Engine Room Blog

If you only meet with your accountant once a year it is vital that you use that time to really understand how your business is performing and what you need to do over the next year to achieve your goals.  

The three key questions are:

1.  How did my business do compared to the previous year?

Sales may be up but profits down (or preferably sales are down, though profits are up).  Understanding whether this is a trend or caused by a one off event is essential to making decisions on how to have a better year.  

2.  Where has the money gone?

Often business owners are hit with a tax bill at the end of the year but have no cash available to pay it.  This may be caused by cash tied up in stock or debtors, or because cash taken out of the business by the owner is greater than the funds generated.  Often cash has been used to fund growth in the business without any cash flow forecasting. (If you want to know more check out our next 'where has the money gone?' seminar at www.engineroomca.co.nz/events ).  Cash is always King - if you cannot turn profit into cash your business may be growing too fast, or you are neglecting to put enough time into managing your business finances.

3.  Is my pricing right?

Pricing is 20% science and 80% art, but fundamentally if you are not making a profit on every sale, you need to review your costings and how you set your price.

4.  What is my business worth?  

While valuing a business is a project all of its own, your accountant should be able to give you an indicative valuation.  Understanding what your business is worth is vital to making decisions about getting it ready for sale, retirement and succession.

These three questions will lead to a whole lot more...

What can I do to increase sales?

How can I increase my profit?

How do I keep more cash in my business?

What do I need my business to be worth to fund my retirement?

I'd love to know what key questions you ask your accountant to help you with building your business.

Clients often ask “How do I grow my business?” There are lots of different techniques and tactics that different types of businesses might use to do this but in fact there are only 4 ways to grow your business.  These are:

 1             Increase the number of customers – but only the ones you want. 

2             Increase the transaction frequency – this means getting your customers to come back and buy more often than they currently do.

3             Increase the average value – this could mean increasing the quantity customers buy or increasing the price you charge for your product or service.

4             Reducing the cost of making your product or delivering your service - this is often achieved by making the process more efficient.

Start with these four ways and think about what you could be doing in your business to address each one.

 

Running a business without a business plan is like rock climbing blindfolded. Your chances of making it successfully to the top are slim. And the process will surely be a death-defying one.

A business plan is a step-by-step guide to running your business and creating a product or service that will make it in the marketplace. Now is a great time to review your business and plan forward.

Whether it’s formal or informal, every business has a plan. The smart owner of a local hair salon would have assessed the need for a shop in that area of town, the ability to attract clients there, the appropriate amount of chairs, etc. The owner who waits to figure things out using trial and mostly error will be lucky to be left with his/her wits, much less any customers.

Writing your business plan down:

1. Helps you identify all aspects of business operations
2. Increases your chances of considering all the important factors in your business
3. Increases your chances of success
4. Provides a means to analyze and determine how to boost your business out of the doldrums