5 KPIs Small Business Owners Should Be Tracking

5 KPIs Small Business Owners Should Be Tracking

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.

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.

Why You Need An Accountant For The Growth Of Your Small Business

Why You Need An Accountant For The Growth Of Your Small Business

Small businesses often put off hiring an accountant until they’ve grown bigger, but that’s a mistake that can actually delay growth. The services of an accountant extend beyond simply minimizing your tax bill, although that’s an undeniably valuable advantage. In addition to saving you time and money, a good accountant helps you to manage your cash flow, plan ahead, make smart decisions and reduce any risks to the financial health of your business. Here’s why investing in a quality accountant beats the DIY route every time.

1. Save Money On Your Tax Return

Let’s start with the most obvious advantage of hiring an accountant: to save money in taxes. Filing your taxes is notoriously complex and even a small, innocent mistake can result in a hefty fine. Chartered accountants train for years in order to be able to complete this process accurately, so doing your own return puts you at risk of making expensive mistakes.

Furthermore, a qualified accountant will have up-to-date knowledge of tax breaks, loopholes and business incentives to save you a sizable sum of money that you can re-invest in scaling up. If you do your own accounting or go with a very cheap firm, you’re unlikely to benefit from these savings.

2. Free Up Valuable Time

In addition to saving you money, an accountant will also save you a lot of time that you can put to far better use. As a small business owner, it’s vital that you keep accurate financial records and stay on top of your accountants. However, it’s equally true that your efforts are most valuable when concentrated on your area of expertise. Hiring an accountant allows you to ensure that your accounts are being managed well whilst allowing you to focus on growing your business.

3. Startup Advice

As mentioned, many small business owners are reluctant to hire an accountant in the beginning stages. However, an experienced accountant will be able to provide valuable advice during the startup stage that can accelerate your growth on areas such as:

  • Key financial risks
  • Budgeting
  • Financial forecasting
  • Growth
  • Funding
  • Tax incentives
  • Overall financial health

Hiring an accountant from the very beginning can help you build a solid financial foundation to ensure that your business is around for many years to come. They can advise you on which legal structure to choose and offer unbiased, constructive criticism of your business plan. It’s also worth noting that an accountant-approved business plan is more attractive to prospective investors.

4. Manage Cash Flow

Managing your cash flow well is essential to the growth of your business. Poor cash flow management is a serious threat to even the most profitable businesses, so it’s very important to get it right. Accountants are experienced in managing cash flow and can produce regular forecasts to ensure that you always have enough funds to continue operations as you scale up and market conditions change.

5. Growth Management

A quality accountant can help to fund and manage the growth of your business. Firstly, an experienced accountant will help you to identify sources of funding and present your case to potential investors. Additionally, they can also help you manage sudden growth spurts and ensure that they don’t overwhelm you and damage the financial health of your business, as is often the case.

6. Market Knowledge

It pays to hire an experienced accountant who knows exactly where your company is positioned in relation to your market sector. You can leverage this knowledge to create your unique selling point, price your services appropriately and gain a competitive advantage. In short, an experienced accountant allows you to benchmark your company which is incredibly useful for growth.

An Accountant Is An Investment

It pays to hire a high quality, proactive accountant. Whilst there are many cheap services out there, you’ll see the greatest return on investment from hiring an accountant who has the time, knowledge and experience to grow your business. A good accountant will do everything they can to not only save you money on taxes but to provide valuable advice, manage your cash flow and secure the financial health of your business for years to come.

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.

How to Avoid Common Money Leaks in Your Small Business

How to Avoid Common Money Leaks in Your Small Business

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.

How to Prepare for Tax Season as a Freelancer

How to Prepare for Tax Season as a Freelancer

Tax season can be a stressful time for freelancers. There are many steps you need to take in order to make the process as smooth and easy as possible. In this blog post, we will go over how to prepare for tax season so that your taxes are filed on time, with all necessary documents included.

#1 – Track Your Income

The first step in preparing for tax season is tracking your income. The best way to do this is to keep  a careful record of your invoices and payments all year round. However, if you have neglected to do this then now is the time to get your books in order.

#2 – Track Your Expenses

In order to determine if you owe money or will receive a tax return, it’s important that you keep track of your expenses.  As mentioned above, if you have neglected to do this then now  is the time.

The best way to stay on top of expense tracking is to do it little and often. Cloud accounting software is a great option, allowing you to easily access your financial data from anywhere.

#3 – Understand Your Deductible Expenses

It’s important to understand  what expenses you can deduct from your taxes. Tax rules are notoriously complicated,  so it’s best to consult a qualified accountant for assistance. You don’t want to miss out on lucrative deductions and tax credits.

#4 – Organise Your Accounts

It’s important to be organized when filing your taxes. You need to have all of the necessary documents at hand, including bank statements and invoices.

You should also make sure you are up-to-date with any deadlines for submitting forms or information.

You can use cloud accounting software to easily organize your account information, as well  as provide you with reminders for filing deadlines.

#5 – Plan Ahead

It’s important to plan ahead and make sure you can complete your taxes as soon as possible. This will allow for the maximum amount of time to file all necessary documents, such as tax returns or information forms.

#6 – Use Cloud Accounting Software

There are many great cloud accounting options out there, including  Xero and Quickbooks.  These options will allow you to easily track your income, expenses, deductibles, accounts and filing deadlines in one place. They also make it easy to receive reminders about upcoming deadlines.

#7 – Choose the Right Accountant

It’s important to choose an accountant that specializes in working with freelancers and understands the ins and outs of your industry. An accountant who is qualified and experienced will be able to guide you through the tax process, ensuring everything is filed properly on time. They will also save you money by  finding you all available deductions and credits.

Of course, an accountant is not just for tax season but  should be a part of your year-round financial planning. Whether you are filing taxes for the first time, or have been freelancing for years, having an accountant can help save money and stress throughout the entire process.

Summary

By following these steps, you can ensure that your taxes are filed on time with all necessary documents included. By taking the time now to stay organized and plan ahead, you’ll be able to enjoy a stress-free tax season!

Book a free consultation here, to learn more about how our tax services can support you.