I was with a potential client first week back to work in January, they were certain that the business was failing, and the imminent end of the lease on the premises would be a convenient time to wind-up the business. This decision was based upon emotion, and the natural reflective mood of the New Year. We spent a couple of hours talking through the situation, and, as I suspected an objective view of the business figures gave a much clearer view of the likely business outcome.
Too many owner managers often fail to use the figures to keep control of their business. Hopefully, you will not only appreciate the importance of using the figures but will also have a feel for the most important ones to monitor. As you look at financial statements more frequently you will find that understanding the figures becomes much easier.
Keep Control of Your Business – which numbers to pay attention too
- Sales and costs
Whilst it is essential to set targets for profitability (such as net profit margin and breakeven point) and to monitor progress towards achieving those targets, it may not be immediately obvious what needs to be done to get back on track if there is a variance.
Review your order book regularly, three key figures to monitor are:
- Value of orders placed in a given period;
- Value of production completed;
- Sales invoiced.
Your sales ledger clearly shows all your outstanding sales invoices. Review them regularly, preferably on a weekly basis but at the very least on a monthly basis. If any customer is slow in paying you, chase them hard. See my Blog on Late Payment Tips
Keeping control of the money you owe to others can be done in a similar fashion to the way you control money owed to you. Review all the bills you have to pay at least monthly.
Do not upset your suppliers by delaying payment for too long, otherwise they may withdraw your credit facilities. It takes time to build up a good track record with suppliers, but when you do, working on credit becomes easier. To gain the most benefit, however, you need to take the maximum amount of credit possible without abusing the terms agreed with your suppliers.
- Cash management
Do you have large sums of money simply sitting in a current account? Is it likely to be there for long? If you do have substantial cash balances, make it work for you. All the banks have special arrangements for putting large sums on deposit.
- Stock control
Do not allow your stock levels to grow too large and watch for dead stock. If you have too much stock, you will be taking up too much storage space. Can you reduce it and use the space more productively?
- Improving staff efficiency
Efficiency is usually a measure of a volume of activity. Do you believe that your staff are working as efficiently and effectively as possible? Are there ways in which you can improve that efficiency? Possible indicators of problems amongst staff are high labour turnover ratios and high levels of sickness absence.
Once you have gained a picture of the operating position of your business, you will have the objective measures needed to keep control of your business so use the figures to assess your performance and, where necessary, to take corrective action.
Once we had reviewed the numbers the potential client still had a decision to make, at least they now had the facts on which to base the decision and time to reflect on the outcome they wanted – they were in control.
CMC Partners have extensive experience in practical business management, contact us for a informal review.