Five key numbers for your business
When you want to grow and improve your business you need to look at the areas that you can improve that will have the most impact. The numbers in your accounts that show how well you are doing and what you need to improve.
Being able to interpret a complex set of accounts may not be for you. So when we look at just five key numbers in the accounts it makes it easier to understand and to look for potential areas that you can improve.
These numbers will act as a signpost for you to change and improve your business. They will highlight problems for us to find solutions as we start to work together. We will look at these numbers in comparison to other companies in your field. If they can achieve these results why can’t you? What are they doing differently to you?
Revenue – Gross Turnover
When we say Revenue we mean the total of the sales that you make. The total sales less the vat that you pay to HMRC if you are vat registered. This may be vat if you are on the flat rate vat scheme or just the standard. We are looking at the amount of money that your business can generate over the period of the accounts or the last twelve months.
It is obvious that increasing this will have an impact on the profit that you make. In fact it is usually the first thing that we think about when we want to increase profit, we need to increase what we sell.
There are a few quick easy wins we can get to try to increase revenue. Increasing prices will make small incremental gains and if you aren’t increasing prices slightly each year you probably should think of doing this even just to keep in line with inflation. A few percentage increases will add to your revenue and it is unlikely that anyone will move away from your business for a few percentage
Operating Profit – EBITDA
EBITDA is an accounting term used to mean Earnings before interest, tax, depreciation and amortisation. It is a profit calculation that looks to judge every company on an equal footing. It removes items from the calculation that can skew the results for your company. A company may be more financed by loans and overdrafts than another, removing them from the calculation will allow us to see how much money or profit that they earn during a year.
Seeing how much money that a company earns means that we can see how much from their revenue that they spend and how much they get to keep. In other words how efficient is the company and how much money does it waste.
There may be expenses in your company that you are paying that does not add any benefit to your business. They may be historical expenses that are just there each year. These are wasting money and reducing your profit.
We want you to be a lean and agile business. To do that we need to take a look at your expenses and find out if there are expenses in there that we can reduce and it not have an impact on your business.
It may be that we look for better deals or you call your suppliers and try to negotiate better prices. But we look to create an efficient and effective business.
Revenue per Employee
Having a well-trained and efficient team is essential if you want a profitable business. Your staff will be doing the work that will be earning money for your company. You will be too busy managing to get too involved day to day. You will be reliant on your staff and team to do the work.
You need to trust them that they can do the work and that they can be left alone to do it according to your instructions. You need them to earn the money that will sustain your business and allow it to thrive.
Increasing the revenue that is earned per employee will mean that they need to become more efficient and have less time in their day where time is wasted. Time is wasted if it is not chargeable time for your customers. Time that they work which you as a business are paying for.
Having processes in place to reduce this time. To make your business an enjoyable place to work where your staff are happy and motivated to work and achieve. Having the right culture in your team that they want to work and satisfy your customers and do good work.
Increasing this number means that you get more work done and earn more money.
Working Capital
Knowing what working capital you have to keep in your business is essential to make sure that you can pay your bills each month and pay your taxes when they are due. You need to make sure that you keep an adequate amount of cash inside your bank account to function effectively each month.
When you are investing in your business you need to know when you can invest in your business. Wait too long and your business is stagnating and not growing. Invest too early and you put your business at risk of not being able to pay its bills.
We need to look at your business to see how quickly you are getting paid and if you need to take funding to cover over any funding gap in your business.
It is essential to have the right funding and working capital in your business to pay its bills now and also provide the means to grow in future.
Owner Return
You need to know that you hard work is worth it, you need to know what return you are getting form your business. Driving this number up all the time is what we are trying to do and increase the profit that you earn.
Is the return that you are getting from your business enough to make it worth your while doing all the hard work? Or would you be better off just leaving the money in the bank account and earning the interest.
Conclusion
Having five key numbers to look at in your company will help focus your mind on the key areas to improve. It will help diagnose the problems in your business where we can develop actions plans to tackle these problems.
Having someone to hold you accountable for your actions is going to keep you motivate to making these changes and moving your business forward. It will not happen by itself, if you want to action real change in your business you have to commit to an action plan and be held accountable for making these changes.
It is the same as having a personal trainer at the gym. With the trainer you are motivated to do more, they push you to achiever your best. They can support you and help you get past any roadblocks that you may have.
Next Steps
If you want help in growing your business and identifying the changes that you need to make and to be held accountable please get in touch for a discussion to see how we can help you and your business have a better business and a better life.