If you were to build a house – you would ensure the foundation was good and stable and you would have plans drawn for the builders to follow. This is the same for businesses whose owners are driven to be successful. They need to know where they are starting from. You can’t make decisions on what you don’t know. If you were looking at increasing sales by 15%, you need to know where you are starting from. If sales are currently $10,000, a 15% increase would be easy. However, if your sales were $1.5 million, this task may prove to be more difficult. That is an extreme example, but you can see my point. Bad decisions are made on assumptions. You need to know the truth on what is happening to make good business decisions.
How do you know if you are doing something really well, if you don’t measure the results? Alternatively, how do you know if something isn’t working?
Having the numbers in a timely manner is as important as knowing them (perhaps much more important). Do you get meaningful reports within the week or two after month end? I was talking to a business owner last week who told me that they like to get their accountant to do their financial statements once a year after the end of financial year so that ‘he knew if he has made money that year or not’. This fellow also told me that he had a bookkeeper and she did a great job and kept the books up to date. This indicated to me that the bookkeeper never gave him his reports to look at, and it wasn’t easy for him to get them himself. He traded blindly year on year without knowing what was going on. A very dangerous situation for a business owner to be in.
If your gross profit dropped by 2% and you didn’t pick it up for 12 months, this could have a serious effect on your profitability. For example, if your sales were $500,000, that is $10,000 direct profit. 2% doesn’t seem like much, but it can add up over time particularly 12 months!
How can you know your numbers?
Talk to people who handle your numbers – your bookkeeper and your accountant.
They’re your most logical source for numbers. Everything goes through them and they are experts in dissecting the financial details. If you are not getting the right kind of reports to make your decisions on, there’s something amiss. The team at Evolve will be pleased to talk to you about what you should be seeing and how to access these reports easily using Xero. Call us today on 07 5413-9393.
Managing Director, Evolve Online Bookkeeping