It’s all about the numbers, do you know, or more importantly, understand yours?
You’ve heard all the jargon about top lines, bottom lines, gross profit, margins etc but every business is unique. You need to track the numbers that are most relevant to your business and your goals. Maybe you are planning to quickly grow your business, or specialise in a particular product/service. Maybe you need to re-group, cut costs and increase profitability. Maybe you want your business to run more efficiently so that you can reduce your working hours and be confident that your team can run your business without you. Whatever your current situation or future goals, understanding your numbers is key.
Annual figures, or even monthly figures, showing the usual turnover, gross profit, various expenses and net profit are valuable to show you how your business has been doing historically. They can highlight trends and/or anomalies over previous months and years which can help you to understand WHEN things were good and when they were, well, not so good. But they have limited ability to show you WHY. It is the “why” that will unlock the potential for solving your problems and reaching your goals.
To truly understand your business metrics and find the key opportunities for:
- profit maximisation
- cutting costs
- identifying which products/services to promote in future
- or whatever it is that you need to do to achieve your goals
then you need to break down the numbers. And we’re not just talking about monetary figures here. There are other drivers which can give valuable insight into your business, including overall profitability.
With the correct processes and systems in place, you can track virtually anything, including:
- your best selling product/service
- the profitability of individual projects
- the percentage of total turnover attributable to each product or service
- average customer spend
- average number of orders per customer per month/year
- average length of time a customer remains a customer
- Variable costs – those that change in line with your outputs
- Fixed costs – overheads
All of these metrics can help you to understand how and why your customers buy from you, where opportunities arise to increase sales, which products/services are draining your resources, which projects/services are overperforming, opportunities to cut costs and more. In short, they are the key to unlocking the secrets of profitability.
Always remember that profit can not be managed, it is merely the end result. It is the other key measurements that will help you to increase the profitability and efficiency of your business.
So how do you get to the end goal?
The first step is to have a clear idea of how you want your business, life, future to look. If you understand where you are going the journey can be mapped. Of course, no journey is without it’s bumps in the road but a clear plan of action will help you keep control when life happens.
Get clear on your goals.
Once you know what the journey will look like you can map the milestones to keep you on track.
Now you can decide which measurements are going to be key for your business to enable you to reach every goal. Maybe you have:
- started a new business in lockdown and need to discover which products/services are doing well or how you can cut your variable costs
- have grown rapidly and now need to discover which areas or products/services of your business are doing well so that you can concentrate on growing those
- have a business that you now want to scale rapidly and need to understand how your infrastructure will need to scale in line with turnover/profits
So measuring transaction numbers, how often customers buy, the percentage of total turnover attributable to each product/service, variable cost per unit etc would be really valuable in making decisions on how your business will trade in future.
Maybe you have a longstanding business, such as a construction trade, that seems to have plateaued and you need to understand why. Again, customer data measurements could be key but you might also want to be able to see the profitability of individual projects alongside the time taken to complete them to understand which type of project can earn you the most in the least amount of time. This can give you a blueprint for marketing the most profitable projects for you.
Get clear on your key metrics.
Now you have the roadmap, clear goals and milestones and details of the key measurements needed to achieve those goals.
So, what’s next?
This is where you need to have great systems and processes in place to make sure that data is being recorded efficiently and in the most effective way to enable good analysis.
We love Quickbooks Online as a great tool for recording and manipulating data. It is not just a bookkeeping system to look back at historic data. If it is set up correctly it can give you a wealth of information to help you plan for your future goals and keep your business moving forward at the pace you want. Of course, the system setup and data processing is just one part of it. You then need to be able to interpret the data and implement your findings to scale your business.
Quickbooks have created lots of training webinars, tutorials, guides and helpsheets to get you going. These are a great place to start and are full of useful tips and tricks. Within Quickbooks Online you have the option of using projects, locations, classes and tags to classify and organise your data. You can use any or all of these. The best mix will depend on your ultimate goals and key metrics.
Get clear on your systems.
I’ll be brutally honest, the setting up of your processes and systems can be time consuming and a bit tedious. You need to find time to be completely focused to truly understand which metrics to track and how to successfully set these up within your software. But the benefits will far outweigh this short term pain as you capitalise on the growth potential of your business profits.
The hardest work is done! But keep in mind that you will need to ensure that your processes are followed by you and your staff to continue to get the most out of your numbers. You will also need to have a weekly or monthly routine to monitor and analyse your data and make sure you are still on track. You need to really understand what the numbers are telling you so that you can take the most appropriate action.
Get clear on your processes.
Sounds like a lot of work?
It can be, but it is a one time set-up process and the monthly routine can be largely automated so all you need to do is follow the numbers. And of course, you can always outsource the majority of the work to your accountant which takes away a huge amount of the pain. In the long run, this can save you hours of time each week as your systems become slicker and the data provides you with invaluable information to achieve your goals, whatever they may be.
So if you want to:
- scale your business
- reduce costs
- maximise profits
- reclaim your valuable time
- work a 4 day week (or a 3 day week!)
- specialise in a specific area of your trade
- close down non-profitable areas of your trade
- Spend more time with the family (or playing golf!)
…..then it’s all about the numbers.
If you’d like some help with any of the above then please reach out to one of our team.