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Failure Rate Is High
50% of small businesses fail and when you consider that failure occurs usually when a business runs out of money or cannot generate enough profit to pay its way, this poor lack of knowledge by business owners could be a big factor.
A great number of business owners say they wait until their accountant publishes their year-end 'profit and loss' accounts to see how much profit they have generated.
That does not work to control your numbers, though!
Say, for instance, your accounting year runs from April 2018 to March 2019, you might have your accounts published by June 2019. By then, the accounts generated are very out of date.
Much would have happened in that time.
That is not much use for most businesses; if a business has a problem in April 2018, for instance, the business owner needs to know about it quickly, so rapid action can be taken early on - not in June 2019!
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Business Success: Control Of Your Business Numbers
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Much Of My Business Success Was Due To Control Of My Numbers
I attribute a big part of my business success down to my control of my numbers:
I analysed my sales, gross profit, expenditure, net profit and cash-flow every month and I memorised all of these, so that I knew all my business numbers without consulting my accounts.
But also, importantly, I knew how my numbers worked.
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Every Month I Would Go Through Them
Every month, this process would allow me to go through the records and numbers, making it possible for me to:
Control and grow my sales, month on month, allowing me to maximise my sales.
Optimise my gross profit, ensuring I made the best margin for my sales.
Control my expenditure, making sure money was not wasted and I got a good return for what was spent.
Optimise my net profit, ensuring I easily produced a double-digit percentage return on my net sales, i.e. greater than 10%.
Optimise my cash-flow, ensuring my businesses were rich in cash, giving me a financial cushion if sales dropped and giving me cash for reinvestment without the need to borrow.
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Business Success: Control Of Your Business Numbers
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This Process Allowed Me To Flag up Problems
Importantly, though, this process allowed me to flag up any potential problems within a week or so, of each month finishing. If, for instance, there was a slight drop in gross profit, I could immediately address the issue and restore things.
For a business with a £200,000 per annum sales, say, a 2% drop in gross profit is equivalent to £4,000 of annual sales. If your annual net profit is expected to be £20,000, this £4,000 drop in margin will mean your net profit will only be £16,000, instead - a drop of 20%.
If you can spot this quickly, you may be able to save most of the £4,000 drop.
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I Would Project My Business Numbers
I also used my knowledge of my business numbers to project (up to 12 months ahead) future sales, gross profit, expenditure, net profit and cash-flow.
This process is really important, if you are to grow your business and if you are to avoid potential problems.
This Process Creates Good Discipline
Carrying out this process every month is good discipline.
If, however, your sales are low, say, below £50,000 per annum, you could probably relax the timeline to every three months. Any longer would be bad business practice.
Don't Think You Don't Have Time
Many business owners have told me that they don't have time to generate the numbers each month and don't have time to analyse them.
This response never impresses me and my usual answer is:
"You will have plenty of time when your business fails due to your lack of control"
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Others say that they are not good with numbers.
Again, this never impresses me & my usual answer is:
"Really you should not be running a business. It is very possible to learn basic book-keeping skills and learn how to analyse the numbers"
These are very poor excuses.
Business Success: Control Of Your Business Numbers
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Good Software Packages Exist
Some very good accounting software packages exist that can make the job very easy for you. You or someone else just needs to input your numbers and then let the software generate a simple trading report for each month from it.
Then, you should spend a couple of hours looking through the numbers and analysing them.
Surely everyone can do this and surely everyone must agree this would be time spent well, especially if it allows the running of a better business with a greater profit.
Furthermore, many accountants would prefer to receive your yearly accounts from your software package, saving them time and saving you on their fees.
I cannot really understand why more businesses don't do this!
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Please Acquire This Process Now!
If you don't already do this, please acquire this process now - generate regular monthly numbers and analyse them.
Create more control of your business numbers and give your business profits a boost!
If you wish to talk further with me on this matter, please contact me below.
