Watch these top 5 financial figures to grow your business
Want to grow your business?
Like most small businesses, you use accounting software, but you’re too busy to even scratch yourself, let alone have the time to check out its functions.
If you follow our simple guide to the five financial figures you need to grow your business, you’ll soon be checking them regularly, and wondering why the heck you didn’t do it earlier. But you’ll need to make sure you enter the relevant data. There is no magic wand you can wave to make it happen.
1. Profit and Loss
Your Profit and Loss statement gives you a summary of the revenue, costs and expenses your business has incurred during a specific timeframe, such as a month, a quarter or a year. It’s like a snapshot that shows the health of your business - and it’s empowering.
Are you earning enough? Did your business suffer a loss? Armed with this knowledge you can see if you need to increase your revenue, or reduce your costs. It’s the basic tool for decision-making in your business.
Expenses are a fact of life in business. Depending on your type of business, you may need to invest in tools, office equipment, transport, training and advertising, and in a website and software programs, such as your accounting program.
It’s vital to enter your expenses into your accounting software regularly – and keep an eye on them to ensure they don’t grow faster than your income. Check out where you are spending your money, it's one of the best areas to cut back and save some real dollars.
3. Accounts Receivable
Accounts receivable is the amount of money owed to you from unpaid invoices. If you have a lot of money owed to you, that could be cause to celebrate. But don’t pop that champagne cork just yet.
Clients who don’t pay on time or just don’t pay can cause you stress and worry. Cash should flow – in and out. If nothing comes in, you can’t pay your bills unless you have an overdraft. But if your accounting package can send your clients automatic reminders if they’re tardy payers. So get those auto reminders working for you and then you can enjoy that glass of bubbly.
You’ve been checking your profit and loss figures religiously, and you can see that your business has been generating consistent profits. But you can still have a cash flow problem. Think about payment terms. If you give a big client 60 days to pay, you might not have enough cash for the day to day running costs of your business.
Clients who generate the most profit for you are your high value clients, so make sure you always put in the hard yards for them. They may not pay you the largest fees, but they pay regularly and their projects can add up.
Big name clients may give you a buzz, but if you have to increase your expenses for them, they could cost you more, even though they pay you more. It’s the old saying: “All that glitters is not gold.”
Check your cash flow statements on a regular basis, so you can time your expenses in line with your client payments. Before you know it, you’ll be a dab hand at making sure there’s no crisis looming in your cash flow.
If you sell products, you need inventory. But just how much do you need on hand?
Stock-piling products can cause you headaches, like increased storage costs, reduced profits and the possibility of waste.
You won’t win any medals for keeping a sharp eye on your inventory. But run a tight ship, not a bunker overflowing with stock. Knowing when your ordering cycles peak and trough will keep you in charge. And you’ll get a kick out of knowing that you’re becoming an inventory whiz.
The bottom line
You’ve no doubt heard the saying: “Failing to plan is planning to fail.” Yeah, yeah, you think. But they’re not idle words. If you let your business get away from your control, you could be heading to the wall. Think of your business as a team of horses that can either run amok, dragging you into the mud, or you take the reins and drive your business forward, armed with the knowledge of the five business figures that will put you firmly in the driver’s seat.
Accounting experts advise you to check these figures on the first day of each month, beginning with your cash flow statement. This means you can adjust your business strategy – driving those horses with a firm hand – and keep growing and thriving.
Need some help with those 5 top financial figures?
We’re Xero experts. So if you already use Xero as your accounting package. Or perhaps you are thinking about converting, give us a call today on 03 9069 5552, and we’ll help you get those reports underway in no time.