This year we’re excited to be hosting a series of educational seminars for business owners on how to understand your financials. We have found that many business owners are unaware of how to make the most of the information available to them to maximise their business’ performance and make well-informed decisions. Stay tuned for our first seminar coming soon…
If you’re a sports fan you’ll know how important it is to keep track of the score, because without those crucial numbers you’ll never know which player or team is winning.
MWM Advisory director Melanie Wear says it’s the same in business – you need to understand what your numbers mean to know what’s working and what’s not.
“There are three sets of numbers you need to grasp to know if you’re achieving your goals or not – turnover, profit and cash,” says Mrs Wear.
“Turnover is important as it drives sales, but you don’t want to be chasing this number at the expense of profit or cash.
“The size of your turnover isn’t the most important number unless you’re a new business and need to establish a level of repeat sales, as the last thing you want to do is focus on increasing sales without first focusing on profit and cash.”
Mrs Wear says the next thing to understand is that profit and cash are two very distinct sets of numbers, and that by differentiating them you will be in a much stronger position to improve both.
“Profit is the reason you’re in business, it’s your return for the effort, money and assets you put into your business,” she says.
“If you’re not earning enough profit, you may as well shut up shop and put your efforts into doing something else.
“Cashflow is the lifeblood of your business, as when your cash runs out your business dies, so it’s probably the most important set of numbers to be aware of.”
Mrs Wear says as a business owner you must fully comprehend how cash works and be in full control of it.
“You could grow a successful multi-million dollar company by just having a good understanding of cash with a grasp on profit,” she says.
“Everything in your business is about generating cash and producing turnover at the right price, maximising your profit by controlling your costs and then turning that profit into cash as quickly and effectively as possible.
“An important part of this cycle is ensuring your accountant can support you with keeping on top of these numbers.”
“Business owners who know their numbers have a tremendous advantage over those who don’t, and surrounding yourself with qualified professionals is one of the most important ingredients for long-term success.
“The main thing to remember is to make sure you have the right control over your profit and cash – turnover is more often than not the realm of vanity, and as such the most common reason most businesses fail.”