Do you want more cash and profit in your business?
Who doesn’t, right?
Well, there are three steps to improving the cash and profit positions in your business. They are:
- Know
- Target
- Improve
Know
Know your numbers; you can’t improve something if you don’t know what it is you’re trying to improve. Or what the problems with the thing you’re trying to improve are.
The first step is quality accounting information, so you know where you’re currently at. What your starting point is.
What’s good quality accounting information? It’s simple and easy:
- Raise your sales invoices as soon as possible
- Record all your purchases in a timely manner
- Reconcile the bank account regularly
- Run quality reports that give you the necessary information to know your numbers
The key here is having all the numbers fully updated at least monthly, in order to run the reports that will give you the quality information.
These reports are usually Profit & Loss Account and Balance Sheet. However, you might need additional information in these reports for steps 2 and 3, or a slightly different report in order to get that quality information.
Target
Once you know your numbers, you can set SMART targets for improvement.
What do I mean by SMART targets?
- Specific
- Measurable
- Achievable
- Relevant
- Timely
It’s likely that your improvement will be a marathon, not a sprint. So it’s important to set SMART targets to incrementally improve your cash flow and profit numbers.
For Example
If you’re currently making 2% profit and you want to make 20%, you’ll need to tackle that bit by bit.
First target how you’re going to make 5%, what do you need to change, amend, improve in your business in order to increase profitability from 2% to 5%? And so on…
Incidentally, we have a Profit Diagnostic Tool that we can use with any business to help us illustrate where and how profit can be improved. Interested? Get in touch!
Improve
You know your numbers and you have your targets. Now comes the improvement!
By monitoring your numbers against your targets, on a monthly basis as a minimum, you can track that you’re making the necessary improvements to meet those targets.
And, if the improvements aren’t coming, you know about it straight away. This allows you to adjust and amend your strategy as necessary, in order to keep working towards that target.
Knowing your numbers and monitoring them in this way also makes you aware of problems in the business as soon as they arise, so you can tackle and resolve them in a timely manner.
It sounds simple, doesn’t it?
This is a management accounts process that lots of businesses use to monitor, track, improve and grow their businesses.
By looking at your numbers you should be able to see where problems that need fixing are, how on track to your goals you are and make the necessary adjustments to reach those goals.
Most accounting software packages give you basic information to start running your business in this way.
Do you do this? If not, why not?
We like to use slightly more meaningful reports, that we’ve built, to really give our clients the specific information they need to manage their businesses.
Through our Business Advice & Management Accounts packages we also give clients access to a Virtual Management Accountant, Finance Manager and Finance Director. This means we can give our clients the answers, so they can focus on the doing – and make more cash and profit.
Start running a management accounts process in your business today, and make more cash and profit!
If you need help with it, get in touch!