeeping or management accounts services please feel free to contact me.