Let’s
find out if you’ve got your bikini on!
In 2008 I was fortunate enough to have the opportunity to be
mentored by Keith Cunningham. If you’re not familiar with Keith, you may be
familiar with the 'Rich Dad, Poor Dad' series of books; Keith is the Rich Dad.
Keith has a ‘tell it as it is attitude’ and one of the first
statements he made to me was, “In good times, any idiot can start a business
and most idiots do!” Let me clarify what I think he meant by that statement.
In a boom time, for instance, pre-2008, many people that open
businesses can be lulled into a fall sense of security. Their business thrives
because of the environment; people have plenty of disposable income to spend,
this can lead to the owner getting delusional and thinking he/she is great at
business. If the tide changes, for instance, a recession, cracks that weren’t
noticed in the good times suddenly become gaping holes and the owner has the
realisation that they are not such a business superstar after all. They may
have been making plenty of money, but didn’t really have any idea where the
money was been coming from. They have been swimming naked!
When working with business owners, I ask them to show me the
last three years accounts and, with great pride, they hand over three brown
envelopes containing the documentation. Problem is, in most cases the envelopes
are still sealed! The accounts are seen, simply a necessary exercise in
compliance for the HMRC.
One of the main excuses I get for this habit is, “I don’t
understand them, so what’s the point?”
The point is that whilst you don’t need to have the level of
skill and knowledge of an Accountant, you do need an understanding of what the
numbers mean, where they come from and how you can influence them. This will give you greater control over your business and the decisions you make
within your business.
What follows is by no means an exhaustive list and yet, if you
focus on getting an understanding and the application of these principles, you
will, I guarantee, see a return on your bottom line. I am also providing you
with a FREE set of Tools to help you get a greater understanding of these
principles.
·
Break
even -
the point at which your sales cover all your costs. Simple really and yet, this is a really
powerful number that business owners overlook. Knowing this number will enable
you to plan with greater clarity your pricing policy and your sales and marketing
activity. See below for a simple tool to
help you calculate this.
·
Cashflow
forecasting - if a business runs out of cash and is
not able to obtain new finance it will become insolvent. People within the business
will probably use the excuse, “Well we didn’t see that coming!” when the truth
is that it's all down to poor management. Cash flow forecasting is really quite
simple, once you know how, and (again) we have a tool that will help with the
implementation of forecasting into your business
·
Margin
analysis - where has the profit come from? When asked, a great many
businesses have no idea which products and services are producing their profit
and, of course, the reverse; their losses. Understanding the profit margins of
each and every product and service you provide will allow you to focus your
time and effort on your high margin items. Just the other day I saw an ad for a
Cannon printer at just £49! Surely there is very little profit for Cannon at
that price, but it doesn’t matter because they understand their margins and
realise that the real profit is in the ink they supply for the machine. What is
the ink in your business? I once worked with a Builders Merchants that spent a
small fortune promoting bricks. After a margin analysis they realised that the
real profit was in cement! A switch of focus added 6% to the bottom line.
·
KPI’s/Key
performance indicators - the P&L, whilst giving you some
vital information, is however information about the past. You can learn from it
but you can’t change it. Just imagine if you could predict your future by
tracking a set of leading indicators. Leading indicators are the activities
that happen on a day to day basis to produce the end result. For instance, if
you need more customers you will need to generate Leads and you will have to
convert those leads into paying customers. So, you could have KPI’s to measure
marketing activity, leads generated, meetings booked, etc. and, providing you
know your conversion rate (you do know your conversion rate-don’t you?), you will
have a pretty accurate indication of your future sales potential.
The most effective KPI’s are closely tied to your strategic of objectives and help you to answer your critical business questions.
So, the question is how prepared are you
if the tide goes out?
Having a
better understanding of the above principles will mean you are less
likely to get caught swimming naked and ensure the future of your
business. Alternatively, if you don’t
like the numbers, you could always wear a mankini like Borat!
Remember to grab your FREE tools below and
if you would like to learn more about this subject take a look here….
FREE Tools;
Break
even calculator…Will allow you to make more informed
decisions about pricing and profit-enhancing choices.
Cashflow
Forecasting…Will allow you to see the bumps in the
road ahead so that you can become proactive instead of reactive to cashflow
problems.
KPI
selector…choose the most relevant KPI’s for your business
100 to choose from.
To receive your FREE Tools simply email
susan@mpcforprofit.
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