20 Sep 2023
In order to grow your business, you need to understand how you’re faring. Financial numbers provide you with an accurate picture of your performance, but as a busy business owner it’s unlikely that you have the time or the inclination to spend hours pouring over complex numbers. However, ignoring your financial numbers is likely to lead you towards failure. It’s prudent to create a list of key performance indicators (KPIs) to focus on so that you can keep an eye on what really matters. This will then allow you to make informed decisions about the financial health of your business and measure your progress over time.
Profit and Loss Statement
It’s essential that you understand your profit and loss (P&L) report because it tells you whether you are making or losing money, and how much. You need to pay close attention to your P&L report and review it every month so that you get a good idea of how your status is changing over time. Keeping a close eye on these numbers allows you to identify areas where you can cut costs, understand seasonal patterns and know when to raise your prices.
Expense Report
It’s vital that you understand how much you are spending each month. If you don’t know how much you’re spending it becomes impossible to calculate profit and loss. Furthermore, you need to be aware of your spending so that you don’t blow your budget. You should use your accounting software to regularly create expense reports to review and compare against one another. This will help you to identify areas where you can reduce spending and ensure that your expenses are not growing faster than your revenue – although this is acceptable in the short term when preparing for growth, for example by hiring new employees or buying new equipment.
Accounts Receivable
Accounts receivable refers to the money that you are owed in unpaid invoices. If you have a lot of money tied up in accounts receivable then you’re likely to run into cash flow problems, even if you’re operating at a profit. Keep a close eye on accounts receivable by using your accounting software to automate invoices, as this will help you to understand who owes what. Being aware of your accounts receivable allows you to differentiate between cash flow and profit, take action to chase up payments and make informed decisions about when to spend and when to hold back.
Profit Per Client
Some clients generate more profit than others. Your most lucrative clients aren’t necessarily the ones who spend the most, and it pays to know who actually makes you the most money. This will allow you to focus on attracting profitable clients who will earn you more money in less time and thus optimise your business growth.
Calculate profitability per client by taking the total fees received and subtracting the expenses involved. Then, divide this number by the hours that you spent on the work to calculate the hourly wage per client. You may be surprised at just how much this can vary!
Cash Flow
Managing cash flow can be a tricky balancing act. It’s important to produce cash flow statements regularly so that you understand how much is coming in and going out of your business, and how much you are left with. Remember that cash flow and profitability are separate entities. It’s possible to be in profit but run out of cash because your money is tied up in assets and unpaid invoices.
You should create and review cash flow statements regularly and track how your situation is changing. It’s important to stay on top of your cash flow so that you know when you are able to make investments without running out of available funds.
Item Sales
Item sales reports create a clear picture of how profitable each of your products or services are. For example, one product may generate a lot of sales but a minimal amount of profit. This is actionable data that indicates which products or services you should be focusing on, and which to discontinue.
Summary
Like it or not, numbers don’t lie. As a small business owner, it’s vital that you stay on top of your financial numbers so that you can assess the health of your company and take action accordingly. You need to review and analyse your numbers regularly to understand how you are performing and give your business the best chance of success.
Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.
Book a free consultation here, to learn more about our accounting services and how can help you grow your business.
11 Sep 2023
Your business needs a budget but when you’re starting out it can be tempting to skip this step. That would be a mistake, because a budget is a powerful tool to ensure the financial health of your small business. A realistic budget enables you to make confident financial decisions and save money for future investment and expansion. On top of this, your budget will prevent you from overspending and provide concrete goals against which you can measure your success.
It can be difficult to know where to start when it comes to creating a budget, particularly during your first year in business. You’ll need to work with estimates if this is the case, but it will still make financial planning much easier. Once you’ve laid out a realistic budget, you’ll be able to adjust it as necessary rather than starting from scratch. Here are six easy steps to creating a realistic budget for your business.
1. Calculate Your Income
Business income is the money you receive from customers for your goods or services. This is easy to work out from your records if you’ve been in business for a while, but if you’re just starting out you’ll need to make an estimate. Try to be as realistic as possible but if in doubt, always err on the side of caution. It’s better to be conservative with your budget than risk overspending.
If you’ve been in business for a year or more, take some time to analyse seasonal trends. If you’re new, do some research on patterns within your industry. Many businesses experience a boom in sales at Christmas, followed by a lull in January. It’s important to plan for these peaks and troughs as accurately as you can.
2. Determine Your Costs
Once you’ve worked out your projected income, it’s time to take a look at your expenses. Business costs fall into three different categories: fixed, semi-variable and variable.
Fixed: these costs are the easiest ones to calculate. Fixed costs are the expenses that are likely to remain the same for the next year or so, such as rent, internet and insurance.
Semi-variable: this is a bit of a grey area. Semi-variable costs are fixed costs which may increase or decrease in proportion to your workload. For example, a boom in sales might result in increased hires, phone bills or power usage.
Variables: these expenses are directly linked to your number of sales, such as commissions or raw materials. This is the part of your budget that you’re most likely to have to tweak over time. You can calculate this by adding together all of your variable costs over a given period of time and then dividing them by your production volume.
3. Factor in One-Off Expenses
You need some wiggle room in your budget in case things go wrong. Unforeseen expenses do crop up every now as then, so you need to be ready for them. For example, if a piece of equipment breaks down, you’ll need to replace it as soon as possible so that it doesn’t impede productivity. Of course, some one-off expenses are planned, such as facility upgrades or conferences. Keep a separate fund for this type of cost and don’t be tempted to put it towards your regular expenses.
4. Work Out Your Profit
Your profit represents how much money you’re actually making. You could have a huge income, but that doesn’t mean much if it’s outweighed by even larger costs. To calculate your profit, subtract your costs from your income.
5. Refresh
A budget doesn’t mean much if you don’t review it regularly, and a lot can change in a surprisingly short amount of time. It’s vital to keep checking your budget and making adjustments whenever necessary. Each month, set aside some time to check your finances and compare them against your plan. This will keep you on track and allow you to keep your budget relevant to your business.
6. Use Bookkeeping Tools
Staying on top of your budget can be time-consuming, especially when your business is growing and you’ve got a million other things to do. Cloud-based bookkeeping software is the easiest and most reliable way to keep track of your expenses and you’ll have 24/7 access to your records from anywhere in the world, so long as there’s an internet connection.
The Importance of Budgeting
A realistic budget for your business makes it so much easier to plan for the future. However, regularly reviewing and adjusting your budget is essential, or it could quickly become outdated. Your budget is a roadmap for your business and it helps you to prepare for all manner of situations. Most importantly, it gives you control over your finances, which will help your business not just to survive, but to flourish.
Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.
Book a free consultation here, to learn more about our accounting services.
29 Aug 2023
Running a small business is rewarding, but it comes with various challenges, finances being one of them – especially when the geopolitical landscape has gone wild and numbers simply aren’t your thing.
Whether you’re an entrepreneur struggling to keep your small business afloat or a seasoned business owner trying to navigate unpredictable economic times, handling finances for your business is crucial but can feel daunting. In this blog post, we will share our tips on how you can manage your finances during periods of economic uncertainty.
Create a Financial Plan
One of the most effective ways to navigate any kind of uncertainty is by creating a plan. A financial plan helps you forecast your business’s income and expenses and make decisions influenced by the right information. Knowing your short and long term goals is a helpful place to start, from there you can evaluable your current financial position, and identify any risks your business might be up against.
Most accountancy software will allow you to run reports and track your performance, helping you make decisions at every stage. You’ll see where you have opportunities to reduce costs and maximise your best income streams.
Have Financial Reserves
It is always good to set aside a portion of your revenue to create financial reserves in anticipation of uncertain times. Having a financial reserve can help you cover sudden expenses, unexpected costs, or a downturn in business. I recommend aiming to have three to six months’ worth of expenses set aside as a reserve.
Stress-Test Your Business
Stress-testing your business means developing a set of scenarios and projecting what the impact would be on your business. Consider how your sales, cash flow, and stocks would be impacted. This can help you prepare for potential financial challenges and make appropriate adjustments to your budget, stock, and marketing strategies.
Maintain Relationships
Relationships matter, no more so than in uncertain times. Doing what you can to keep in favour with your bank and suppliers will help you if you face an unforeseen situation. Banks are more willing to lend money to businesses with good credit scores. Similarly, good relationships with suppliers can help you negotiate better payment terms, discounts, and extended repayment plans to help you manage your cash flow better.
Stay Up To Date
Finally, staying up-to-date on regulations and laws relevant to your business is essential at all times, but avoid costly mistakes might seem even more important when the economy feels more difficult. A great bookkeeper or accountant will always keep you up to date on anything that will impact your business finances.
Conclusion
Managing finances during uncertain times can be challenging, but it is not impossible. By creating a financial plan, establishing financial reserves, stress-testing your business, maintaining good relationships with your banker and suppliers, and getting the support of an expert bookkeeper or accountant, you have the best chance of navigating financial uncertainty and taking care of your financial health. Preparing for the future is always more advantageous than reacting to it, so start planning your business’s financial future today.
If you’d like to talk to me about how we work with small businesses like you book a free consultation with us.
4 Aug 2023
Money leaks in your small business eat away at your profits without you even knowing about it. Even if your business seems to be in great financial health, you should regularly check for leaks to ensure that you’re not unwittingly wasting money. Plugging money leaks can help to reduce your spending and thus boost your profit margins without too much extra work on your part. Here are the most common money leaks to look out for, and how to fix them.
1. Online Advertising
It’s easy to let advertising fees get out of hand. Social media pay-per-click fees may seem small, but they do add up and can present a significant money leak for your small business. Keep a close eye on any social media or Google advertising campaigns to ensure that you’re not running up a big bill. It’s also important that you regularly review the effectiveness of these adverts. If they’re not bringing in business, they’re a wasted expense.
2. Subscriptions
At some point, we’ve all signed up for a free trial with no intention to continue, then forgotten all about it and ended up paying. Other times, we stop using a service but forget to cancel the subscription. It’s all too easy to let your business leak money this way, but it all adds up. Review your subscriptions regularly and promptly cancel any that are no longer benefiting you.
3. Power Usage
Small mistakes like leaving the lights on overnight and forgetting to switch off devices may not seem like a big deal, but over time they can seriously eat into your profit margins. It’s important to get into good energy saving habits and encourage your staff to do the same.
There are many other ways to cut down on electricity usage, such as investing in insulated blinds or switching to energy-efficient lightbulbs. Although these changes do present an upfront cost, they will save your business a significant amount of money in the long term.
4. Office Supplies
It’s easy to go over-the-top with office supplies, so take some time to assess what is and isn’t necessary. Thousands of multicoloured sticky notes are fun, but they’re hardly a necessary expense. Furthermore, many businesses waste a lot of money on printing, which is easily avoidable in the age of cloud-based software.
5. Credit Card Fees
Being lax with your credit card payments is a surefire way to create unnecessary costs. By clearing your balance each month – or at least as much as possible – and paying attention to any annual or hidden fees involved, you can save your business money and boost your profit margins.
When signing up for a credit card, don’t get distracted by the attractive rewards. Make sure that you read the fine print and understand the fees before you choose a card. This will help you to use your card wisely and avoid any money leaks.
6. Smartphone Bills
If you’re not keeping a close eye on your smartphone bills, you could be paying a lot more than necessary. Make a habit of reviewing your charges every month to ensure that you and your staff aren’t exceeding your plans. Take a close look at your usage, too, because you could be paying for more than you’re actually using. It’s also worth shopping around regularly too to see whether or not you could benefit from switching plans or providers.
It Pays to Plug
By plugging these common money leaks, you can cut down on costs without making any real sacrifices. Regularly checking for leaks helps you to make your business budget go further, so make sure you don’t grow complacent. Get into the habit of regularly performing basic checks to maintain a healthy profit margin and prevent your business from losing money.
Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.
Book a free consultation here, to learn more about our accounting services.
1 Jun 2023
Hiring a financial advisor for your business is a wise move for your business, especially at the moment when great financial management is more important than ever, given the recession. But with so many financial advisors out there, how do you know which one is right for your business? Here are five top tips to help you choose a financial advisor who will transform your business and ensure that you achieve your goals.
1. Check their credentials
The first step is to check that your potential financial advisor is qualified and credentialed. There are many financial advisors who are not qualified, so this is an important step.
Some financial advisors may have a degree in finance or accounting, while others may be certified financial planners. Make sure you check their credentials to ensure they are qualified and actually know what they’re talking about.
Unfortunately, just about anyone can get online and claim to be a financial advisor, but not everyone has the qualifications to back it up!
2. Social Proof
Reviews and testimonials from other happy clients are a great way to gauge whether or not a financial advisor is worth working with.
Look for social proof in the form of positive reviews on their website, or see if you can find any testimonials from other businesses they have worked with. Don’t be afraid to contact said businesses to ensure that the reviews are genuine. This will help you get a feel for whether or not they are reputable and actually deliver on their promises.
3. Free Consultation
Most good financial advisors will be more than happy to offer a free consultation. This doesn’t just benefit you; a good financial advisor won’t take on a client if they don’t feel that they are the right fit. Be wary of anyone who wants to work with you without even speaking to you first.
During the consultation, be sure to ask plenty of questions and get a feel for their financial planning process. This is your chance to really get to know them and decide if they are the right fit for your business.
4. Make Sure They’re a Specialist
Working with a specialist has huge benefits for your business. They will have a wealth of experience and knowledge in their specific area, which means they can provide you with tailored advice that is relevant to your business.
A specialist will also help you to benchmark your business and understand how you’re faring in the context of your industry. Metrics such as costs, revenue and profit margins vary hugely from industry to industry. What might be a poor profit margin for one industry could be a big success for another sector, and it’s important to work with a financial advisor who understands this. Otherwise, you could end up making decisions based on inaccurate information, or losing confidence because you think your business is performing worse than it actually is.
5. Chemistry Matters
It’s important to like and trust your financial advisor. After all, you’ll be working with them closely and entrusting them with sensitive information about your business.
You should feel comfortable communicating openly with your financial advisor, and you should feel confident in their ability to help you achieve your goals. If you don’t gel with them, it’s probably not going to work out!
Final Thoughts
Choosing the right financial advisor for your business is critical, and it can be difficult to know where to start. By following these five top tips, you’ll be well on your way to finding a financial advisor who can help you achieve your goals. Remember that this is a significant investment, and one that will pay off extremely well if you make the right decision, so choose wisely.
Book a free consultation here, to discuss your needs and how we can help you transform your business.
Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.
3 May 2023
Whether you’re running a small business, or your company is struggling to thrive in this tough economy, knowing the best way to spend and save money can be difficult. This is where a financial consultant/advisor comes into play. A skilled professional can review your current financial situation and provide insight on how you should allocate funds for the future to help you reach your goals.
Overview: What Does a Financial Advisor Do?
A financial consultant/advisor can help you budget, forecast, and save money for your business. They look at the big picture to determine how much capital is necessary to keep operations running smoothly. In addition, a financial planner will look at your company’s goals and determine which path is best to achieve long-term success.
1) Make Your Business More Profitable
A financial consultant/advisor can help you improve the bottom line of your business in a variety of ways that allow you to achieve long-lasting success. First, they will assess how profitable your company is at this point in time, and then look at ways to maximize earnings moving forward. This might involve adding lucrative new products or services, updating your current offerings, or revamping your marketing campaigns. You may think you’ve done everything you can to maximise profitability, but often you’re too close to see the bigger picture. It’s surprising just how much light can be shed from an expert outsider’s perspective.
2) Save Time
Many business owners learn how to handle their finances the hard way – by going bankrupt. Fortunately, you don’t have to waste years on trial and error. When you hire a financial consultant/advisor, you can skip all of these costly mistakes and failures and instead use their expertise to fast-track your business towards financial success.
3) Plan for Growth
A financial consultant/advisor can help you prepare for growth and expansion within your company. This could mean hiring top talent, making your processes more efficient, establishing new office locations or marketplaces, and helping you to mitigate risks. Growth often causes financial difficulty for business owners, but the right consultant/advisor will guide you through the process so that you are able to maximise all of the opportunities available to you and preserve the financial health of your company.
4) Personal Finance
When you spend all of your time worrying about your company’s finances, it’s easy to neglect your own. However, a financial consultant/advisor can work directly with you and your family to set up a comprehensive plan that includes the entire scope of your finances. This might include investments, retirement planning, estate planning, insurance policies, budgeting, and tax preparation. A skilled professional will provide advice on how to make wise decisions in each area so that you’re able to achieve financial success.
By working with a highly skilled advisor, you’ll be able to make confident and informed decisions about your future. You can take care of long-term planning that ensures the stability of your family while also protecting your business from potential risk factors that might arise in the years ahead.
Summary
Hiring a financial consultant/advisor can be one of the best investments you make for your business. A skilled professional will help you determine how to allocate funds, forecast future earnings potential, and save money for unforeseen expenses while also preparing your company for growth. By working with a financial consultant/advisor, you’ll be able to maximize your profits and save time so that you can focus on what matters most – running your business.
Book a free consultation here, to discuss your needs and how we can help you grow.
