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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.

5 Sure-Fire Ways to Reduce Your Debtors

5 Sure-Fire Ways to Reduce Your Debtors

Out of control debtors can be detrimental to business. The main reason that many businesses fail is due to a lack of cash rather than weak sales. It’s critical that systems are put in place while the business is running smoothly, rather than waiting until you’re in trouble. If you follow these simple rules, you can do this in a cheap yet efficient manner.

1. Make it easy to get paid

Invoices and statements should clearly show all of the information necessary to make it easy for your clients to pay you.

  • Send invoices as soon as possible, instead of waiting until the end of the month. This ensures you don’t miss your customers’ payment cycles, and you get paid quicker too.
  • Display the due date by the invoice total
  • Show payment methods and offering as many payment options as possible
  • On statements, show ageing as “current” and “overdue”. Using 30, 60 and 90 day terms encourages late payment
  • Find out exactly who should be receiving the invoice and sending it to direct to them so that it doesn’t get lost

2. Follow up

Businesses often have their own policies which can delay payment processes. Some pay the “squeaky wheel” first.  While you may feel like a nag, a strict routine around overdue accounts is very important. The best way for employees to approach the matter is to make sure they are friendly and non-threatening when speaking to customers.

3. Clear payment terms

Though common sense, you’ll be surprised how many businesses do not include their payment terms on invoices. Your payment terms make it clear to the customer when the invoice needs to be paid by. If you leave this off the invoice, they may assume it’s not urgent and just pay it in their own time. Keep payment terms as short as possible.

4. Get staff involved

It’s essential for your employees to take part in the process. You could offer incentives for reductions in debtors days. Ensure your accounts team track the cashflow and own the debt-collection process. All new customers need to be credit worthy and checked that their accounts are paid when due.

5. Go digital

Online systems have many benefits. They allow you to keep track of your communications with debtors, minimising errors, email invoices and statements and be able to locate paperwork quickly and efficiently.

Do you have a debtor strategy that you can share? Did any of the above tactics work for you?

 

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.

7 Simple Strategies to Move Your Business Systems into the 21st Century

7 Simple Strategies to Move Your Business Systems into the 21st Century

 

Over the past twenty years, I have had the privilege of working with some fantastic businesses. As a supplier or customer, you just know when a business is destined to be great. You can feel the passion from every employee who are on the shared mission to make the business great.

On the other hand, I intuitively know when an organisation is past its use by / sell by date. You can sense that no one cares, or if they did once, they have long since given up.

So what are my seven simple strategies to move your business systems into the 21st century?

1. Stop all manual data entry: Data should flow into your business from sources such as:

  • Bank data feeds
  • Data feeds from other suppliers
  • Website including online forms

There should be no manual data entry. Your marketing and sales processes should be designed so that your prospects and customers happily do the data entry for you.

2. Stop re-keying data: This is where you already have the data – such as name and contact details – but the data is in some systems and not others. Your data should flow seamlessly between your different systems including your:

  • Website platform
  • CRM
  • Email marketing system
  • Marketing automation platform
  • Bookkeeping and accounting system
  • Point-of-sale system
  • eCommerce system
  • Inventory system
  • Workflow system
  • Proposal system

It’s important to make sure your systems “talk” to each other and the information transfers easily between systems. Consider a service like Zapier if your systems do not talk to each other.

3. Use off-site data backups: Having your data in the ‘Cloud” just makes sense. Cloud-based Software-as-a-Service (SaaS) providers do more frequent, more reliable and more secure data backups than your business will ever do. Storing data locally on your own servers and laptop/computers is risky. Floods, storms, theft, fires, earthquakes. They happen more often than you think.

4. Stop time-consuming staff training: Do you show staff how to do everything through one-to-one training, or you find yourself re-explaining processes and procedures? Set up a company wiki (internal website), and use videos and screencasts to train your staff. Wikis are easy to create. Try Google Sites, it’s free. Videos and screencasts are easy to record using apps such as Snagit and Screencast-O-Matic.

5. Stop manual invoicing: When people buy from you, the invoicing process should be 100% automated. It is not time efficient to create it, PDF it, email it to the client and then store it in your digital filing system. Your accounting and eCommerce system will have various ways to achieve this automation.

6. Automate your debt collection: Let people know when their payment is due and when it is just past due. These reminders can be automated via email, SMS and voicemail messages. Apps like Debtor Daddy and EzyCollect make this automation possible.

7. Learn how to manage your cash flow: Glancing at your bank statement every now and then is not cash flow management. Unfortunately, this is how many small business owners assess their cash position. Cash flow needs to be managed on a regular basis.  You need to take into account known future inflows and known future outflows, such as payroll, rent, supplier payments as well as tax and compliance-related payments.

In these modern days, there is software which makes it much easier to pull in the data you need, enabling you to manage your cashflow efficiently and predict – and then head off – any potential cashflow crunches in the coming months.

While the terms ‘cloud’ and ‘paperless’ and are both quite abstract, there a couple of things that I need to point out about these terms. It’s not about the lack of paper or the IT servers being ‘in the cloud’. That’s just a feature. It’s all about the efficiencies, data flows and knowledge sharing that they provide. Those are the real benefits.

 

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.

Overwhelmed by Your Business? 3 Strategies to Get Your Groove Back

Overwhelmed by Your Business? 3 Strategies to Get Your Groove Back

 

3 simple strategies to get your groove back

Being a small business owner can be lonely. You’re often on your own, controlling your own ship. Some people function well in this environment. But others struggle when there’s no one to bounce ideas off.

Regardless of which one you are, there’s one thing I’m sure about. To have a more fulfilling existence, you need to love what you are doing.

Find your ‘why’

Simon Sinek is well known for speaking about the importance of understanding why you do what you do. Sinek believes that people do not buy what you do; they buy why you do it. He also says that if you want to attract the right employees and customers, you must convey your ‘why’ to them.

Very few business owners truly understand why they do what they do, or what gets them out of bed in the morning. When you sit down and seriously think about it, it will often be about more than making money.

When I ask this question at workshops, I usually get responses like:

  • To provide a high standard of living for my family
  • To help customers
  • To solve problems
  • To make a difference
  • To do something worthwhile in my community
  • To challenge my brain

Whatever it is that drives you, it needs to be crystal clear to you and be expressed in everything you do.

Get things done – get an accountability buddy

The feeling of not achieving at work, not doing what you said you were going to do, can suck your joy. Einstein explained it by saying: The definition of insanity is doing the same thing over and over again and expecting a different result.

An accountability buddy is an excellent way to force implementation. Someone to whom you make commitments, on a weekly or monthly basis.

Your buddy must be someone you respect and trust. They need to be able to give you harsh feedback and haul you over the coals to you focused again. You can do this in three ways:

  • Join or create a mastermind group. These are quite common, and you will likely find one in your area. Before you join, do some research. You need to find a group that will challenge you and hold you accountable but which also has people who can teach you new skills. If you can’t find a suitable group, think of three or four successful business owners who you respect and approach them to discuss the idea. ProfitSmarts runs Masterminds as part of their coaching programs.
  • If a larger group does not appeal to you, then pick one person. Perhaps you know of another small business owner with similar frustrations to you. Respect for this person will see both of you benefit from two-way accountability.
  • Find a trusted advisor to hold you accountable. They can help you work out why you are off track and what you need to focus on to achieve your targets.

Put yourself first

One of the reasons you went into business was to have control over your time. To be able to do your own thing, spend more time with your family or take more time off. Sadly, too many small business owners become so involved in business ‘busy work’ that they end up creating another job for themselves. Just because you are a business owner, it doesn’t mean you need to work 24/7, 365 days a year.

You need to grasp the concept that real wealth is how much discretionary time you have. Though money can buy happiness, what’s the point if you have no time to spend it?

If working too many hours is your big problem, start by blocking out half a day per week when you do not work. It’s your business, so it’s your rules. Then work your way up to block out a decent amount of holidays a year in advance. If you have young children, block out the 10 weeks of school holidays. I don’t always take the whole 10 weeks, but nothing significant is scheduled during that time, so I can choose whether to take them or not.

If you think this is impossible for you to do, then I can guarantee that nothing will change until you try it.

As you increase your time from half a day per week to 10 weeks a year, systemise your business so that it is no longer dependant on you. I promise that you will find yourself having much more fun.

 

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.