Businesses that are bossing it in 2021 have one thing in common – they’re in control of their finances. They’ve ditched the complicated admin that takes up their evenings. They’ve got a good understanding of cash flow. And they use their data to make the best financial decisions for their business.
Their secret is strategy.
To better understand your money and discover how to improve profitability you can follow a simple 5-step strategy designed to help you succeed. It’s a great way to understand your data and numbers so that you can make the best business decisions. It guides you on key areas of your business to monitor so that you can ensure you’re making money. And it gives you simple tips on how to spend less time on financial admin.
1. Start with salary
What do you need in the bank to survive? To work it out, start with an accurate number based on your financial data. It’s easy to guess based on what you think you’re spending but a sure-fire strategy has to be built on facts. Take a look at your cash flow figures and work out how much salary you want to take. Don’t forget your business needs to be able to sell enough to leave you with an income after all expenses and taxes have been paid.
2. Manage your business separately
Make managing finances as easy as possible by keeping personal and business transactions separate. Open a separate bank account for all business transactions and connect it to your accounting software. This will give you fast, accurate data when you need it. And it will help you when it comes to collaborating with accountants or bookkeepers.
3. Define five key areas for driving profits
To boost your profitability, you need to keep track of give key areas.
Sales: Stay in control of where your sales are coming from to work out the best ways to reach a wider audience and sell more.
Cost of sales: Keep track of costs that increase when you sell more and decrease when you sell less to keep them as low as possible.
Overheads: Manage the fixed costs that you pay each month regardless of the sales you do. The goal is to only incur overheads that are absolutely critical and to make sure you’re getting the best deals.
Gross profit: Stay on top of cost of sales to maximise your profits. Make sure you charge the correct prices and reduce or remove discounts where necessary.
Net profit: Your net profit is gross profit minus overheads. The number after tax needs to at least equal what you need to survive. Keeping overheads as low as possible is the best way to make sure more of the profit is available to you.
4. Automate time-consuming tasks
Accounting software can help you automate the tasks that take up your evenings so that you have more time to focus on your business and your strategy. Here are some of the tasks you can save time on:
Purchases: Use a mobile app to capture receipts and purchase invoices as you get them and automatically upload them into your accounting software. AutoEntry is a great solution.
Invoicing: Set up recurring invoices to save time and reduce admin.
Banking: Connect your bank account so customer payments can be reconciled automatically.
Products: Create reorder levels and reorder quantities within your accounting software so that when stock reaches a certain level you know to create an order with your supplier.
Reporting: Use reports and dashboards so you understand the financial health of your business.
5. Review what you have in three steps
- Know the numbers: Do you have the data to create the numbers to provide an accurate view of the business?
- Understand the numbers: Do you understand what the numbers are telling you and the actions that are required?
- Validate the numbers: are the numbers consistent with your goals and support you to move from where you are today to where you want to be?
So, there you have it. Your very own 5-step strategy designed to help you be proactive, responsible and in control of your money. It should help you find out what’s working for your business and what isn’t, giving you key areas to focus on so that you can make the best possible decisions for your business.
If you need more help, an accountant or bookkeeper will make the process much easier – and you’ll have a knowledgeable ally to support you in your role as the Boss.
If you want to discover tips, hints and best practice when it comes to creating your strategy or get a clear picture of what profitability looks like for your business, join our series of webinars starting on 11 March.
For further information, you can access the webinar program here.