Do you feel you are working long hours and working really hard, but profits are still low?
Do you leave your financials up to your accountant, or don’t really understand them?
Imagine knowing exactly how to make more money in your business and more money for you without working any harder or longer!
It may be hard to believe that you could love that jumble of numbers, especially if you believe math was not your greatest subject in school. We see this with a lot of business owners, they get so focussed on the doing that they “delegate” the financial reporting to their accountant typically only every quarter (when it comes to BAS reporting time).
In fact, often the only time a business owner might look at the numbers is when there isn’t any cash in the account.
Financial literacy is a key part of how we support our clients. Having confidence to read a P&L and Balance sheet and understand how to maximise profits is a core part of learning for our clients, especially as part of our Entrepreneurs University Program (Think of this as a real world MBA and business degree that actually focusses on your business – not case studies and assignments that aren’t relevant).
As a Business Coach, I have saved and created more money for business owners through focusing on numbers first, rather than beginning on the marketing side of their business.
It can often sound counterintuitive. As a business owner, you might feel that in order to be successful, you just need more leads or more sales, and whilst that is often true, its also impotant to be sure you dial in on the real ways you can increase profits especially without doing any extra work!
Here’s my top 7 tips to get visibility and control over your financials to help maximise profits.
1. Work out your margins on every product and service in your business.
Include a portion of the cost to run the business as well as the cost to sell each item. This is key to understanding how your business operates, what costs are fixed or variable, and to establish a baseline target each month. We’ve seen this strategy work for large product based businesses (over 20000 product lines), and service based businesses too (be sure to consider labour costs as part of the service). It can seem overwhelming at first, the best thing to do is just get started and work through it line by line. In fact, we often find after this process, a lot of business owners will raise their prices – it’s quite illuminating once you get to see your true costs.
2. Investigate and truly ‘know’ your costs.
After reviewing how to cut down these costs, create a budget, set your targets then adhere to your budget. Avoid the ‘if I have money I will spend it’ theory. This proactive step saves lots of money. Your key focus should be on your net profit, not turnover. Our clients find it helps to work in percentages as a target. For example, you might aim for your cost of goods to be 40%, or you might have a net profit target of 20%. Percentages help to normalise fluctuations and monthly variables.
3. If your business is not a cash business, set up a cashflow statement.
This way you know exactly where your money goes. Most accounting systems will have this functionality built in. You can also ask your accountant (or us! ) to help. P & L’s don’t show a true picture of where your money is right now – hence why we sometimes see the net profit and still ask….. Where has my cash gone? It’s why I wrote a book on it! Discover what it means to proactively run your financials in your business.
4. Learn to understand your financials.
Get someone to teach you. Don’t just leave it to your accountant. As a business owner it is your responsibility to understand these. Don’t let the story of your 9th grade math failure stop you from being a master of your numbers. Trust me; once you understand them you will love them! WHY? Because its your money!
5. Identify the top components of your business that need to be measured.
Liken their function to that of the gauges in a car’s dashboard. This identification and measuring process will enable you to keep your business running at maximum efficiency and highlight challenges before they slow it down. Work with your coach to pinpoint what these components should be. Having a clear set of monthly KPI’s across your business (not just financial but also sales, operations and production) will ensure you can look regularly at key areas in your business.
6. Graph your figures.
This is a great way to see trends, actual figures vs last year’s budget. Pictures are often easier to understand than figures. They are also a great way to get the team fired up about doing better each month especially if you can publish these or print them off for the office/workshop wall.
7. Produce a management report each month (maximum one- two pages).
Get yourself into a routine of analysing your figures (financial measures) each month. Produce a skeleton report that is easy to fill out and covers all essential areas of your business. Most accounting systems will have great reports you can set up and then export and edit to add extra data. If you need some help to get you started in each of these areas, talk to your business coach – they will take you through some easy steps to make this happen in your business.
Take some time to identify what key areas of the financial side of your business you should be focusing.
With this greater financial understanding and implementation of management systems you will achieve greater profits and greater peace of mind in your business.
As always, if you need a hand reach out! We’re happy to support you and offer a complimentary diagnostic session for your business. Learn more about that by clicking quick enquiry on the right side of the page.
Yours in financial mastery,
