Understanding your numbers is absolutely vital to the survival and success of your business. In my business coaching company, I still see chaos and confusion every day when owners tell me that they’re uncertain about the numbers in their business. Why is this?
“Failing to plan is planning to fail” is a quotation that has been attributed to a few greats of history (Benjamin Franklin and Winston Churchill, to name just two) and it captures the core reason why many businesses lose control of their money – they fail to plan their finances effectively. How do you manage your finances? By looking backwards, by looking forwards, or both? Having real understanding of not only what has happened in the past, but what is forecast to happen in the future, will give the confidence to make great business decisions.
A good first step is to identify and then eliminate the financial chaos within your business. Common errors include poor record-keeping, looking at finances only in arrears and never forecasting the future. Some owners run their business using only one number; the bank balance! This type of financial chaos breeds stress and ultimately failure – businesses often go bust because of lack of control of money.
One key area to examine (there are many more) is Profit Margin Mastery – do you know which of your products or services has the highest profit margin? Does your marketing strategy focus on selling the products with the highest margins, rather than the highest turnover? Training your sales staff to focus customers’ attention on the high margin offerings is a great way to improve profitability. Combine this with a thorough cost reduction strategy and profits will increase rapidly – give your bookkeeper or accountant the challenge of reducing costs by 10% and see what they come back with!
Finally – do you know your Break-Even point? It is simply the point at which your revenues are the same as the total of your fixed and variable costs – you’re not making any money at this point, but it’s the starting point of profitability. Every sale you make beyond your break-even point is profit – wouldn’t it be good to know when you got to that point each week, or each month? There’s plenty of maths behind this, but your coach can help you to identify the break-even point and give you plenty of strategies to get there earlier and earlier each month, improving your profitability.
So, the goal is to go from money chaos to control. Only by having a solid understanding of your numbers will you start to build a great business. To help you get started, any reader of this article can have a free 2-hour coaching session with me – just go to BOOK A SESSION on the home page.
