Column: Business view
Today's Business View columnist is Lorette Astwood-Davidson , a business adviser with BDO Taranaki.
I am often surprised with new clients at how little they know about their business - even such simple facts as what their monthly overheads are - information that can mean the difference between success and failure.
I tell these clients that staying up to date is crucial, and that there's no excuse not to be. All it takes is a monthly check of the following key indicators to make the right decisions to run a robust and profitable business.
Monitor cash: Cash needs to be closely monitored as it is the single most important indicator of business performance. With cash it is imperative that it is monitored more daily than monthly; also on both a short-term and longer-term basis.
Financial reports: Too often I see businesses reacting to information months down the track. It is imperative that accurate reports are prepared on a monthly basis, close to month end so you can react in real-time to market changes. Most software can provide reports - from large business with fully integrated programmes to small businesses using bank-link type reports. Don't just do your GST and move on to the next job - print your monthly reports and review them.
Customers: You must understand your customers - continually ask them what they want and what they think of your product or service. Use technology to help you connect and measure with them.
Overheads: Many clients do not know their monthly overheads yet it is such an easy calculation - even if done as basically as dividing annual overheads by 12 months. It is essential information to have when you reach that breakeven point in the month and start to make profit.
Key relationships: Strong relationships are fundamental to business success. So find a bank manager you connect with, who will give you their direct dial number and make sure you stay in touch. Likewise strong relationships with key suppliers are imperative. They're often willing to extend payment terms or give discounts and allowances so constant communication is the key. Huge benefits can flow to your business including improved margins and support through tight cashflow periods.
Gross margin: Know your pricing model and continually strive to maximise your margins. Gross profit and margin are key financial indicators that need to fall out of your monthly reports. Only by understanding your model can you strive for improvements.
Stock control: Measure stock that is key to your business on a monthly basis to obtain accurate financial reports. This doesn't necessarily mean monthly physical stocktakes but it does mean having a programme to monitor levels, ageing and shrinkage. Rolling stocktakes and spot checks are useful. Often when money runs out, stock is the culprit along with debtors.
Debtors and creditors: Monitor your debtor levels monthly. It is important to measure the days outstanding and have formalised methods of collections. This often requires continuous follow-up and a firm consistent approach. Also measure your creditors' levels monthly. Huge gains can be made by using technology and managing creditors online and eliminating cheque payments.
Employees: Great employees are the key to business success. You need a process for collecting all the great ideas your employees have. You also need to monitor staff turnover on a monthly basis.
Budgets: The difference between a dream and a goal is a plan. You must have both short and long-term business budgets, and review your monthly results to budgets. Most software easily accommodates budgets.
If you're stuck or confused about any of these matters, ensure you get professional advice sooner rather than later as staying up to date is fundamental to good business.
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