It is always exciting to see your business grow, from your very first product or client sale to multiple sales to even perhaps multiple locations. I remember dreaming of first “real” client that I would help; I was pretty excited for sure!! But as your business expands in so many different areas with increasing dynamics it is easy to lose focus on the key areas. Of course sales are important, but looking beyond sales is more important and key to the success of any business.
Don’t lose focus!! Don’t !! It costs you so much more in the long run.
I made so many sales, so why don’t I have any money in the bank?
I have so many extra expenses …I thought I knew them all.
Ever heard these comments or similar ones?
What matters in the end of any business – profit or non for profit or charity organization is Net Profit. End of story!!.
To calculate: Sales (Revenue) less your Expenses gives you Net Profit.
Let us break it down a bit more.
Most times we know what our sales/revenues are. Sales/revenue are all the monies we should collect from the products or services provided/sold. It is useful to know however that for some businesses when a sale is made it is not the same time the payment is received. As business owners it is important to keep proper records of what our sales are and what payments we have not yet received.
Expenses, Expenses, Expenses
Why do they keep growing??
Expenses are all the costs of the business such as utilities, advertising and insurance. All forseable expenses should be budgeted for in our businesses. There are some expenses that are overlooked such as taxes, business registration fees and Insurance costs. In addition to that the separation of business and personal expenses are overlooked. A good example of this is where for small businesses which just have the owner operating it. At times the owner will pay for personal expenses out of the business account. It is important to not practice this since it doesn’t give an accurate picture of the business performance. A simply way to negate this practice is to take a salary as the owner, as soon as the business can afford that.
Putting in all together
Net Profit, Net Profit , Net Profit
To ensure the business is healthy and generating an acceptable net profit it is important to take into account other elements.
Are your prices too high or too low. Are you pricing based on the value you provide or are you looking at recovering your costs only? It is important to charge what you are worth
Key Performance Indicators
Applying certain ratios and analysis will help to determine the health of your business. You will also be able to plan and strategize. You can also compare your business to similar ones in industry as a benchmark.
Are you having too much waste in your business. For product businesses – are you wasting raw materials or even producing too much and have excess inventory on hand. This is relevant in service industries as well. Waste can occur on the time used on non- revenue generating activities and also ineffective advertising.
Are you spending excess time on certain activities that can be automated and save you time to do other key tasks in the business? It is important to examine how you can incorporate automation in your business. This article provides some examples.
The growth of your business is always exciting, however it can be devastating when you see your business crashing after all your hard work. Let us be proactive to ensure we have ample systems and procedures and reviews in place to minimize the likelihood of this happening.
Here’s to upward and continuous business growth and development!!