Today I am going to share with you some ideas on how you can get the best from your business, in terms of Profit Performance, without employing an accountant and without being good at Math’s!
When a majority of people start a business, they start by selling a product or service for more money than they bought it for and this doesn’t actually mean that they have a sustainable business it means that they can facilitate a transaction between two parties.
When I left school, I wasn’t very good at Math’s, to be honest with you. I then went on in my career to thrive and thoroughly enjoying over 20 years in Senior Commercial and Business Performance Roles. How and why did I do that? Well I think it was the thrill of delivering extra value to my company, doing a good job and by knowing how the Income and Costs model of business actually worked.
By knowing this, I knew that I was one step ahead of most people out there.
Life is a little different now, because I run my own company and luckily for me, the one thing that I never have to worry about is monitoring and measuring the health of my Business – because this is second nature to me. All because I went out there and learnt about a subject that I knew would benefit me in the future (in business and at home).
In Business today, most people think of their costs as their actual bank balance, you know, what’s in the bank, but that is not a true reflection of the health of your organisation. If you want to be in business for the long haul and also afford the lifestyle that you dreamed of when setting up your business, then you need to “Know Your Numbers”.
Many don’t understand that once you have understanding and control over your costs and income, then you have a really POWERFUL business model and YOU take control. You will be more sustainable, have the ability to grow and will also support and compliment your business plan and strategy.
Understanding your costs is the easiest way to turbo charge your profit and the sustainability of your business.
Let me then share with you three tips, three great Golden Nuggets of information that I know will help you.
These all come from my “Finance and Commercial” section of my DRIVE for Business™ programme, that you can learn more about over at my website.
Understand Your Costs
The first Golden Nugget is about really understanding where your costs are coming from. Start by having a look and write down the detail of where your costs are coming from. This is not necessarily the individual transactions, here we look at categorising the costs too see if they are direct costs or indirect costs. Direct costs come straight to you, whereas Indirect Costs are embedded costs for example within postage or a third-party service that someone might be adding into one of their products, materials, or supplies that you buy.
Then have a look at how many of those you can control, how many of those you could potentially reduce, and how many of those could negotiate out. The idea here is to really understand your whole cost-base, what it looks like for the whole year and then track it every single month.
The second action is to take ACTION and drive these costs down. Have a think about what you could actually do about them. Work out how you could make them more efficient and make them really work hard for you. Make contact with your suppliers and have those difficult conversations to reduce them down.
Know Your Cost of Sales
The second Golden Nugget is all about understanding your Cost of Sales.
What is Cost of Sales? It is a figure where you work out how much it costs you on average to make a sale. So, once you have worked out your average sale (Income), we need to identify ALL costs that relate to and contribute to that sale, so that we really understand how much each sale actually “Costs” you.
You need to make sure that you include everything cost into this. Be sure to include your overheads, your direct and indirect costs that, we have identified above and really understand where they have come from.
The next sections is to establish a KPI’s (Key Performance Indicators) from these. So, what does a good month look like and what does a bad month look like. This is how we measure the health of your businesses on a monthly basis. We start with our costs because we need to start to track and monitor these and see how they vary throughout the year.
Then you will be in control. You will be in control because you will understand and accept fluctuations in your cost base. You will be able to see easily when your costs go up and when your revenues go down OR when your revenues go up, or when your costs go down. Whichever way around you want to look at it YOU will now be in control.
Review Your Overheads
Finally, the last one is all about your Overhead costs. Overheads can absolutely kill a business and on the other hand the tasks and activities that come from your overheads can also make a business grow.
The trick here is to have a good look at your overheads and scrutinise them to make sure that every single overhead that you have is working towards making you some revenues. Controlling your costs and driving revenues is exactly how to grow a sustainable business.
For example, if you brought somebody into your organisation, like an administrator or support function, ask yourself “Are they really working hard? Are they delivering that value that you wanted from day one when you employed them or have they started to move off, be distracted and carry out other tasks?”
Everybody must be carrying out revenue generating activities and it is our job to make sure that we keep them focused on doing just that!
This way we can again, take control of out overheads, keep them to an absolute minimum and we only spend when we really need to.
If you like this blog then please visit https://innovatetosuccess.com and look out for my DRIVE for Business programme where you will find more practical tips and tricks on how to extract more profit from your organisation and get you the lifestyle that you want, all while improving your work-life balance.
If they did help you out, then please don’t forget to like, share, comment and pass it on to your business colleagues
Don’t forget to keep up to date at www.innovatetosuccess.com and look out for my latest Podcast “Be your Best in Business™” at – https://innovatetosuccess.com/podcast.
More importantly, you get to work, and go have a great day. I’ll catch up with you soon.