I know looking into your business’ financial results can make you want to run and hide. Numbers are dull. You would prefer to be in your business. You don’t see how it relates to your day to day. And aren’t there professionals who can advise you?
The thing is, even with the best advisors, you are the one with the most knowledge of what is happening in your business – and therefore most able to decide what is best for your business.
With these four check points you will have a great foundation to make decisions, improve profitability and save time.
From an online accounting package through to an accounting team; an efficient system to manage invoices, tax and payroll is vital. Although new business owners feel drawn to save money through free versions, investing in a properly set up software package takes a lot less time – and is far more accurate – than a DIY approach. Unless you are a bookkeeper, I doubt you want to spend days each week balancing the books.
Time to set up: Outsourced – 1 day. DIY – 1 week
Time to maintain: 1 hour a week
A detailed budget
While I fully support big goals out into the world, vague “5 figure months” targets won’t fully support your business.
A detailed budget is vital for:
- Understanding exactly where your income figure will come from. For service businesses this could include how many clients or projects you want per month. For educational businesses this could be when you are launching your programs, and how many do you need to sign up? And for ecommerce it would include timing of your product drops, and sales targets for each drop.
- Planning how much you put aside for discretionary spending such as advertising and business coaches. This will not only reduce spending on impulse; but also to highlight the target payback required for that spend.
- Putting money aside for tax – better to have too much put aside than having to flog your business for quick cash for the ATO
- Highlighting months where you might have a cash shortfall… and a surplus. This means you can spend more wisely coming into and out of those months and avoid having sleepless nights worrying about paying bills.
Time required: 1 day a year
Monthly review process
Have you ever seen an amount on your credit card statement 30 days after you made the purchase and wonder what on earth it related to? So imagine only looking at your results quarterly or even annually. You will likely have no idea what has contributed to a good result (and therefore what to repeat) or why your result wasn’t as good as expected (and how to mitigate it in the future).
Things to look for are:
- Quantity differences – For instance, did you have fewer clients than budgeted? Or more? Did you outsource more VA hours in the month.
- Price differences – did you sell or purchase the same quantity but at a different price. Did VA’s rates go up for instance or have you more clients on the higher package than you budgeted?
- Mix differences – What income streams (packages, products, courses) is your income coming from? Is that what you had budgeted for? If not, is it a trend you can mitigate (if it’s unfavourable) or maximise (if it’s favourable)
When you have that information, you can make the most of the trends that are in your favour, and mitigate those that aren’t.
Time required: 2 hours a month
Contribution Margin per product, service or hour
Contribution margin is the price of a product or service less any DIRECT expenses. (Leave overheads out for this exercise).
If you are an eCommerce, it’s important to know how much income and profit is being contributed by your different products. This will make pricing and marketing decisions much more straightforward.
If you are a service provider, look at the price of the service less direct expenses (eg contractors working on that service directly) and divide by the number of hours it takes to deliver. This can help with your time planning and ensure you can manage client delivery.
Time required: 4 hours a year (add a half an hour for new offers and products)
In less than 2 hours a week, you can stay on top of your business’ results – and make the fastest and best decisions for your business’ ongoing profitability. Time freedom, financial freedom and even joy. Sounds like a win win win.