Knowing your financials can mean different things to different people.
However, the more you know and understand your finances within your business, it can help you understand your financial position within your business better.
At times we think understanding your financials, refer to knowing how much you pay for your phone account each month, or your insurance for the year, or your car expenses per month, or your utilities accounts each quarter, or how much it costs to produce your products, etc, to ensure you know whether your sales price is sufficient to making a reasonable profit for each of your products. After all, if you are not making a sufficient profit on the sale of a product or service, then you won’t have a good cash flow to invest back into the business.
However, about 18 years ago I owned a Hair Salon, I wanted to know and learn my financials better, to ensure how I could improve the efficiency of the Business, and the way I went about this is breaking the figures down to an hourly figure. Figures similar to the following, although these were not the actual figures,
- Bank Charges .45
- Marketing 1.15
- Internet .68
- Phone 1.44
- Legal/Account .35
- Rent 3.20
- Insurance .25
The income per hour $30.35
Expenses P/H $15.62
The above, are all examples figures per hour, however, it was good for me to know, how many clients we had to see per hour which then also helped me understand and improve my Marketing, to ensure we had extra clients attending the Salon.
I will admit it was a time-consuming project, as I had to break down all the Figures from Annual to Monthly/ Weekly and then an hourly figure.
I believe it actually helped improve my Business, that a few years later working for a Security company, I performed the same project for a Security company, which again was also time-consuming however it was good to see the profit margin’s for each Patrol round was making, or which Patrol round was not making sufficient profit, which then allowed the company to look at ways of improving the poorer performing Patrols/ Departments and work out how to make them more efficient, as we all know gaining new clients when we want to is not always easy, it sometimes takes time.
Since starting the Mentor/Advice Business, I will say I have performed this project for other Business owners, and I will say for the majority of clients it has been a worthwhile project to be completed and has been a benefit for their business, I have had a couple who believe it did not help their Business or knowledge of their Business, although this may also be because of their knowledge of their financials, and where they were in their Business cycle.
My recommendation is, if you don’t understand your financial position and want to learn more about it, speak with your Bookkeeper, Accountant, or a Mentor who may be able to assist you in this area, I am happy to answer any questions you may have or discuss this with you further, feel free to message me via Facebook.
As I sit here and think well it is only February, it is only about 4.5 months and the new Financial year will be here, and it is about this time of year, some companies start preparing their Budgets and plans for the next Financial year, especially if they need to be approved by other parties, e.g. CEO. Board etc.
Have a good week.