Regularly when business owners hear Money Mastery they say, “Oh we’re fine with that. We’re up to date with everything.” What they actually mean, is that they are up to date with their taxes. They may even have an annual budget, cash flow and monthly management accounts. But Money mastery goes far beyond those!
Having figures and KPI’s to measure performance
Keith Cunningham says, “Numbers are the language of business.” I couldn’t agree more. Numbers are the scorecard of your business.
- Are you doing ok?
- Are you reaching your goals?
- Are strategies working or not? What trajectory is your business on?
It is essential for any business interested in growing to have figures and KPI’s to measure performance in all the major areas of business. None more important than money!
Make strategic business decisions by looking at the figures
All strategic business decisions should be made based on reviewing the relevant figures. Way too often people find the numbers confusing or boring or they may not even have the essential figures. Don’t worry all of this can be learnt and changed.
An annual budget and cash flow 12 months out
So where to start? The first steps are to have an annual budget and cash flow 12 months out. This way you can schedule large payments, prepare for cash gaps and can see straight away what impact any significant investment or increase in costs may have on cash flow and profits. It will vastly reduce the number of financial surprises you experience in your business!
Work out your breakeven point
The next stage is to have your breakeven worked out in € and unit sales per year, month, week and even daily if in retail for example. Breakeven is the point at which your business is viable but still very vulnerable. That’s why net profit is so important.
Many businesses will have a turnover target but what is the net profit target? And what € and unit sales are needed to each reach it per year, month, a week?
Remember you may need net profit from operations to reinvest in the business, as a rainy-day fund/retained earnings, reward yourself and team, pension etc. A business is not sustainable long term without it.
- What are the company-specific financial KPIs in your business?
- Do you have a process to record and report them?
- Are decisions made based on these?
Remember, money mastery is not something that can be delegated. You can get great support from your bookkeeper, accountant, financial controller or coach. There are great accounting and reporting packages, ERP systems with accounting packages etc. Research to find the best system for your businesses’ needs. You don’t need to be a maths genius. At the end of the day you need is to have and understand the right figures so that you can make the right decisions for you and your business.
If you invest time in Money Mastery now, it will make you a fortune in the future!
ActionCOACH Business Partner COACH