The first stage in the Mastery region is FINANCIAL MASTERY. Financial mastery is one of the skills, capabilities and toolsets you must have in your business to be successful. This week, your assignment is to be certain that you have the fundamental financial insights into your business to help you make great decisions.
Financial Mastery begins with having access to your business financial reports on a regular and timely basis. You should be reviewing three critical financial reports on a monthly basis:
-your Profit & Loss Statement (P&L)
- your Balance Sheet
- your Cash Flow Statement
These three financial documents will tell the story about your business. Together they paint a powerful picture of how well your business is performing, where your opportunities for improvement are hiding and what the near term future outlook is from a financial perspective. It is critical that you are having these prepared on a timely basis and are reviewing them monthly. Are you?
Once you have your monthly financial reports available, you are in a position to track some Key Performance Indicators (KPIs). These are important ratios and measures that you can lift from your financial statements and track on a regular basis. You not only want to know where your business is at a particular snapshot in time, but you want to know how your business is doing relative to the past months - perhaps even to the same month the prior years. Have you identified your Key Performance Indicators?
These KPIs are best viewed on a Dashboard - a visible set of graphs that tell a story of the health and trends in your business. Your dashboard should be updated at least monthly and should be much like the dashboard of a car - allowing you to look forward rather than in the rear-view mirror. Included in your dashboard should be activities that are not found in your financial statements, but rather reflect your lead generation and lead conversion success rates as well as other delivery and customer satisfaction measures. Is your Dashboard up and visible? Are you aware of the trends in your business?
Being successful in Financial Mastery is a great deal about your mindset. You must have the mindset to demand that you have the financial data you need to run your business. How can you know who is winning if you do not know the score? You must be looking at your scorecard on a regular basis and using your scorecard to help you make great decisions in your business. As you gain mastery in this area, you will expect and demand even more. There is so much that can be gained from the financial data in your business once you have the necessary systems and processes in place. You can begin looking at the individual profit margins by product or service type, you can see labor rates and overhead percentages - and many more critical metrics.
Nothing should be a surprise in your business. If you are flying without instruments it is just a matter of time before you crash. There is a saying that "speed kills". The faster you want to go in your business, the better set of financial indicators you must have. Going fast is good only if you have the financial awareness and can read the financial dashboard.
Expect and demand the regular reports, graphs, metrics and indicators that will let you race even faster - As the great Keith Cunningham says: "If you can't read the scoreboard, then you don't know if you are winning or Losing!"
Friday, March 4, 2011
Saturday, February 26, 2011
Profit Breakeven
It is essential for you to understand the flow of money in, through, and out of your business. For some businesses, this can even be a daily issue. Positive cashflow (more money coming in than going out) is essential to keep the business going.
So how do we keep more money coming in vs. going out? Obviously, having a good control on expenses and payables is essential to controlling what is going out. Timing is crucial in managing cash. Making sure that you are collecting the receivables in a timely fashion assures that money is coming in. Another key cashflow issue is maintaining an appropriate level of stocks and supplies. Again, a good practical rolling cashflow budget will address all of these issues.
Once you are successfully monitoring your cashflow, the next issue to address is profitability. A great place to start to look at profitability is breakeven. The definition of breakeven is the point in your business when your gross profit covers all of your fixed costs. If you go "above" breakeven, then you are profitable. So here is the formula:
BREAK EVEN SALES = FIXED EXPENSE divided by GROSS PROFIT MARGIN
This answers the question, how much do I need to sell to pay my expenses? You can calculate break even for a year, a quarter, or a month, a week or even a day. Let's go through an example in a small business for one year.
Let's use a coffee shop. This coffee shop only sells black coffee! We'll deal with marketing in another article!!! The cost to operate this shop is monthly rent (including utilities) of £ 750/month, salaries of £ 2,000 per month, and other fixed expense of £ 500 per month. They also figured out that the cost for coffee and water is £0.10 per cup, and they sell a cup of coffee for £1.25. We have all we need to calculate break even.
YEARLY FIXED EXPENSE = (£2000 + £750 + £500) x 12 months = £39,000.
GROSS PROFIT PER CUP = £1.25 - £0.10 = £1.15
GROSS PROFIT MARGIN = GROSS PROFIT divided by GROSS SALES = £1.15/£1.25 = 0.92 (92%).
BREAK EVEN SALES = FIXED EXPENSE divided by GROSS PROFIT MARGIN
BREAK EVEN SALES = £39,000/0.92 = £42,391.30
CUPS OF COFFEE SOLD TO BREAK EVEN = £42,391.30/£1.25 = 33,913/year or 652 per week or 93 per day (if you are open 7 days a week 52 weeks per year).
Sunday, February 20, 2011
Cash is King
Cash is King If you want to stay in business for the long term then paying attention to the discipline of getting paid is absolutely critical. It has never been more important to have a real focus in this area especially as bigger companies are right now work up strategies to pay many of their suppliers later and later to manage their own cashflow. I have listed below several of the strategies that I will work through with my clients.
1. Review your terms of sale - Re-visit the Terms and Conditions (T's and C's) of doing business with your company.
2. Run a credit check on all new clients- Always run a credit check on a new business and determine their credit worthiness.
3. Have a system in place for credit control - Ensure that resource in the business is dedicated to credit control and that you have a process that you follow.
4. Develop a good relationship with your customers credit control team- What is the quality of your relationship with all the credit control managers of your customers? They are humans as well and if you treat them well you will be paid quicker.
5. Ensure that you are billing promptly for the services that you have offered - Many companies leave it until the end of the month before billing. Look to put processes in place to send out invoices as soon as the service has been provided.
6. Introduce new payment terms - If you currently work on 28 days then why not reduce this to 14 days or 7 days? The rules of the game are changing
7. Early Settlement Discounts - Offer up an enhanced discount i.e. 2.5% if the customer pays their bill early.
8. Train the team- It is critical that you whole team understand the importance of credit control and your processes. Put KPIs in place for all of them who have responsibility for being paid by their customers.
9. Have a KPI to measure your Debtor Days - When you know what your debtors days are you can put a target in place to reduce them and have as a Key Performance Indicator for your business
10. Debt Recovery Specialist - From time to time you will have a significant challenge in getting paid. It is important to have a specialist debt recovery service who you can fall back on to make sure that if their are disputes around payment that these are resolved.
1. Review your terms of sale - Re-visit the Terms and Conditions (T's and C's) of doing business with your company.
2. Run a credit check on all new clients- Always run a credit check on a new business and determine their credit worthiness.
3. Have a system in place for credit control - Ensure that resource in the business is dedicated to credit control and that you have a process that you follow.
4. Develop a good relationship with your customers credit control team- What is the quality of your relationship with all the credit control managers of your customers? They are humans as well and if you treat them well you will be paid quicker.
5. Ensure that you are billing promptly for the services that you have offered - Many companies leave it until the end of the month before billing. Look to put processes in place to send out invoices as soon as the service has been provided.
6. Introduce new payment terms - If you currently work on 28 days then why not reduce this to 14 days or 7 days? The rules of the game are changing
7. Early Settlement Discounts - Offer up an enhanced discount i.e. 2.5% if the customer pays their bill early.
8. Train the team- It is critical that you whole team understand the importance of credit control and your processes. Put KPIs in place for all of them who have responsibility for being paid by their customers.
9. Have a KPI to measure your Debtor Days - When you know what your debtors days are you can put a target in place to reduce them and have as a Key Performance Indicator for your business
10. Debt Recovery Specialist - From time to time you will have a significant challenge in getting paid. It is important to have a specialist debt recovery service who you can fall back on to make sure that if their are disputes around payment that these are resolved.
Saturday, February 19, 2011
Getting What You Want, Getting What You Need…
Here are two lists which should serve as a valuable guide toward helping you make progress in all of your efforts. The first one is from Think and Grow Rich and describes the thirty-one (31) major reasons for failure and incorporates the thirteen (13) major principles through which people accumulate fortunes. As you go through them, check yourself by it point by point for the purpose of discovering how many of these causes of failure stand between you and success.
The second list is from 21 Success Secrets of Self-Made Millionaires by Brian Tracy. This information will change your life for the better, but only if you apply the concepts.
These lists are very potent…so do your best to use it in ways that will affect everything you do as you move through your week.
Thirty Reasons People Fail:
1) Unfavorable hereditary background
2) Lack of a well-defined purpose in life
3) Lack of ambition to aim above mediocrity
4) Insufficient education
5) Lack of self-discipline
6) Poor health
7) Unfavorable environmental influences during childhood
8) Procrastination
9) Lack of persistence
10) Negative personality
11) Uncontrolled desire for something for nothing
12) Lack of a well-defined power of decision
13) One or more of the six basic fears
14) Wrong selection of a mate in marriage
15) Over cautious
16) Wrong selection of associates in business
17) Superstition and prejudice
18) Wrong selection of career
19) Lack of concentration of effort
20) The tendency to spend indiscriminately
21) Lack of enthusiasm
22) Intolerance
23) Intemperance
24) Inability to cooperate with others
25) Possession of power that was not acquired through self-effort
26) Intentional dishonesty
27) Egotism and vanity
28) Guessing instead of thinking
29) Lack of capital
30) Other
Napoleon Hill states that most people cannot see themselves as others see them. You may be one who cannot. He says that it will be helpful if you can induce someone who knows you well to go over this list with you, and help to analyse you ... and also, it may be beneficial if you try this alone, as well.
21 Success Secrets of Self-Made Millionaires:
1) Dream big dreams
2) Develop a clear sense of direction
3) See yourself as self-employed, even if you’re not, yet
4) Do what you love
5) Commit to excellence
6) Develop a workaholic mentality
7) Dedicate yourself to lifelong learning
8) Pay yourself first
9) Learn every detail of your business
10) Dedicate yourself to serving others
11) Be impeccably honest with yourself and others
12) Set priorities on your activities and concentrate single mindedly on one thing at a time
13) Develop a reputation of quality, speed, and dependability
14) Be prepared to climb from peak-to-peak in your life and in your career
15) Practice self-discipline in all things
16) Unlock your inborn creativity
17) Get around the right people
18) Take excellent care of your physical health
19) Be decisive and action oriented
20) Never consider the possibility of failure
21) Back everything you do with the twin qualities of persistence and determination.
These lists are very accurate. Both authors, Hill and Tracy, are big in the “success,” with much resource to draw from as you move forward to make your dreams a reality.
Personal growth could be compared to adolescence…the change is confusing and uncomfortable. So, ask yourself, “Are you a child or an adult? Are you a success or a failure?”
The distinction between success and failure exists in the “lens” through which you view your life and everything inside and outside of your very essence as a human being.
You can have anything you want, you just can't have everything. Each “want” demands a focused effort.
The only place that success comes before work is in the dictionary, because of the first letter in the spelling.
If you can grasp the reality of your own dreams coming true, or in other words, wrap your brain, mind, and thoughts around the possibility of some magnificent changes, very positive things will happen for you.
Action usually follows belief. Get very clear on what you believe in and go to work immediately to join the increasing numbers who decide that life is not a dress rehearsal and that one receives only one opportunity to put on a good show.
The second list is from 21 Success Secrets of Self-Made Millionaires by Brian Tracy. This information will change your life for the better, but only if you apply the concepts.
These lists are very potent…so do your best to use it in ways that will affect everything you do as you move through your week.
Thirty Reasons People Fail:
1) Unfavorable hereditary background
2) Lack of a well-defined purpose in life
3) Lack of ambition to aim above mediocrity
4) Insufficient education
5) Lack of self-discipline
6) Poor health
7) Unfavorable environmental influences during childhood
8) Procrastination
9) Lack of persistence
10) Negative personality
11) Uncontrolled desire for something for nothing
12) Lack of a well-defined power of decision
13) One or more of the six basic fears
14) Wrong selection of a mate in marriage
15) Over cautious
16) Wrong selection of associates in business
17) Superstition and prejudice
18) Wrong selection of career
19) Lack of concentration of effort
20) The tendency to spend indiscriminately
21) Lack of enthusiasm
22) Intolerance
23) Intemperance
24) Inability to cooperate with others
25) Possession of power that was not acquired through self-effort
26) Intentional dishonesty
27) Egotism and vanity
28) Guessing instead of thinking
29) Lack of capital
30) Other
Napoleon Hill states that most people cannot see themselves as others see them. You may be one who cannot. He says that it will be helpful if you can induce someone who knows you well to go over this list with you, and help to analyse you ... and also, it may be beneficial if you try this alone, as well.
21 Success Secrets of Self-Made Millionaires:
1) Dream big dreams
2) Develop a clear sense of direction
3) See yourself as self-employed, even if you’re not, yet
4) Do what you love
5) Commit to excellence
6) Develop a workaholic mentality
7) Dedicate yourself to lifelong learning
8) Pay yourself first
9) Learn every detail of your business
10) Dedicate yourself to serving others
11) Be impeccably honest with yourself and others
12) Set priorities on your activities and concentrate single mindedly on one thing at a time
13) Develop a reputation of quality, speed, and dependability
14) Be prepared to climb from peak-to-peak in your life and in your career
15) Practice self-discipline in all things
16) Unlock your inborn creativity
17) Get around the right people
18) Take excellent care of your physical health
19) Be decisive and action oriented
20) Never consider the possibility of failure
21) Back everything you do with the twin qualities of persistence and determination.
These lists are very accurate. Both authors, Hill and Tracy, are big in the “success,” with much resource to draw from as you move forward to make your dreams a reality.
Personal growth could be compared to adolescence…the change is confusing and uncomfortable. So, ask yourself, “Are you a child or an adult? Are you a success or a failure?”
The distinction between success and failure exists in the “lens” through which you view your life and everything inside and outside of your very essence as a human being.
You can have anything you want, you just can't have everything. Each “want” demands a focused effort.
The only place that success comes before work is in the dictionary, because of the first letter in the spelling.
If you can grasp the reality of your own dreams coming true, or in other words, wrap your brain, mind, and thoughts around the possibility of some magnificent changes, very positive things will happen for you.
Action usually follows belief. Get very clear on what you believe in and go to work immediately to join the increasing numbers who decide that life is not a dress rehearsal and that one receives only one opportunity to put on a good show.
Monday, February 14, 2011
6 key areas to help with financial mastery
I often get this question: "What is the most common mistake business owners make when they are growing their business?"
While I could say it is not setting goals, planning their time or doing enough sales and marketing, the true factor must be the lack of financial understanding.
Businesses go bust because they run out of money. Even the most badly run business will survive if it has a constant supply of cash. I have come across businesses run by people who have never taken a penny out of it for themselves - relying instead on investments, family or, worse still - borrowings to fund their personal life. The worrying thing is that they have no idea of their financial status so they continue doing the same old thing.
Even good businesses that make profits can fall prey to Cashflow problems when they start to over trade. Overtrading is where the sales of a company are increasing but the money from the sales comes in slower than the money goes out to pay the suppliers. When the money runs out the business cannot continue even though it has plenty of sales.
Not all factors are a result of the business itself. We are currently in a time when our customers are finding it tough and if they are unable to continue they may well leave us with an unpaid (bad) debt that can have a serious impact on our own business.
So how can we reduce the risk of our business failing because of these factors? Well the simple truth is that we need to know our numbers!
Take the sporting analogy - any sport will do - let's take golf as a simple example. If you do not know how to score how can you play the game? If you think it is a race, then you would be timing yourself, if you thought it was 2 points for a drive on the fairway and 10 for knocking it in the hole then you would not be able to compare yourself to everybody else who might be scoring it differently.
Keith Cunningham, the author of "Keys to the Vault," says: "If you do not understand your financials, you should not be in the game of business." I am not saying you need to be a financial wizard, but you must know the basics and be able to ask the important questions that will affect the course of your business.
There are 6 key items you need to understand and look at on a regular basis - at least monthly. (For some businesses, this could be more often such as weekly or even daily.)
1. Profit & Loss account - Key to monitoring your sales, costs, and profit margins for the period.
2. Balance Sheet - A snap shot of the business showing where the money invested in the business is at any point in time.
3. Cashflow Forecast - A week-by-week projection of the flow of cash in and out of the business.
4. Aged Debtors & Creditors - How much you are owed and owe and how many days they are outstanding.
5. Budget - Prepared once a year and reviewed monthly, to ensure that costs are kept in check and sales are meeting targets.
6. Key Performance Indicators (KPIs) - KPI's that are specific to your business are the pulse that tell you how fit you are. They can cover any aspect of the business from the number of leads coming in, the rate of conversion into customers, right through to wastage and down time.
There should be no embarrassment going to ask for help to understand your financials - after all if you did not know the rules of golf, you would have no problem asking somebody for help learning them.
The only embarrassment is if your business fails because you misread your score.
If you are challenged with your cashflow at the moment or would like help in understanding your numbers then please contact us on 0844 445 7146 or by email to Coaching tip of the week
If you would prefer to read this week's coaching tip then click on the link to our Blogsite
Have a great week
While I could say it is not setting goals, planning their time or doing enough sales and marketing, the true factor must be the lack of financial understanding.
Businesses go bust because they run out of money. Even the most badly run business will survive if it has a constant supply of cash. I have come across businesses run by people who have never taken a penny out of it for themselves - relying instead on investments, family or, worse still - borrowings to fund their personal life. The worrying thing is that they have no idea of their financial status so they continue doing the same old thing.
Even good businesses that make profits can fall prey to Cashflow problems when they start to over trade. Overtrading is where the sales of a company are increasing but the money from the sales comes in slower than the money goes out to pay the suppliers. When the money runs out the business cannot continue even though it has plenty of sales.
Not all factors are a result of the business itself. We are currently in a time when our customers are finding it tough and if they are unable to continue they may well leave us with an unpaid (bad) debt that can have a serious impact on our own business.
So how can we reduce the risk of our business failing because of these factors? Well the simple truth is that we need to know our numbers!
Take the sporting analogy - any sport will do - let's take golf as a simple example. If you do not know how to score how can you play the game? If you think it is a race, then you would be timing yourself, if you thought it was 2 points for a drive on the fairway and 10 for knocking it in the hole then you would not be able to compare yourself to everybody else who might be scoring it differently.
Keith Cunningham, the author of "Keys to the Vault," says: "If you do not understand your financials, you should not be in the game of business." I am not saying you need to be a financial wizard, but you must know the basics and be able to ask the important questions that will affect the course of your business.
There are 6 key items you need to understand and look at on a regular basis - at least monthly. (For some businesses, this could be more often such as weekly or even daily.)
1. Profit & Loss account - Key to monitoring your sales, costs, and profit margins for the period.
2. Balance Sheet - A snap shot of the business showing where the money invested in the business is at any point in time.
3. Cashflow Forecast - A week-by-week projection of the flow of cash in and out of the business.
4. Aged Debtors & Creditors - How much you are owed and owe and how many days they are outstanding.
5. Budget - Prepared once a year and reviewed monthly, to ensure that costs are kept in check and sales are meeting targets.
6. Key Performance Indicators (KPIs) - KPI's that are specific to your business are the pulse that tell you how fit you are. They can cover any aspect of the business from the number of leads coming in, the rate of conversion into customers, right through to wastage and down time.
There should be no embarrassment going to ask for help to understand your financials - after all if you did not know the rules of golf, you would have no problem asking somebody for help learning them.
The only embarrassment is if your business fails because you misread your score.
If you are challenged with your cashflow at the moment or would like help in understanding your numbers then please contact us on 0844 445 7146 or by email to Coaching tip of the week
If you would prefer to read this week's coaching tip then click on the link to our Blogsite
Have a great week
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