Posted on 18 November, 2016 | 3 min
Having started a business, I know how exciting and tough it can be.
You wear lots of hats - from customer service to book keeper to making sure your staff have their favourite biscuits - and that's before you consider the biggest job of all: generating cash to make your business run better.
Being wrapped up in day-to-day tasks meant that it wasnt always easy to take a step back and make key decisions. But when I could, I found that looking at 3 key indicators - cash flow, sales and people - helped me get the overview I needed to focus on business strategy.
Cash flow: know the ins and outs
As the saying goes 'cash is king'. It's the lifeblood of your business, enabling you to pay operating costs, buy stock, pay staff, pay taxes and more. Good cash flow management is easier when you keep a close eye on the following:
Cash owing - staying on top of who is late with payments makes it easier to pay bills and wages and know what is owed to you too.
Stock - excess stock sitting on the shelf ties up your cash in unsold goods. Inventory turnover ratio measures the number of times inventory is sold or used in a time period such as a year. This measurement is your cost of sales divided by your average inventory.
Profitability - knowing your net profit (gross profit minus costs) shows you how much your business has generated before tax.
Profit margins - the gross profit margin on a product shows how much of the selling price goes into the business. This reveals which products are best for your business' cash flow. The net profit margin indicates how profitable your business is in terms of sales as a percentage. By comparing this figure with net profit, you can see whether administrative and overhead costs are reasonable. It can also help you with where to cut costs to improve cash flow.
Sales: know the numbers
The best way to develop strategies to sell more is to understand your current end-to-end sales process. Beyond how much you sold, examining your marketing, customer service and stock will help tremendously in moving your business forward. To keep it simple, I watch these 4 metrics closely:
Sales over time - analysing sales revenue over different time periods shows you which parts of your marketing have been effective, by day, week or month.
Best selling products - know what products or services are your best sellers. To increase the number of items per transaction, you can promote popular combinations together.
Product gross profit - closely follow the products or services that give you the highest profit margin and you can then work out strategies around price changes and supplier agreements to sell more of them.
Cost of acquisition - dividing total marketing investment by the number of new customers shows how much it costs to acquire each customer. This reveals which marketing activities have been the most successful and cost effective.
People: get more from your staff
We're all about sales via service. That's why understanding who's working on what and when is paramount in helping fine tune operations and increase efficiencies. The following areas are worth watching:
Billable time - keeping track of how long jobs are taking helps you identify potential cash flow implications. It also shows which parts of the process can be more efficient.
Rosters and shifts - monitoring schedules can reveal how efficiently you're utilising the skills you have within your team. Aligning these with sales trends throughout the day can also help to boost sales.
Payroll - this is one of your largest costs. Having a good understanding of it, enables strategic staffing decisions such as when to increase or decrease your staff levels, this will impact your bottom line.
Thanks to today's business software, getting information about your cash flow, sales and people is easy. Having daily access to these key metrics can help you see the big picture, so it's easier to make the little decisions each day as well as the big decisions from time to time.
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By Mark Estall, CEO at 9 Spokes.