“You guys are too busy to make money”
This statement took the wind out of my sails when our financial director said it to my partners and I in another business over a decade ago.
He was 100% right, we were so busy trying to make our customers and our staff happy, we were not making the time to do some proper analysis of our numbers and work smart as well as hard. That lesson pretty much saved our business.
Here are three steps you can take this week to ensure you are on top of your business finance this year, and able to truly listen to what your business needs to tell you.
1. Get your books 100% up to date.
The first thing we see in many businesses we meet is that there is a backlog of financial information. We don’t have access to the latest figures and, without up-to-date figures, the calculations and interpretations are wrong. Final numbers are allocated incorrectly, and we aren’t looking at proper margins etc.
If you have any historical ‘bird’s nests’ or bookkeeping queries that have been unresolved for a long time, book the time this week with your accountant/ bookkeeper to unravel that mess. Ensure that you receive up to date figures and make sure you are looking at the latest year and last month’s financial figures timeously – this will allow a proper deep dive into your numbers and see where you are currently.
2. Book a regular, default financial review meeting
Diarise a regular, repeating ‘default’ meeting to sit with your accountant, bookkeeper, financial director, and/or your coach to review your management pack and see what the numbers are telling you. Viewing and understanding your key performance indicators should not be “every now and then when we find the time”. I suggest book a meeting every week, every two weeks, or every month with your key advisors to ensure that you are receiving up-to-date numbers, and that time is spent interpreting them.
Analyze them and actually figure out what they tell you. I recommend that your bookkeeper have a KPI in place whereby your management pack is handed to you before the 7th of every month, and that you meet to assess a few days later. This habit alone could save you a lot of heartache and help you grow profits as you will be finding all sorts of things typically overlooked in the hustle of your working week.
3. Recalculate your Break-even Target
A lot can change in a few months, we are finding too often that people are chasing the wrong targets. If you have not done the exercise recently, here it is:
- Forecast your anticipated fixed expenses, per month, per quarter, per year.
- Then divide that figure by your average gross margin percentage
- That will give you your break-even sales target for the same period
As per point number one you will never be getting a proper gross margin percentage if you don’t have up-to-date numbers, nor if your expenses are allocated correctly (we are regularly seeing Variable Costs coded as Fixed, and vice-versa).
Also – when you put your Revenue target up on the wall, do not use this number as we are not in business to break even! Repeat the above exercise but add your profit goal to your fixed expenses so you now have a ‘Profit Break Even Target’ – this is the number I want you sharing with your sales team and hitting consistently.
Enjoy the exercise and you will be surprised by what your new numbers tell you. We are finding that too often people are chasing the wrong numbers and when they do hit target, it has all too often been set too low.
If you need any assistance with any of these areas, my doors are always open. Good luck this coming year and make it a great one!