What makes a bad year bad in business?
Usually it comes down to one of two things either a lack of profit or lack of cash, but sadly in most cases one leads to the other and you are left with both.
If you do end up with little profit or cash then there are only two reasons why.
Yes – just two.
You have either not had enough revenue or you have not aligned your cost base with the revenue that you had and overspent
The only two ways to affect profit.
It’s simply your turnover less your expenses.
And if you do not keep a track on both, then you’ll soon end up with little of either.
So if you have financial goals for the year then you best have them broken down into a a financial budget month by month.
Because if you are not comparing your actual results with what you expected then you will not know where it is starting to unwind and go wrong.
It is the entrepreneurs feedback loop and source of success, know when things are going wrong so you can act quickly and make them go right.
Never wait until the end of the year as is the case with most clients who come to us, something that we find is sadly not an anomaly in business as so many entrepreneurs ‘fly blind’.
We find that a lot of, if not most entrepreneurs make themselves busy with sales and marketing and then get to the end of the year to sit down with their accountant. Only then do they know whether all their hard work made them a profit, or in most circumstances a loss.
It is not strange that those who measure and monitor their performance outperform those who do nothing, after all, if you know what works then you can do more of it and if you know if is not working then you simply do less.
But we see far too many dumb entrepreneurs who have absolutely no idea how their business is performing until after they meet with their accountant – which is usually 6 – 8 months after their year end.
Can you see why this is dumb?
If you know who January went by mid February then you can make a decision and implement it before March – and that is a long lead time for most of our clients. The shorter the feedback loop then the faster you can make a change – and you speed of reaction to change is how to make your business more profitable.
Why not therefore go into business next month with your eyes wide open?
Simply take your profit and loss statement and break it down line by line, dividing it by twelve to give you a month by month budget for the next year. Then compare this with your actual results as soon as you can get them.
They don’t need to be wholly accurate – but if they are close then you can make a better, more informed decision about what to do next.
So don’t be a dumb entrepreneur and shoot yourself in the foot.
So take action, grab a pen and paper together with your last years accounts.
Or if you want a simple but functionally accurate excel template, then click here.