So, we’ve spoken about how to track your business cash. But what should you be focusing on to track your small business financial progress? Charting a path to business profitability is like keeping an eye on an aeroplane dashboard. There are many levers and dials you can push and pull to keep the beast in the sky. You just have to know which ones to tweak for a smooth flight.
Here are five more tips to assist with quick wins in smoothing your path to success.
Is your revenue growing?
Can you see sales growth when you compare this month to last month or this year to last year? If you cannot, why not? Do you need to find new markets or, get creative and develop a new revenue stream? Knowing your growth is stagnant is the first step to fixing it.
What is your Gross profit margin?
To calculate your Gross profit, deduct the cost of the goods you are selling from your Total Income. To calculate the Gross profit margin, divide this Gross profit by your Total income. This is a particularly important but simple measure for small business. Very generally, for businesses selling goods, the Gross profit margin should be no less than 70%. If it is less than 70%, the business may struggle to make enough to cover wages and other costs. The drop in the Gross profit margin is often caused by something as simple as inflation pushing up cost prices. If this is the cause, it may be time to increase sale prices and your total income.
What percentage of your total income do you spend on Wages and Superannuation?
Just like the Gross profit margin, if the proportion of income spent on Wages is too high, the business may struggle to make a profit. As a rule, depending on the industry, 10% is usually the expected ratio to spend on wages. If the business is currently at a higher rate than this, it important to investigate why. Are they over-staffed or do they have over-qualified staff in some positions? Did they hire extra staff in anticipation of growth that has not eventuated? There is always an answer why.
Are you making a profit?
If items 1, 2 and 3 are tracking well, and you are still not making a profit, you may need to cut back on your operating expenses. The biggest spends in this category are often things like rent and insurance. Can you pull back a on the spend throttle and look at ways of reducing costs a little?
Finally, do you know how to find the answers to these questions quickly?
If you are behind in your business processing and you only receive these measures quarterly, it may be too late to adjust. The data is old hat, and the damage is done. The plane crash could be imminent. The best thing you can do to manage your success, is to be up to date and regularly engaged with your progress. I am talking weekly or even daily. And if you as the business owner do not have time for that sort of attention, you need an Appy co-pilot. We have been flying little planes just like yours for eons. Come fly with us. You’ll be in safe hands!
