New Financial Year Resolutions
It’s very common for people to make New Year's resolutions. They may want to exercise more, go travelling or loose weight. So why shouldn't business owners make the same sort of resolutions, to help their businesses stay ahead of the game for the coming year. Let’s cut to the chase here. Making money matters to your business. Therefore it makes sense to look at your businesses financial health. Here are some questions to ask yourself to see where your business can improve.
What are our strengths? And what could we do better?
Assess your past financial year's performance and honestly critique what you think worked well and not so well for your business.
Understand the specifics of what worked well, celebrate it, and take learnings from these areas. The best sports coaches get their star players to play to their strengths and not just focus on fixing the weaknesses, and your business should do the dame
Understand the importance of goal setting
Did you achieve the goals for your business last year? If so, great. If not, ask yourself why. Making goals for this financial year can keep you and your team motivated as your business grows so it’s a great idea to regularly review these to stay on track.
Make a list of your business goals for the upcoming financial year. These goals could include revenue targets, more staff, or improving existing business relationships. Within these, set some goals you know you can achieve. Work towards them during the year and check your progress each month to remind yourself where you're going, celebrate your progress and make adjustments where needed.
Identify your key numbers/metrics
This is one of the key ways to enhance business performance. And what we specialise in most! So take a look at the below steps of how to make numbers not scare you so that you can improve business performance.
1. Take a look at your last year's profit & loss statement. Either through your accounting software, excel spreadsheets or if you don't have them ask your accountant for them (and maybe get in touch and we can help you set up an easy to use system so that you can stay on top of your numbers)
2. Look at the last 6 months and see what figures leap out at you.
3. Make note of the most significant drivers of performance in your business
a. For hospitality businesses, their cost of sales and wages will be their critical lines
b. For tradies, it may be their contractors, or direct costs, or possibly high motor vehicle costs
c. For retail businesses, their cost of good sold, freight wages & rent costs
4. Pick 3 or 4 key lines, for example, income, wage costs and motor vehicle costs and think about those lines in terms of what you can do to make them better. (You can pick more but most of us only have the brain space for a small number of KPI’s. You can always change them when you feel you have mastered these lines).
5. For each of these 3 or 4 lines, think about the most meaningful metric for you. For income, it could be dollars per day, units sold per week, income per month compared to budget, or to last year. What makes you want to do better? What can you watch every day or week to provide motivation to stay with the indicator? It is very important that what you go with, is measurable! If all of this seems far too difficult, you can shortcut this by talking to us and we will help you select and measure your KPI’s. We have software which talks to your Xero/MYOB files and can pull out all sorts of metrics.
6. Parts 1-5 are the hard part. Part 6 is the payoff. MAKE THINGS BETTER There are millions of quotes out there on metrics/KPIs. "What gets measured, gets done",
"When performance is measured and reported, the rate of improvement accelerates", "Without data and metrics you're just another person with an opinion"
I've worked with a hospitality client who made the simple change to report and measure the bottom 25% of their restaurants for Gross Margin. They found that Waste/Stock Loss was 0.5% on average at the top 75% of restaurants, but 2.9% in their bottom 25% of restaurants. After tracking and calling out these results the improvement in the bottom performers was amazing. Dropping to 1.4% within just 4 weeks, resulting in an extra $5,000 extra profit in that first month per restaurant, and eventually dropped to 0.9% and yearly an extra $60,000 to the bottom line per restaurant.
So look at your KPI’s every day, or week, or month and start to work on them. You know your business better than anyone. You will start to see things you can change to improve your metrics.
Change those things. Done. Simple as!
If you need more help to sort out the metrics, how to measure them and how to make them better we'd love to hear from you. We love helping business people improve their businesses.