The Importance of Numbers in Business

If you want to be successful and ensure your business reaches its full potential, there is a multitude of numbers that you have to keep tabs on. Unless you are aware of your sales, profit and cash flow numbers, as well as a number of other performance indicators, you can’t make accurate forecasts and estimates that will help you to plan for growth.

Other Important Numbers

Most people are aware of the importance of the figures mentioned above, but your outsourced bookkeepers will tell you of many more. ROI is an important one. For example, when you start a new marketing campaign, it will probably cost you in cash and in time. You need to know how much it costs you and what return you get from your investment (ROI). If it brings more customers and more revenue you may decide to repeat the exercise, if not you may need to consolidate for a while before you investigate what didn’t work and decide to try something else.

If you are getting leads on potential customers, how much investment are you making in bringing them on board? If you keep tabs on your conversion rate, you will know how many leads you need to acquire and follow up, and how much you need to spend on it.

What is the average value of each sale or service product? How much do you need to multiply this by per week or month to break even or make a profit? Could you make improvements so that you can charge more and put up the revenue your sales generate? What would it cost you to do this, and would it be worthwhile?

At any given moment, can you state what your liabilities are, and when you must find the money for them? Can you put a figure on your receivables right now, or can you find it out quickly? How long before these payments will come in? Are the debtors all reliable so that you can expect payments on time? If not, when you plan your spending, you will need to disregard amounts you are not sure about. You really need to be measuring, averaging and estimating all the time.

Get the Help you Need

Staying on top of all these numbers can be daunting. But your bookkeepers can help you. If you are not confident about any of these areas, or any others that would be helpful to know about, talk to them about your concerns. They can produce the figures you need in reports from your accounting system, or help you to work them out from the data available. And they’ll always be happy to talk through what they mean to the business.

Are you Working Too Long and Too Hard?

If you want to succeed as an entrepreneur, you may think you have to work 18 hours a day. Plenty of small business owners do. But you’ll also have heard that this, in the end, can be counter-productive. Get too tired, and you’ll start to find it difficult to stay focussed. You’ll be missing things and making bad decisions. There are plenty of examples of start-ups that were unsuccessful for just this reason.

Finding the Balance

We all have our own ways of managing our time, but it’s good also to consider tips from other people on how they manage to get more fitted into a day and take some time for themselves. Your outsourced bookkeepers will have lots of ideas gleaned from different clients over the years. There may also be many office management tasks they could take off your hands, freeing you up for dealing with your core business activities and your all-important marketing.

Having a to do list and prioritising the items on it will help you to focus on what is important, without losing sight of the less crucial things. Annotating them with deadlines means that they will get to the top of the list when it becomes necessary.

Sometimes you just have to keep going to meet a deadline, finish a project on time or make an important delivery. That’s ok as long as it isn’t all the time. When it’s over, make sure you have time to come down from the adrenaline rush that has kept you going. If you can’t take time off to go for a walk or a swim, this is when you could look at those low priority items on your to do list that won’t take too much out of you.

Make Best Use of Technology

Use technology wisely and it can also save you time. With a laptop, tablet or smart phone, you can work away from the office, so take public transport when you can. If you don’t drive everywhere, you can choose whether to work or relax while travelling.

Don’t let emails and social media take you over. Although they are crucial elements of business success, if you are not careful they can leach a lot of time out of your day. Plan a schedule for checking emails, posting updates and scanning for information. Make notes of anything useful and where to find it. There’s nothing as irritating as partly remembering something and having to take time to root around the web before you can read it again. This is just as important as keeping your hard copy filing up to date and the ‘move paper only once’ advice.

Also remember to make best use of your outsourced bookkeepers, and pick their brains about how you might manage your time more effectively, so that you get a better work life balance.

The Difference Between your Profit and Loss Account and your Balance Sheet

When you peruse your accounts, do you know what you are looking at in your profit and loss report (P&L) and in your balance sheet? This is something that is important for every entrepreneur to understand. Even if you leave dealing with the detail of the finance side of your business to others, these two reports will help you to keep tabs on your performance and to know when to put the brakes on and when to surge forward.

What they Represent

The main difference between them is that the balance sheet gives a snapshot of where you are at time the report is produced, while the P&L covers transactions over a period of time. So if you want a measure of the company’s financial health, you look at the balance sheet, while if you want to know how profitable you’ve been over the last quarter, you turn to the P&L for that period.

Why you Need them Both

Your outsourced bookkeepers will tell you that the reports need to be viewed together to get the big picture, because you could still be in trouble even if you have made good profits recently. It depends on what else has been going on.

You may, for example, have decided on an area of growth that needed a large initial investment in stock or materials. Your liabilities could exceed your assets. If you don’t make as much profit in the next period, where will the cash for the payments due come from? Keeping tabs on the big picture will stop you falling into traps like this. Most accounting systems will produce a P&L with comparable figures from the previous period, so you may be able to identify trends and potential opportunities or pitfalls.

If you are seeking finance, possible lenders will also want to examine these reports. They will think twice about lending to or investing in your business if you can’t show consistent profitability and sensible decisions in response to the figures. With an up to date balance sheet and a periodic P&L, you can see whether it’s a wise time to apply for funding. When you see that the time is right, you’ll have no problem giving potential lenders confirmation of your liquidity.

Regular Monitoring

When your accounts have been brought up to date by your bookkeepers, they can produce the reports swiftly from your accounting software by entering the period or date and clicking run. It’s a good idea to schedule this activity at regular intervals and sit down together with your bookkeepers to discuss the implications of the results.