11 Jan 2024
As a small business owner, you have the power to decide what your priorities are. However, regardless of your goals for the company, there are certain KPIs that should be tracked in order to ensure success. These five KPIs will help give you an idea of how well your company is doing financially and if it’s on track to meet its goals.
What Are KPIs?
KPIs are key performance indicators. This is a way for companies to measure the health of their business by evaluating certain factors, such as increased sales or a decrease in spending.
You can’t track every single possible KPI under the sun – it’s impossible. However, there are some universal KPIs that you need to keep an eye on regardless of your niche and business model.
The following seven KPIs should be used by small businesses to track success. If you’re looking into specific areas that your company could improve upon, these metrics can help you determine what to focus on.
Net Profit
Net profit is the amount of money your business makes after factoring out expenses and other costs. As a small business owner, you need to know whether or not your company is turning a healthy profit on its operations.
It’s important to understand the difference between revenue and profit. Let’s say your business turned over $100,000 last year. If you spent $40,000 then your net profit is $60,000.
However, if you turned over $120,000 but spent $80,000, you still keep $40,000 as profit. More revenue does not always equate to more profit, so it’s important to keep an eye on this figure.
Net Profit Margin
Net profit margin is the percentage of net profits your company makes. This number represents how efficient you are with your finances and whether or not you’re making a healthy amount on each sale. If this figure drops, it could be an indicator that there’s an issue in terms of spending or that revenue increases need to be made.
Let’s go back to the example above.
Again, let’s say that you made $100,000 in revenue and spent $40,000. Your net profit is $60,000, giving you a profit margin of 60%.
Now let’s imagine you made $120,000 in revenue and spent $60,000. Your net profit is still $60,000 but your profit margin has decreased to 50%.
Your net profit margin is a great indicator of how well you’re spending and making money. It can also inform decision making around pricing and marketing.
Quick Ratio
The quick ratio is a number that represents how efficient your company’s liquidity is. It tells you whether or not your business can meet its short-term financial obligations with the assets it currently has on hand.
In this sense, “quick” refers to liquid – i.e., money in checking accounts and easily convertible investments like stocks and bonds.
The Quick Ratio is calculated like this:
(Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities = Quick Ratio
A Quick Ratio of 1 or greater is good news for your business because it means you have enough assets available to cover your expenses and keep your company afloat. A number lower than 1 suggests that your business is struggling to meet its obligations and may need to borrow money or liquidate some assets.
Cash-to-Debt Ratio
The cash-to-debt ratio tells you how much liquidity a company has relative to its liabilities. It’s another great indicator of whether or not your business can pay off any debts it might have.
To calculate your cash-to-debt ratio, divide the company’s cash by its current liabilities:
Cash from Operations/Total Debt
This is how long it would take for your business to pay off its current liabilities if it used all of its cash in hand.
You should use your cash-to-debt ratio to help you figure out how much short-term and long-term debt your business can handle.
Cost of Customer Acquisition
As a small business owner, attracting new customers is no doubt one of your primary goals, but how much do you need to spend in order to do so?
The cost of customer acquisition is the amount you spend, on average, to get a new customer. You should use this metric to inform your sales process and marketing strategies because it can give you an idea of how much money you need in order to compensate for all costs associated with bringing customers on board.
Summary
The KPIs small business owners should be tracking to ensure financial success are: net profit, net profit margin, the quick ratio, cash-to-debt ratio, and cost of customer acquisition. These numbers can help you make more informed decisions about your business and to ensure that it’s financially stable.
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11 Jan 2024
Pricing your services correctly is one of the most difficult parts of being a small business owner. On the one hand, you understandably want to price yourself competitively, but you don’t want to sell yourself short, either. Profit, cash flow and confidence are all important considerations when pricing your services, so here are five key steps to help you get it right.
Step 1: Calculate Your Costs
Even if you have a very capital light business, there are always costs associated with running your own business. There are two types of costs: direct and indirect.
Direct costs are the costs that go directly towards providing services for your clients, such as project materials or project-specific software, employee wages and your own wage.
Indirect costs are more general costs that are necessary to run your business, such as:
● Rent
● Internet
● Phone Contract
● Devices
● Marketing costs
● Website
● Accounting services
● Legal services
● Insurance
You need to make sure that you charge your customers enough to cover all of the above expenses and make a profit on top of that.
Step 2: Identify Your USP
Your unique selling point (USP) will help you to price your services appropriately. If you’re competing based on price, then affordability will be the name of the game. However, if your USP is based around quality service or your specific expertise, you will be able to charge significantly more. If your clients are investing in you because you’ll add value to their business, then they will be much less likely to question you on price.
Step 3: Market Research
It’s important to know how much your competitors are charging, because this will tell you how much prospective clients are willing to pay. Seek out your competitors via Google as well as marketplaces such as UpWork and Fiverr. Remember, however, that the latter sites often feature many providers willing to sell themselves short in order to get started. Pay attention to their target customers, level of experience and location.
Remember that if you’re providing something that your competitors lack, you will be able to charge more than they do, so long as you are able to properly articulate this added value.
It’s also a good idea to try and get some feedback from your network or even conduct a focus group to gain insight around pricing.
Step 4: Consider Hourly vs Flat Fees
Some small business owners charge by the hour whilst others prefer flat fees. The correct path often depends on your industry and also your level of experience. If you know exactly how much time a certain project will take you, then a flat fee might be best, whilst if you’re unsure then it may be better to go down the hourly route.
If you’re just starting out, then you may get faster at your work as time goes on. In this case, flat fees make sure that you’re not punished for becoming more efficient!
In order to calculate an hourly rate, consider the amount of hours you want to work per week and multiply that by 52. Then, subtract holiday and sick time to calculate the amount of hours you’ll actually work.
After that, calculate your billable hours – i.e., the amount of hours that directly generate revenue. Billable hours represent time spent on client work, whereas non-billable hours are the ones spent on admin, marketing, paperwork, and the like.
Next, divide your total expenses by your billable hours. This will give you a break-even hourly rate. Then, multiply this figure by your desired profit margin to find out how much to charge per hour.
Conclusion
After reading this blog post, you should be able to calculate the cost of your services and figure out whether hourly or flat fees make the most sense for your small business. Remember that good quality clients will be willing to pay a fair price for a great service, so be confident about the value that your small business adds and don’t sell yourself short.
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4 Jan 2024
Introduction
Running a small business can be tough – there are many challenges that small business owners face daily. However, maintaining accurate and consistent financial records doesn’t need to be one of them – and it’s a great way to help your business grow. Bookkeeping is the area of accounting that deals with recording financial transactions, and it can play a vital role in the success of your business. In this blog post, we will discuss five ways bookkeeping can help your small business grow.
Track your finances
One of the primary reasons to keep accurate financial records is to track your finances. With bookkeeping, you can see how much money is coming in and where it’s going. This will help you make informed decisions about your business’s future. You can look at your financial statements and easily identify trends, such as increasing expenses or declining profits. This information will enable you to adjust your business strategy accordingly.
Manage cash flow
Cash flow management is an essential aspect of running a successful business. Without sufficient cash flow, your business may not survive. Bookkeeping enables you to track your receivables, payables, and all other financial transactions. You can also forecast your cash flow based on your current financial position, helping you to avoid shortfalls in the future.
Make informed decisions
With accurate financial records in place, you can make informed decisions about your business. You can analyze your financial statements, identify areas that need improvement, and
implement changes that will help your business grow. For example, if you identify that your expenses are increasing, you can explore ways to cut costs. Alternatively, if you notice that your sales are declining, you can develop new marketing strategies to attract more customers.
Prepare for tax season
As a small business owner, preparing for tax season can be stressful. However, with bookkeeping, you can simplify the process. By keeping accurate and organized financial records, you can file your taxes quickly and accurately. This will save you time and reduce your stress levels. Additionally, you can take advantage of tax deductions and credits that you may be eligible for, reducing your tax liability.
Plan for growth
Finally, bookkeeping can help you plan for the growth of your business. By tracking your finances, you can identify areas that are performing well and invest in them further. Additionally, you can analyze your financial statements to identify areas of your business that need improvement. By doing so, you can make adjustments to your plans and strategies to ensure your business grows in a sustainable and profitable way.
Conclusion
In conclusion, bookkeeping is essential for small business owners who want to grow their businesses. By tracking your finances, managing cash flow, making informed decisions, preparing for tax season, and planning for growth, you can build a successful and profitable business. Accurate financial records can help you identify opportunities, avoid risks, and make strategic decisions that will benefit your business in the long run. If you haven’t already invested in bookkeeping, now is the time to do so. Your business’s success may depend on it.
Are you ready to take your bookkeeping to the next level? Book a free call with us by visiting our website here.
20 Dec 2023
Adjusting your goals and expectations to what’s within your possibilities will ensure your success. Not to mention, it can help you avoid unrealistic planning frustrations.
Having reasonable goals can be a driving force behind individual, team, and company success. If you precisely determine what you’re aiming at and do it early on, your efforts will have a clear direction and appear more meaningful.
However, setting goals isn’t without its challenges – poor orientation, succumbing to perfectionism, and lack of motivation are among those that are quite detrimental.
That’s why we’ve compiled a list of steps that will help you determine and set optimal goals while avoiding the common pitfalls.
Step 1. Back Your Goals Up With Solid Planning
The importance of thorough planning can’t be overstated.
A goal without a plan is, in essence, just an abstract idea you can’t act on. That’s why the first thing you should think about is exactly how you’ll achieve your goal.
The most effective way to make a plan is to start with the big picture in mind and go more and more into details.
Start with a general road map – setting a certain finish line and marking every bump and turn down the road. Then take a look at the individual stages of the journey and define the challenges you could encounter.
Keep in mind that this is a crucial step – if there are too many obstacles requiring more energy and resources than you can expend, you will do well to reconsider your main goal immediately.
Finally, once you know where you’re going and how you’ll get there, start preparing contingencies.
A good plan will take you a long way, but it would be wise to expect something to go sideways. Prepare to adjust your tactics accordingly.
Step 2. Be Clear and Specific
Setting goals includes envisioning a certain point in the future. However, it would be best if you didn’t stop at a general, low-resolution picture.
You must define all of the details of what you want to achieve.
For instance, aiming to increase your company’s sales is a low-resolution goal. It could be a good starting point, but if you want to ensure you’re progressing in the right direction, you should consider the specifics.
Exactly how much of an increase would you like to see in your sales? How would you want your business to change before and after you’ve reached that goal? Would you be willing to make sacrifices to get there and what would that entail?
There’s plenty of details to flesh out when setting your goals. If you do it right, all your efforts will become focused on the specific necessary tasks and the progress will become apparent.
Step 3. Establish Milestones
A common mistake in planning goals is that people tend to aim for the grandest achievement, disregarding the smaller but vital victories.
This approach can become draining very soon – you might be overwhelmed by how unattainable the set endpoint seems. To avoid the fatigue and discouragement, make sure to have several smaller goals set as milestones.
Reaching the milestones will give you that precious sense of achievement and progress and motivate you to keep going.
Good Goals Are the Way to Success
Aiming for something you can realistically achieve and having a good plan of getting there will set you on the right path.
When you’re convinced your goals are the right ones, pursue them with determination. Great results will follow.
If you’d like to speak to us about how we can support you with your accounting needs, book a free consultation here.
16 Dec 2023
Business growth presents a huge challenge for small business owners. Sustainable growth requires careful forethought and preparation; you can’t build a solid house on shaky foundations. It’s easy to get swept up in all the excitement that accompanies business growth, but remember to take the time to prepare and organise your business to ensure that your growth is sustainable. The last thing you want to do is to end up damaging the business you have worked so hard to build. Let’s take a look at how to prepare your small business for sustainable growth.
Create the Right Team
As your business grows, the demands upon your team will change significantly. Your team may be working well right now, but you need to consider how much extra support they will need as your business grows.
When hiring, don’t just look for skills and talent. It’s important to take an applicant’s mindset into consideration, too. You can provide training to bring an employee up to scratch, but it’s very difficult to reset a negative attitude.
As your team grows bigger, management will become more complex, too. You will need to consider implementing new systems and standard operating procedures to ensure that your team can continue to function at its best as your business expands.
Update Your Infrastructure
You will need to scale your IT infrastructure in line with your business. Of course, this can be a very expensive process and may require you to hire new staff, which is a big drain on your resources.
Often, however, you can find cloud services to support your essential business functions, such as CRM software, HR management programs and email services. Cloud services are easily scalable and can help you to avoid many infrastructure-related growing pains as your business evolves.
Manage Your Books
Financing planning is a crucial part of planning for business growth, but before you can make a plan you need to get clear on where you are right now. This means updating your books and making sure that all of your records are impeccable – a task which many business owners tend to let slip.
Build Credit
You should always aim to establish a strong payment history with lenders to enable you to borrow more in the future. Cultivating a good relationship now will really pay off further down the line. It’s also important to pay your bills on time and maintain separate business and personal bank accounts to prove to lenders that you are fiscally responsible.
It’s always wisest to borrow when the going is good. You should arrange some credit now so that you can access it as and when you need it, rather than trying to secure funds when you’re in a difficult spot. Building credit before you need it puts you in a better position to shop around with creditors and negotiate better interest rates, too.
A good way to do this is to take out a line of credit, which is a pre-set borrowing limit. It is there for you when you need it, but you won’t pay interest until you actually borrow. You can then pay it back in increments over a set period of time, much like a traditional bank loan.
For more flexible options, consider arranging an overdraft and business credit card to smooth over short-term cash flow issues. However, bear in mind that these credit options are not suitable for long-term borrowing.
Summary
When anticipating a period of business growth, it’s important to ensure that your team is primed to handle growth and that your IT infrastructure can support the increased demands that it will incur. You should also ensure that you have access to plenty of credit and that your records are in good order so that you are able to make the right financial decisions at the right time and protect your cash reserves. Business growth certainly comes with its fair share of challenges, but good preparation is the key to profitable and sustainable growth.
If you’d like to speak to us about how we can support you with your accounting needs, book a free consultation here.
