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How do I identify and communicate effective targets to my staff?

December 27, 2011 By Leave a Comment
How do I identify and communicate effective targets to my staff?

Communicating effective targets to your staff helps everyone work towards your 'happy day'!

Identifying and communicating effective targets to your staff is the key to making the profit that you want in your business. Accountants often talk about a ‘break-even point’, something I call your ‘happy day’. This is the day of the month when you know that for the rest of the month, you are making a profit. You have earned enough to cover all your costs and you are past the ‘break-even point’. That’s why I call it your ‘happy day’.

By working out when your ‘happy day’ is, how much you need to earn to break-even and then blast into profit, you will be able to effectively identify and communicate targets to your staff allowing you to make the profit that you want in your business.

Filed Under: Accounting, Cash Flow, Profits Tagged With: , , , , , , , ,

Why budgets in business are a must have!

November 7, 2011 By 2 Comments

Many business owners fail to set a budget and don’t consider this to be important for them. They either think they are not big enough to need one or they have one ‘in their head’. So, why is it important for every business to set a budget?

A budget is the success plan for a business. As the famous proverb says: ‘Those who fail to plan, plan to fail.’

A budget helps you plan to reach goals within your business, making sure you are earning the income you want and are in control of the costs related to that income.

Firstly, you need to know how many items/hours you must sell per month to reach your goal income. This is phased over a 12 month period. If you are currently not able to work out this part of how you will earn your goal income, then you are not setting your business up for success.

Secondly, you need to match the costs related to your goal income in order to achieve that goal. If you’re a service based industry, you will have direct costs related to each hour that you charge out. You need to work out exactly how much each hour actually costs you i.e. subcontractor/staff costs, rent, electricity and other regular costs such as subscriptions and memberships.

By having a firm plan in place you can easily see, over the year, in which months you are making a profit and you can track this against each individual month to see how your business actually performed in relation to your budget. When you are able to see what you planned and what actually happened, you will then be able to easily identify any differences – where they occurred, why they happened and how you can adjust your budget or spending to get on track.

As the business owner you know your business and can come up with the answers you need. You are the one who will know if there is a seasonal impact, a change in the economy, or any other relevant variables.

Remember, if you do not have control over your costs you won’t know if you are on track to your goal profit. A budget also helps you to identify the standard for cash flow within your business. You cannot maintain cash flow without setting a plan in terms of what is happening with your income and expenses.

So setting a budget is really important for making sure you achieve the profit and obviously the cash flows that you want in your business.

Filed Under: Accounting, Budgets, Business Financial Mangement, Financial Management Tagged With: , , , , , , , , , ,

How do I set a budget?

October 26, 2011 By 1 Comment

How businesses set and follow budgets is obviously very important. Setting a budget can actually be easier than you think. You need to look at the past three years within your business and ask yourself: how did the business do in terms of revenue and expenditure? Look at trends within your business. What regular payments you are making at certain times of the year e.g. insurance or subscriptions. From there, work out the standard flow of income and expenses within your business.

Putting this information ‘down on paper’ is the key as then you can easily see what has happened at any given time. To make this process easier, I suggest tracking this information in an Excel spreadsheet.

I offer a set of Excel templates for use in your business. One of these templates will simplify the process and make it easier for you to set and work with a budget.

Filed Under: Accounting, Budgets, Business Financial Mangement, Financial Management Tagged With: , , , , , , , ,

Do you know what your financial position is going to be like in three months’ time?

October 4, 2011 By 1 Comment

Most business owners do not know what their financial position will be next month let alone three, six or twelve months in advance. What impact would knowing where your business will be financially in say, three months’ time have on your business?

Here are five steps to get you on the road to foretelling the future in your business.

  1. Set a budget
    Plan your goals and set yourself targets in terms of your turnover as well as related costs. Consider what you want to happen in your business. What do you want to achieve in terms of revenue based over the whole year and then broken down on a monthly basis?
  2. Track your progress
    Track what you plan against what actually happens and compare the two outcomes. Measure and track, measure and track, measure and track. That is the only way that you are going to be able to forecast what your financial position will be in three, or six, or even twelve months’ time.
  3. Tweak your plan
    Adjust your plan to help you reach your goals. This is where you tweak your budget as the months go by. You want to make sure that the variance between what you plan to happen and what actually happens gets smaller and smaller each month giving you the ability to accurately forecast income and expenses for your business.
  4. Analyse the difference
    Find out why differences occur and what has happened to take you off track. This will enable you to narrow the difference between what you want to happen and what actually happens. The more you do this, the more accurately you will be able to forecast what will happen in coming months.
  5. Recognise the difference
    Now that you are forecasting pretty accurately in terms of the performance of your business, the performance of your revenue and the performance of your expenses, you need to consider off Profit and Loss payments – outgoings that are going out of your bank account which do not appear on your Profit and Loss Statement. These include payments you make to the tax office, loan repayments, hire-purchase agreements and business owner drawings that are not part of a wage or salary.

By encompassing what has happened in steps one, two, three and four, your Profit and Loss Statement, and then bringing in step five, your bank account, you are now able to see what the true financial position of your business will be in three months’ time.

Filed Under: Accounting, Business Financial Mangement, Cash Flow, Financial Management, Profits Tagged With: , , , , , , , , , , ,
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