Have you ever wondered how accountants contribute to business growth? Have you ever wondered how they can take you from surviving to thriving, follow my video or read below.
Scaling Your Business
When scaling a business, you are looking to get to your personal goal, which various business goals will drive.
This could be via exit, where you’re looking to sell your business, or it could be accumulating wealth as your business grows, or a combination of both.
When you’re scaling a business and looking to improve it, there are many areas you need to look at, and it can get seriously overwhelming.
I’m going to explain to you the key things that we look at regularly that will help your business understand it so you can make better decisions and grow it in the future.
Revenue
The first place to look at is revenue. What you want to be doing is looking at your revenue for the month, revenue for the quarter, and revenue for the last 12 months, reviewing this monthly, and looking for variations.
So you could have some times of the year when your income is up, and some of it is low. And that’s just how your business rolls, but you should be comparing your last periods.
So, by looking at this revenue graph below, you can see here what the revenue was this month, what it was like last quarter, and what it was like in the previous 12 months. There are bits in this data that are good, and there are bits of data where it was concerned.
So if you look at the 12-month chart, it’s slightly down, not by a lot, but still cutting downwards. Now, what is the reason behind this? And what can you do to make your business better?
Gross Margin
Businesses will win or lose through their gross margin; if they’re going to make a serious amount of profit or lose, the amount of profit can be within their margin percentage. This is going to be your gross profit.
Have a handle on how good your gross profit is month by month, quarter by quarter and year by year, By looking at this data here, you can see that the current GP for the month compared to the year to date, all of these figures are up and we’ve got a nice little tick on each one. So that means the business is improving their gross profit margin, which should ultimately impact on their net profit.
Overheads
For most small businesses, overheads are not really going to change much with activity; they’ll be fixed. They can also be stepped as well, so sometimes you’ll just have to up it again, where you’ll need a bigger load of software, you may need bigger premises, which doesn’t happen all the time.
But it’s also easy for overheads to get out of control if they’re not looked at, and waste occurs in your business.
So, it is important to have to have a precise overview of your monthly overheads and compare them.
I’m not saying to be a miser because I’m a big fan of investing in the business as long as it is providing value, but this needs to be under control.
How often do you look at your overheads?
Net Profit
The reason why we’re all in business is net profit after all accounting adjustments are made; this is important because if you put rubbish into your accounting system, you can get only rubbish out.
Once you’ve made all of the accounting adjustments, how much money are you truly making? This is the money that you’ll need to support your family, to live and to reinvest into your business.
How good is your net profit per month?
Your Business' Net Worth
Let’s look at your business net worth.
Basically, the easiest way to understand this as a small business owner is profit, less tax, less dividends; this is what you’re left with. This and what’s been accumulated in the past will be your net worth. So, how strong is your balance sheet? Because there are uncomfortable times sometimes that you need to get through, and without resources, it’s even harder.
Revenue Drivers
Okay, we’re going to get this profit, and it’s total turnover. But the important part is how you’re going to get there?
By looking at the data below, which is about transaction values. How many invoices have you sent, and what was the average transaction value?
Do you know if you are undercharging where you could charge more, or are invoices getting missed that are just going to be a loss?
Customer Acquisition and Retention
One of the other things that’s really important to concentrate on is your customers; what most small business owners look at is the new customers acquired. If they want to increase revenue, they think about getting new customers immediately. This is important, as you like to grow your client base, and have more revenue.
If you’re comparing this year to last year, how many new customers did you acquire, and how many new customers did you acquire the year before?
While getting new customers is essential, you must also focus on not losing the exciting ones. If you follow our business growth programme, we talk about this in detail and why customers leave. So you actually want to look at how many of your customers you retain.
Cash Flow
Cash flow is a massive area for small businesses. One area normally where cash is really tied up is money that is sitting in accounts receivable; So how much money is sitting in your debtors? And can you convert that into days?
If you have standard 30-day payment terms with your customers, you should be monitoring this to see if they pay early or late.
The same applies to your creditors. Do you pay way too early or on time? Having credit terms means you have interest-free money to use, which can help with your cash flow.
Summary
You had an insight into what report we can demonstrate to our clients and how we can help them to understand their business better.
We can work through this report if you want this analysis on your business and are using Xero, Quickbooks or Sage. You will receive the report and a meeting to explain your current situation and see how things can improve.
The first step is to click the link below and book a call, so we can discuss the next steps.
