Thinking Women

As a business owner, we often get asked by clients “what does my profit mean?”, “am I doing ok?” and most often “am I a success?”. Now whilst profit is one measure of success, looking at that number alone is dangerous.It could mean that you sail along in your comfort zone, not knowing how, when or if your business is actually successful in the first place.

 

 

Now we also know that everyone’s version of success is different. Some people focus on turnover, which is also a great metric but not in isolation. I mean you could be turning over a million dollars a year, but also have a million dollars of expenses. So you have no profit left to use to grow the business.

You could have revenue of $20k a month, expenses of far less, and have surplus cash to grow the business and invest in the future direction. So who in that instance is “more successful”?

But we all know (or we all should know) that profit doesn’t equal cash in the bank. So if business owners are owning looking at individual metrics and making big assumptions about their business, that is where we see them heading down a rocky road.

Investing in more stock because your sales are high, when in reality cash flow is low could mean the future growth of the business will now be stunted.

Borrowing money to invest in new equipment because profits are high, when tax adjustments are not taken into account could mean you don’t have the cash to repay the instalments.

Spending up big to get tax deductions (because you heard on the grape vine that is a good idea without talking to your accountant), when you have GST and PAYG tax debt meaning you have to go onto a payment plan with the ATO often causes sleepless nights.

So here are my six vital questions you should be asking yourself as a business owner to really drill down into your business performance and determine your future success:

  1. Is the business running the most efficient it can be?Now you simply won’t get this answer from one individual report. You need to look at multiple reports to really understand this and drill down into spending habits, income streams, debtor balances, cash flow issues, the works.
  • If someone else (junior employee or contractor) did certain tasks, what time would that fee up to generate more revenue? If you are spending 5 hours a week doing invoicing and bookkeeping, maybe you are better to hire a kick arse BAS agent (ummm hellooooo), outsource that task which you hate anyway, and use that free time to actually generate more revenue for the business. So the cost then is really negated by the extra income anyway – win win.
  • Are there any manual processes which could be eliminated and what is the cost v time savings analysis?There are always some manual processes as part of business. However if there is a manual process which could be eliminate by technology, better processes, employee manuals, training – then what is the cost of swapping the process. What outcomes would you get? You need to think long term here as most benefits don’t happen straight away.
  • What do you “need” income wise each year to cover your personal costs? This is a big one. We often have people tell us they want to earn $50k a year (for example) as profit. However they don’t even know if that amount will cover their mortgage, child care costs, living expenses, personal expenses, holidays, car expenses and basically let them live the life they want. Aim for the target you need, and anything above that is a bonus.
  • What problems would money solve that technology can’t? Now trust me, if someone wanted to give me $250k to invest into my business I wouldn’t say no – however I wouldn’t immediately say yes either. To take on investors you might need to give up some of the business ownership or equity for that cash – and that is something that shouldn’t be taken lightly. And could the same solution be achieved with some kind of technology/app/program and you then still hold 100% ownership of your business?
  • If the business was to grow how would you manage it and what does that look like? Most small business owners want to grow their business and be a force in their chosen field. However, if you do grow the business to say $1 million turnover, how would you manage that? Would you need staff and how many? How would you manage that many staff? Would you need a new office/shop? What would the rent be that you might not be paying now. Extra growth usually always comes at a cost – know what that is before you aim for it.

So there you have it, things that will impact on your view of success. Things that will help you drill down into your business performance, both from a financial viewpoint but also an operations viewpoint.

But always compare apples with apples and understand that no two businesses are the same. Don’t think the grass is greener on the other side, as trust me, we see some pretty big profile business owners and you just don’t know how fast they are paddling their legs under the surface to achieve the results they achieve

Aim for what YOU want, aim for the goals YOU have, aim for the success YOU desire – and when you get there, be bloody proud of your effort no matter what the actual number is.