Often we get so caught up working in our business, that we don’t stop to take a look at how our business is actually performing. You win a big project, and you spend all your time working on it that the actual running of the business goes out the window. Basically, what’s happening is that you have stopped working on your business, and you’re now working in it.
It’s a common situation for start-ups and small business owners to face. And it’s important for you as a founder of a start-up and as a small business owner to make sure you are working on your business. One way to get on track is to know your numbers each month. By knowing your monthly numbers and what they mean, you can understand just how your business is performing. Is your business growing or are things just ticking over? Is your marketing spend translating into sales? Are you getting repeat customers? Are your profit levels increasing? Will your start-up actually be profitable at the end of the day? When will you be able to pay yourself a salary?
By knowing your numbers, you can make better business decisions. Decisions which can help you grow. Some of the numbers which are important to focus on are:
- Revenues – How much in sales are you making and what is the composition of those sales? Did you have a whole heap of growth when you first started and now this has started to plateau? Are all your sales to new customers or do you have a high proportion of repeating customers?
Nudge Example: In my business Nudge, we give our clients their numbers each month. One of our clients is in a niche market and she had experienced huge growth fin her first year. However, that growth soon stopped. What she realised was that she was spending so much time in her business that she didn’t have time to grow her business. This prompted her to outsource certain components of her business – tasks which she is not an expert at. She has since used this time to re-focus her energies back on the business, and the growth within the business it starting to take off again.
- Revenue lines – Chances are you’re probably selling a range of different products or packages. Don’t just look at your sales as a whole, look at how much money each of your products is bringing in. Then, go even further and look at how profitable each line item is. Would your business be better off ditching a product line?
Nudge Example: One of our clients is an online clothing retailer. They used to sell both male board shorts and thongs. From looking at their numbers, they were able to see that the thongs weren’t profitable and made a business decision to focus solely on board shorts. These board shorts are now stocked in leading department stores Australia-wide with international expansion underway.
- Key expenses – There’s no point spending money, if it is not going to make you money.
Nudge Example: One of our bigger start-up clients has a relatively large marketing budget. Over the last two years they have advertised online and in magazines. Recently they started advertising on the radio. What they found when looking at the radio advertising alongside the revenue numbers was that the radio advertising was not generating any more sales. This made them stop their radio advertising and re-evaluate whether radio is really an advertising stream suitable for them. By not looking at up to date numbers each month, they would have spent a whole heap of money for nothing.
- Cash – If your business does not have any cash, then you won’t be able to pay your bills, and chances are you won’t be around for long. Some businesses can be profitable, but have very little or no cash. Are you spending time building up sales, but not translating this into cash?
Nudge Example: One of our start-up clients was gaining some strong traction and sales with his business. He was invoicing clients, but never seemed to have any money in the bank. From looking at the businesses numbers, he could see that while his sales numbers were high, his cash balance was low because his clients were taking a long time to pay him, if at all. This led him to introduce an online direct payment on purchase system. Not only did this take pressure off the cash flow, but he also found he had more time to focus on his business as he didn’t need to spend valuable time chasing up late-payers.
These examples show just important it is to know your numbers. Knowing your numbers helps you make better business decisions and who knows where they can take you. Do you know your numbers this month? Or are you too busy working in your business?