Where does your business make money?
It is a simple business query that should elicit a clear answer but in reality, many business owners simply don’t take the time to really understand their own finances. Yet it can mean the difference between success or failure.
In my life before founding WORK[etc] I spent a year writing more than 20 business plans for other businesses covering the full range of industries — from a bio-tech team working out of a local university who was looking to commercialize sleep monitoring technology, all the way through to a 30-year-old, family-run mechanical engineering company struggling to stay competitive against cheaper off-shore producers.
In hindsight, the year working at a strategic level across so many companies was more valuable than the three years I spent earning a University degree.
After a while, I started to see the same patterns emerging. The ones that were struggling all shared a very similar set of challenges. They just did not understand where they actually made money.
As part of the planning, I asked many companies if they were turning a profit and if so, what parts of their business were profitable and why? An unfortunately common answer was: “I think we’re good, but really you should speak to our accountant.”
Often the person overseeing the figures was not even a person in the office. Instead they worked for an accounting firm outside the office, or someone else. I was once even sent to talk to Jenny at the front desk who had done a course on Xero.
These owners and managers were all smart, driven and talented people, but they chose to maintain an attitude of “that financial stuff is not my thing” or “I don’t have time to look at all the financials” instead of taking responsibility for the financial health of their business.
The success of many — if not all — businesses, often comes down to a few simple metrics that you need to monitor every day, week, month and quarter.
These are your core metrics, and in short they are the numbers that track the health of your business, much like your body temperature, weight and heart rate for your own health.
For example, with my business I’ve been keeping a daily record of the count of site visitors, number of free trials, dollar sales of new customers, and subscription renewals every single day day for the last 5 years. Looking at my spreadsheet I can see I’ve missed exactly 32 days out of more than 1825 days.
These figures don’t lie. They drive my business, show trends week to week or month to month and, importantly, I can collate them on my own. I’m not waiting on anyone else to pull a report or send an email. These are my numbers; I own them (and they kind of own me too).
To make sure your business is on the right track, here are the three simple steps you can take.
- 1.Identify your figures
Communication is key when dealing with whoever “looks after all that financial stuff” for you. Explain that you want to create a top-level, simple metric that you can track day in and day out. It might be as simple as knowing the profit per widget and how many widgets were shipped yesterday. Or it might be knowing your staff’s average utilization rate and how many client hours were recorded on timesheets yesterday. Then work out a way to track it.
2. Make sure you understand them
If “finance isn’t your thing” then you need to make sure your accountant (or the relevant person) explains it in a way you understand. Don’t be embarrassed to ask your accountant to “explain it like I’m a five year old.”
3. Create a habit
Finally, you need to find a system that works for you to keep track of this data, and to make it a habit. It could be as simple or it could involve the platforms and programs you already use.
Whether you’re reporting or financial or non-financial data, an all-in-one CRM can make things easier by collating information across all activities in your business, in the single online interface.
As long as the data is in the system, you can generate a report with a few clicks. Native integration with accounting software like QuickBooks and Xero will also make sharing and collaborating on your financials an easier task.
Once you’re set up with your simple tracking report, make it part of your daily habit. For me this is literally four minutes’ work when I sit down with the first coffee of the morning.
Daniel Barnett is the founder of WORK[etc] an all-in-one CRM increasing productivity for small businesses.