It’s nearing the end of February; you’ve calculated a sales total for the month.
Do you know if you’re having a good year?
When I ask most entrepreneurs this question, they don’t have an answer.
This prevents them from joining the top 5% of entrepreneurs, those that are succeeding.
Our clients are in the top 5%
Do you want to know why?
Let’s give you a hypothetical company.
If sales are £56,250 as of today (21 Feb), then you’re averaging £2,678 per day (£56,250 ÷ 21 days). You’re on track to generate £75,000 in sales for the month (£2,678 x 28 days) and your year will close with a turnover of £900,000 (£75,000 x 12 months).
Right or wrong?
The figures are based on the 21st day of the month and earning income for each and every day of that month … working and earning money 7 days a week … is that right?
If so, then the average daily income of £2,678 is correct.
However, if your working week is 5 days, then the average daily income is £3,750 (£56,250 ÷ 15 days); a significant difference. This doesn’t change the month end estimate of £75,000 (£3,750 x 20 days), but the assumption of an annual turnover of £900,000 is fundamentally flawed (even when considering a non-seasonal linear income stream), because February only has 28 days.
Every other month of the year has either 30 or 31 days, so regardless of whether you work 5 or 7 days a week, you will always (on average) earn more than £75,000 every month for the rest of the year; simply multiplying February’s numbers by 12 produces flawed annual data.
Days, not months
You should forecast your average annual figures using the total number of working days in the year.
For arguments sake, we’ll ignore public holidays and any planned contingencies for downtime.
If you’re working a five day week, there are approximately 260 working days in a year (52 weeks x 5 days), which would give you an annual forecast of £975,000 if your average daily income was £3,750.
The 7 day working week, approximately 364 days (52 weeks x 7 days) at £2,678 per day, would result in estimated annual sales of £974,792, a huge increase on the flawed calculation of £900,000.
However, the difference between the two projections of £208 is negligible; so why do we need to go to the trouble of understanding how many days we work in a week?
When compared to a 5 day week, working 7 days a week requires an additional 29% (104 days) of salaries, utility costs, business costs, etc. In real terms, if your overheads are £1,400 a day, your bottom line profit forecast would be £465,192 for a 7 day working week and £611,000 for a five day working week – a difference of £145,808. That’s either a huge shortfall in expected profits, or money that could have been taken into account for planned reinvestment and growth.
This is why you can’t survive by just knowing your numbers, you must also understand their basis of preparation to prevent accounting errors leading to bad decisions, which is how many entrepreneurs dig themselves into a financial hole.
If you understand, prepare and track your numbers using the correct methodology in real-time, you can quickly establish a solid foundation on which to develop plans to increase your sales and profits, allowing you to join our clients in the top 5% of entrepreneurs.
Ask yourself the question
Do you want to be in the top 5%?