You can spend hours on winning contracts, completing the work and advertising your business. But how long do you spend analysing which contracts are profitable, where your key revenue streams are, or how much each strand of advertising brings you in business?
This information is key to running a successful business as it provides factual information from which key decisions can be made to drive it forwards. Businesses, like people, need a check up every now and then to make sure everything is in working order.
I’ve outlined some key ways in which you can use your financial information to make better business decisions:
1. Real-time information
The business world is fast-paced and always changing , so you want to be reviewing your financial information at least on a monthly basis rather than at the end of each year. Doing this means that you can recognise trends and take action, such as discontinuing certain projects / expenses before it’s too late and the company falls behind it’s competition.
2. Regular review of debtors & creditors
Debtors are customers that owe you money. By regularly reviewing this list you will be able to see which customers aren’t paying you within your terms, or take longer to pay. You can then make sure you put measures in place to ensure you do not leave yourself financially exposed – such as requesting a larger deposit from slow payers or having monthly payments setup. Creditors are suppliers who you owe money to. By reviewing these, you can analyse when cash will leave the business and therefore make sure you have enough in your bank to settle the outstanding balances.
3. Identifying trends (seasonality)
Some businesses are busier just before Christmas. Some are busier on the last day of every month. Some are busier every Wednesday afternoon. By reviewing trends in your sales numbers and dates, you can analyse when you sell most. From this you can tailor your advertising to ensure that it is fully utilising the periods of increased exposure.
4. Reviewing revenue streams
You may not have increased prices for a client for 3 years as your client is really organised and you enjoy doing business with them. It sounds great on paper but after reviewing the revenue from that client against the costs directly attributed to it, you may realise that it’s not making you any money. With that financial analysis, you will gain the insight into which customers or revenue streams generate the most profit for your business (and least).
5. Cost analysis
By regularly reviewing your costs you can breakdown by category (e.g. Travel, IT, Office Supplies, Advertising) and see where your large outgoings are each week or month. This will help identify costs that aren’t necessary and allow you to avoid unnecessary expenditure. It’ll help find those direct debits you didn’t even know you had.
This list is by no-means comprehensive but it should give you an idea of what you can achieve by focusing on your financial information in more detail.
For a company that doesn’t have a Finance Director, you should be either completing this yourself or asking for this service from your accountant if you are serious about growing your business.
For more information on the performance of your business, financial reporting and a “no obligations” consultation, contact me via the following link.
ASU Accountants is based in Cranfield, Bedfordshire, UK. We embrace technology so don’t worry if we’re not local to you – we actively use Skype in our day to day business!