How are those new year resolutions working for you so far?
January is an exciting month! As the start of the calendar year it is the perfect time to reflect on the past 12 months, and to set some goals for the year ahead. We are a bit late to the party right? Why is this article being released close to the end of the month? Normally social channels are flooded at the end of December and beginning of January to capture the buzz and excitement of the new year. By now though, is when the majority of resolutions have been forgotten about and the same ruts of the previous year sneak into the new one.
Know your business - The 2 Step Plan
Resolutions are usually discussed in the context of personal resolutions, however we will leave those for others to deal with. We are passionate about business, and so that will be our focus today.
Clearly there are many reasons why people go into business. A core underlying principle for a successful business is the ability to provide value to your target market. This value can be determined through something that you have been passionate about, or perhaps fell into. For us, we are passionate about helping businesses have peace of mind over current rules and regulations and to ensure tax is being legally minimised. We also believe in demystifying the confusion around tax and accounting issues, as well as being our clients trusted advisors in a broad range of issues including starting out in a new business, or supercharging an existing one.
So where to from here? Let’s consider a two step plan to ensure you really know your business now, and how to drive it forward for a successful 2018!
1. Not a business plan again?!
Last year we released an article “Why a business plan is a waste of time, but you should do it anyway”. The objective of this was to get business owners thinking about the broader issues impacting them. This can be done in many different ways, however our point of view was that an easy way to structure the thought process was to simply use a business plan template.
We still believe that this holds true, and also practice what we preach. Recently we had put forward a SWOT analysis to a client who joked that they hadn’t seen one since Marketing 101 at Uni. Once again, it is not a very sexy document, however, the fundamentals are sound. Call it whatever you like, just take a moment and think about where you want your business to be in 12 months time.
So first things first, refresh (or create) a business plan!
2. Now you know your business, it is time to set some goals!
Once you have an outline of where you are and where you want your business to go, consideration must be given on how to actually get there!
“If you can't measure it, you can't improve it."
Known as the founder of modern management, Peter Drucker’s above quote is one of his most well known messages and for very good reason. A great example of this, was a fairly new client meeting late last year. The owner of a small business was struggling with very irregular cashflow which made it difficult to determine how they were tracking. Thankfully they were using Xero, so after some initial work to get the file up to date, we were able to look at both historical and current figures. On face value the business was struggling to break even and it was clear the owner was feeling stressed.
In situations like this it is very easy to feel overwhelmed, and for good reason. We deal with real people, and this is real money. It matters.
Being a serviced based business with high fixed overhead costs, using the profit and loss figures we were able to analyse and calculate a few things. Firstly, we considered the timing of cash inflows, and impact of slow debtor collections. Next we looked at fixed and variable costs to determine the when and how some additional marketing activities could be funded. And finally we were able to calculate how many new customers were required to be break even based upon average retention and fees paid.
To summarise, these were the key Key Performance Indicators (KPI’s):
Average debtor days
Customer breakeven point
It turned out only 10 more customers were required to break even and give comfort over cashflow. Ten people is a very tangible thing to focus on, and brings us back to that key principal of being in business and finding that way you can provide value. Focusing purely on a certain revenue number wasn’t right in this case, as it would be too tempting to try to make short term wins by increasing fees. By focusing on what this business does well, and leveraging that to increase the customer numbers organically is a much better longer term strategy that becomes clear once you have metrics.
These KPI’s also provide accountability. Next time we sit down, we have very specific and measurable metrics to discuss.
Are you missing out?
This is the kind of advice and discussions we like to have with our clients. We take your numbers and turn it into a meaningful conversation that you actually understand and have actionable takeaways to help your business grow.
If you are not getting this kind of insight into your business, do not hesitate, contact us today!