Do you know your numbers?
There is a cliché – Turnover is vanity; profit is sanity, but cash flow is reality! Knowing what’s in the bank account is important – but understanding how that cash is generated is critical.
What numbers do you track – and how often?
Turnover: has it increased or decreased on last year, last quarter and in the last month? What has contributed to the change?
Profit: has your gross profit margin increased or decreased and do you know why? If your supplies are increasing in price, your overheads going up or you’ve employed new people, your costs are going up, but are your prices reflecting that? If your profit margin is coming down, you need to know – and take action.
Stock: how much stock are you holding? Everything that is sitting in your storage facilities is dead money. In fact, as you’re paying for the storage space, it’s actually costing you money. This is the concept behind the just-in-time supply chain – so do look at the reality behind economy of scale against the cost of storage.
Marketing: every successful business needs marketing, but do you know which of your marketing activities are working – and which aren’t? Ideally, your marketing strategy has measurables built in, so you can keep track of its effectiveness. Spending £20K a year on advertising needs to generate at least that much income – ideally multiples of that.
Credit terms: how promptly do your customers pay? If your credit terms are 30 days and customers take 45 days to pay, that’s messing with your cash flow. What is your strategy for chasing them? If you have customers who regularly stretch the credit terms it may be worth putting late payment penalties in place.
Increase your turnover and profit
It’s common knowledge that it costs more to get a new customer than to keep an existing one. To increase your turnover – and profit – without getting new customers, there are some simple strategies that make a significant difference.
Increase your prices – it can be as little as 5-10%, it will impact your turnover.
Increase your customers’ spend – do your customers know all the products and services you offer? Educating your existing customers can result in more sales.
Increase order frequency – staying in touch with customers can remind them to order.
Even if these increases are just 5%, they compound to make a significant increase in terms of money in the bank and a healthy bottom line on your balance sheet.
There’s a lot more to accounting than preparing a set of accounts for compliance purposes. If you understand the numbers in your business, you’re empowered to build a healthy business that will continue to be profitable in the years ahead.
If you’d like to have a chat about how you can set up your systems to deliver the information you need, please get in touch with us on 01992 554444.
