a

Get your copy of  5 Top Tips to Manage Your Business So You Don't Go Broke  

How to Improve Your Business the Smart Way Through Benchmarking

How to Improve Your Business the Smart Way Through Benchmarking

 

All business owners would like to make lots of money and be very successful.

Unfortunately, this doesn’t happen all by itself. Like so many other things in life, it usually takes hard work.

SMART business owners are on the lookout for ways to make improvements all the time. Often they have a favourable impact on their business, giving them a competitive edge.

One of the best ways to make improvements is to benchmark.

Large organisations have been benchmarking for many years. But smaller business owners often overlooked this practice. There is no logical reason why small businesses can’t reap the benefits of benchmarking.

 

What is benchmarking?

Benchmarking is comparing your performance against someone else’s. The value in benchmarking is adopting and adapting better methods or procedures. The act of benchmarking is natural, and people do it all the time without realising it.

When a golfer asks another golfer for help with his swing, or grip on the golf club, that person is benchmarking!

Benchmarking can help your business assess new opportunities for improvement. There are many benefits of benchmarking including:

  • Identify and prioritise specific areas of opportunity
  • Understand your customers’ needs better
  • Identifying your strengths and weaknesses
  • Set goals and performance expectations
  • Track your performance
  • Understand your competitors to become more competitive

Benchmarking may sound intimidating, but it is a very logical process.

All you need to do is assess your performance to identify any strengths and weaknesses. Then compare your business with similar businesses to see if they achieved similar or better results. Then you analyse to determine whether any changes will improve your business.

 

What can we benchmark?

You can benchmark all aspects of business.

This can include KPI’s, such as profit margins, employee costs, or stock turnover rates. Benchmarking can also look at marketing practices, or product or service ranges.

Choosing what to benchmark depends on the industry of the business.

Each business needs to assess its performance and determine what needs attention.

What matters most is that you realise you need to make the most of your business. You then need to be willing to make an effort to start the process.

 

Where do you find benchmarking data?

Many industry associations can provide access to industry-specific benchmark data. This data will give you an understanding of what is driving success in your industry. Understanding how you can apply this information will help you in making informed decisions.

The ATO provides a database of benchmark information, covering more than 100 industries. The data comes from over 1.4 million SMB’s, based on their tax returns and activity statements.

Some banks, franchise groups, and universities also provide financial benchmark information for free.

 

6 Steps to Successful Benchmarking

Use these steps to benchmark your business against your competitors:

1.       Identify what you’re going to benchmark

Start with targeted and specific questions. They should be specific, and measurable using qualitative or quantitative research. Remember that these should be part of your business strategy. It’s a good idea to do some market research if you haven’t already.

2.       Identify your competitors

Write down who your competitors are. Usually, you benchmark within the same industry. Identify effective tactics used by your competitors, along with better performance.

3.       Look at trends

Look at recent statistics to analyse how fast your industry is moving. Look at how you can plan to keep your business in tune with customers’ needs.

4.       Outline objectives

After interpreting the results of the analysis, you should establish some goals. These should be attainable, concrete, and in line with your business strategy. Make sure you also list all of your goals in your marketing plan.

5.       Develop an action plan for your objectives

Define specific, concrete actions you need to take. Detail the tasks involved and include dates and people responsible for each task.

6.       Track your results and develop an action plan

Track the results of the benchmarking and use the action plans.

 

 

Top 5 Tips to Manage Your Business Finances, Without Going Broke.

Do you want to learn how to read you business numbers and get you “financial” act together?  Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.

My name is Amanda and I’m the founder of ProfitSmarts.

Being good at what you do is no longer enough. Your long term survival odds are very slim if you don’t understand and manage the numbers in your business.

But when you get business right, the results are simply amazing.

Amanda Dyason, Founder of ProfitSmarts

We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.

ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.

We Manage What We Measure. How to Use KPIs to Drive Profit

We Manage What We Measure. How to Use KPIs to Drive Profit

 

I often get asked, “What are KPIs”?

KPI is short for Key Performance Indicator. They show how you are performing compared to your strategic goals and objectives.

If I were to compare KPIs to a road trip, KPIs are like the GPS location data, average speed, fuel levels, weather information, etc.  They allow the driver to understand whether they are on track or veering off route. This enables you to make decisions about where to drive next. A GPS will guide you to a destination, and KPIs will guide you to your business destination.

KPIs are the easiest way to track how your business performs.

If your business goal is to make more money, you may track sales growth, operating costs and profit margins.

If you want to attract new customers by creating a great brand, you may measure brand equity and brand awareness.

If you wanted to ensure your employees are engaged, you may measure staff advocacy as a KPI.

And if, like most businesses, all the above matter, then you need a set of KPIs.

The trouble starts when you realise that there are 1000s of KPIs to choose from. Business owners often struggle to select the right ones for their business. KPIs are powerful because ‘you get what you measure’. If you measure and reward the achievement of KPIs that are not in line with your goals, then you are driving in the wrong direction! The wrong KPIs can point people in the wrong direction and even encouraging them to deliver the wrong things.

KPIs give you a target that you can share with your employees so that they can help you to run your business successfully.

 

So how do you come up with the right KPIs?

The most effective KPIs are those that are closely tied to strategic objectives. When I help business owners select KPIs, we start by developing a performance management framework that conveys the strategic priorities. A single-page diagram of the framework will show how the key objectives support each other to deliver the ultimate goal (e.g. make more profit).

Once the performance framework represents the business objectives, you can develop KPIs. Don’t jump straight to the measures though, as you need to identify the most critical business questions they need to answer.

Take Google, their executive team has identified a set of 35 critical business questions. They now ensure that the KPIs they use are helping them answer their most critical business questions. This way your KPIs are tied to your strategy and you also ensure that they are informative and meaningful, helping you to answer your key business questions.

If you’re new to KPIs, you will be able to find KPIs for your type of business on the ATO website.

The ATO has benchmarks for almost every industry you can think of. But remember they are average benchmarks. You will want to set KPIs that are better than these.

To start your own KPIs, the following can be used:

In percentage format:

  • Labour costs as a percentage of sales
  • Cost of Goods Sold (COGS) as a percentage of sales

In dollar format:

  • Sales per trading hour
  • Sales per labour hour
  • Average Transaction Value (ATV)
  • Average hourly labour rate

To calculate these KPIs, you will need your daily sales report from your Point of Sale (POS) system and your monthly Profit and Loss (P&L) statement.

Print the P&L report with two columns: the first in dollars and the second in percentage of sales. These percentage figures are your actual KPIs.

Good or bad, it doesn’t matter. What’s important is that these are the KPIs you are already achieving. These KPIs can then become the starting point from which to improve your business.

 

Now that you have KPIs…what’s next?

Now that your first set of KPIs is up and running, you can work on improving them.

Increasing your sales by 1% and decreasing both your COGS KPI and your labour KPI by 1% each, could increase your profit by up to 25%.

Seems like easy work to get an extra 25% profit.

Imagine what could happen if you were able to improve each of these KPIs by 5% or more?

The key to using KPIs to improve your business is to share them as daily or weekly targets.

You can start by setting them on the less challenging side then adjust them up towards the target. This will keep your team challenged.

Be careful not to set a KPI that is a huge challenge, as this can create problems. The aim is to improve your business, not to get your team in a mindset of constant failure, which can happen if they are missing the KPI targets you have set.

Make sure your KPIs are achievable because your team will become excited and engaged as they meet them. With each KPI that you meet, you are achieving your goals and building your profit.

 

Top 5 Tips to Manage Your Business Finances, Without Going Broke.

Do you want to learn how to read you business numbers and get you “financial” act together?  Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.

My name is Amanda and I’m the founder of ProfitSmarts.

Being good at what you do is no longer enough. Your long term survival odds are very slim if you don’t understand and manage the numbers in your business.

But when you get business right, the results are simply amazing.

Amanda Dyason, Founder of ProfitSmarts

We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.

ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.

The 7 SMART Numbers You Need to Take Back Control of Your Business

The 7 SMART Numbers You Need to Take Back Control of Your Business

 

KPIs or Key Performance Indicators are essential in every business. They are performance measurement tools that you look at daily, weekly, monthly, quarterly and annually. It will help you measure and predict the health and efficiency of your operations. The effective interpretation and use of your KPIs can help you with some very critical financial management tasks.

  • Avoid being surprised or ambushed by weak results
  • Define and measure the progress you are making toward your goals
  • Make informed decisions about budgeting and resource allocation
  • Detect waste, inefficiencies or fraud
  • Give you the confidence you need to face your lenders or investors
  • Give you the comfort you need to sleep at night

Remember, as your business grows, you may one day need to raise capital.  These reports and controls are often looked at in great detail by lenders.  The sooner you’re capable of producing and understanding these reports, the more secure your growth plan will be.

Here are the 7 SMART numbers you need to take back control of your business:

Sales. The first indicator of business trends are accurate sales figures. It doesn’t matter whether they are increasing, decreasing or flat-lining, they give a clear signal of where you are heading. However, they must be monitored in conjunction with bottom-line performance as well.

Many small-business owners become too revenue focused, taking false comfort from sales growth even though margins may be shrinking.

Cash flow forecasts. This should be calculated on a weekly basis.  The calculation looks like this:

Cash in the bank plus cash coming in over the next four weeks
minus cash going out over the next four weeks

This will reveal if there are any cash shortfalls over the next four weeks and what is your ability to pay your bills at the end of the month.

Debtor days outstanding. The average number of days for customers to pay your invoices. The calculation looks like this:

Accounts receivable divided by sales multiplied by 365

A decrease is a positive sign. And an increase is an issue that will affect your cash flow and your ability to keep your creditors current.

Creditor days outstanding. The average number of days for you to pay your suppliers. The calculation looks like this:

Accounts payable divided by purchases multiplied by 365

This needs monitoring in conjunction with your debtor days, as ideally, you would want the number of creditor days to be equal to or higher than your debtor days.

A lower number means you need to improve your debt collection.  You could also reduce your customer’s credit terms or negotiate better payment terms with your suppliers to avoid cash flow problems. This is one of the critical numbers that can cripple a small business.

Inventory days or stock turnover. The average number of days your stock remains on your shelves or in your warehouse before you sell it. The calculation looks like this:

Inventory divided by purchases multiplied by 365

The lower the turnover, the better it is for your cash flow. Ultimately that assists you with growing your business and expanding your customer base without straining your resources.

Inventory that’s “collecting dust” is costing you money, may be stale or obsolete. You need to track what’s moving and what’s sitting and, most important, understand why. Stay close to your sales numbers and analyse any inventory that’s stuck on your shelves.

Gross profit margin as a percentage of sales. The price you charge your customers against the prices your suppliers charge you. The calculation goes like this:

Gross profit divided by Sales multiplied by 100

An increase is usually a good key indicator. A break-even or a decrease signals that there are flaws in your business model, your overheads are too high or prices are too low.

Profit before income tax as a percentage of sales. The price you charge your customers against your profit before income tax. The calculation goes like this:

Profit before Income Tax divided by Sales multiplied by 100

This figure should increase, though a flat line may be acceptable for a period. However, a decrease may be a warning sign of further potential losses.

Once you decide on the critical numbers for your business, review and digest them on a daily basis. Make it a regular task just as you do your morning coffee or vitamins. If you have managers in your business, you need to share these numbers with those who manage them. They should form the basis for daily huddles, brainstorming and longer-term strategic planning. These numbers will help you drive business growth and achieve your business goals.

 

Top 5 Tips to Manage Your Business Finances, Without Going Broke.

Do you want to learn how to read you business numbers and get you “financial” act together?  Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.

My name is Amanda and I’m the founder of ProfitSmarts.

Being good at what you do is no longer enough. Your long term survival odds are very slim if you don’t understand and manage the numbers in your business.

But when you get business right, the results are simply amazing.

Amanda Dyason, Founder of ProfitSmarts

We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.

ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.

The 7 Key Reports You Need to Monitor Your Business

The 7 Key Reports You Need to Monitor Your Business

 

Do you know your key reports? These reports will be the most commonly used in your business?

Here are the 7 key reports you should understand:

  • Balance sheet. A summary of your business’s assets and liabilities at a particular point-in-time.
  • Income statement. A summary of your revenue, minus the cost of goods sold which determines your gross profit. It is also known as the P&L or the profit and loss statement.
  • Equity. The money or assets invested and retained in your business by the owners and/or shareholders.
  • Cash flow statements. A report that summarises how much cash is going in and out of your business during a particular period of time. It calculates your current cash on hand and predict future amounts.
  • Debt. Loans that need to be repaid, over a period of time, usually with interest.
  • Accounts payable. Money you owe to suppliers and vendors.
  • Accounts receivable. Money owed to your company from sales of your products or services.

Why It’s Critical to Understand Your Numbers

As a small business owner, you are most likely the “chief cook and bottle washer”, especially when it comes to budgeting, financial management and forecasting. Wearing all those hats, you need to be totally familiar with any blind spots that can affect your business viability.

Every industry has a number based achilles heel.  If it is not carefully monitored and managed, it could cripple your business. For example, in the restaurant industry, it may be your food and labour costs as a % of sales. In the retail industry, it may be costs per metre  or rental charges. In a consulting service, it may be revenues per FTE. In manufacturing, it may be stock turnover or % of defective returns.

No matter what your business is, you need to know your critical numbers.  Successful business owners monitor them regularly and compare them to key industry ratios.

For example, if your food costs as a percentage of sales are 41% and the industry average for your size and type is 28%, then that’s a red flag that something is very, very wrong. Your dashboard or scorecard will provide you with warning lights that tell you when proactive action is needed.

Your profit and loss statement tells the most important story about how your business is performing. This is where the results of your efforts and successes are most often expressed. Because of this, many small-business owners don’t focus on their balance sheet and what story it’s telling.

That is a big mistake. You must be intimately familiar with the details of your balance sheet.  Those details will have an impact on your business’s ability to execute your growth plan.

Unfortuantly, all small businesses will inevitably encounter financial or cash flow problems—it’s not an “if” but a “when”. So having the right business processes and systems in place is extremely important. They will give you visibility of issues, and help you make informed decisions when there’s a problem. The complexity and size of your business will usually dictate the types of systems and processes that you need. But a system and process for analysing information is necessary even for a smaller, less complicated business.

There’s an saying that “We manage what we measure.” Even owners of small businesses need to act like a CFO when it comes to developing internal financial reports and dashboards. Get into the habit of producing reports, and reviewing the results. Make sure you share financial information and with your advisory board (if you have one), and the key leaders of your team. If you don’t have an advisory board, you should consider retaining a coach, consultant or mentor that you can discuss your key numbers with openness and confidentiality.

 

Top 5 Tips to Manage Your Business Finances, Without Going Broke.

Do you want to learn how to read you business numbers and get you “financial” act together?  Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.

My name is Amanda and I’m the founder of ProfitSmarts.

Being good at what you do is no longer enough. Your long term survival odds are very slim if you don’t understand and manage the numbers in your business.

But when you get business right, the results are simply amazing.

Amanda Dyason, Founder of ProfitSmarts

We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.

ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.

How Do Smart Businesses Keep Expenses Under Control?

How Do Smart Businesses Keep Expenses Under Control?

 

Keeping expenses under control is one of the biggest things to consider when running a business. How do you decide what should be spent to keep your business functioning at its best? What’s considered waste or excess? It’s a constant balancing act.

Reducing your expenses will have significant benefits for your business. If your gross profit margin is 20%, then every dollar saved equals five dollars in extra sales. SMART businesses know how to grow without incurring a proportional increase in expenses. So how can you apply this to your business?

The use of staff education is one of the best ways to reduce expenses. When did you last discuss the impact of expenses with your employees? Most employees think that having plenty of stock is good customer service. Most haven’t been educated about the cost of debtors. They are often surprised to learn that the cost of storing excess stock can consume up to 20% of its value. Or that up to 20% of an invoice can be lost in recovering the money.

When staff understand that margins are low, they start to play a bigger role in keeping the business healthy. Sales skills often improve, with fewer discounts given. Often there’s more up-selling of complementary or alternatives products.

Education can also turn a negative into a positive. For example, Staff rostering systems may reduce the payroll expenses by 10% by ensuring the right staff are working at the right times. Allocating expenses to cost centres with budgets, can make employees accountable for what they control, reducing expenses.

Do you have examples of training staff to be more conscious of expenses in your business and has it worked? I’d love to hear your comments.

 

Top 5 Tips to Manage Your Business Finances, Without Going Broke.

Do you want to learn how to read you business numbers and get you “financial” act together?  Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.

My name is Amanda and I’m the founder of ProfitSmarts.

Being good at what you do is no longer enough. Your long term survival odds are very slim if you don’t understand and manage the numbers in your business.

But when you get business right, the results are simply amazing.

Amanda Dyason, Founder of ProfitSmarts

We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.

ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.