Is your business performing to its targets?

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Outline

Or perhaps the first question should be, have you set you and your business key performance indicators (KPI’s) to help keep track of your goals and measure performance? Starting a new business is exciting, particularly when you begin trading. However once the initial start-up hurdles are overcome, the next challenges you might face is how to successfully manage your brand new business and ensure it’s a profitable enterprise. But how is that determined?

When you have access to the best possible information and data on the business, this makes managing sales and finance that much easier. And by regularly tracking specific metrics and KPI’s, you can get a picture of how you’re performing against your targets, and allows you to take action when needed to help improve performance, sales, growth and profitability.

One question we often get asked at Fitzpatrick & Robinson, is – as a business, what KPI’s should we be tracking? Here are our top recommendations:

Conversion rates on Sales
As a start-up business, you’ll most likely have set targets on the number of sales you should be or would like to be making each month in your business plan. Keeping a record of each sale within that first 6 months of starting up your new business will help gauge initial performance.

What’s equally important is taking note of and tracking what leads to or drives these sales. Consider factors like; how many enquiries are you receiving? Of those enquiries, how many are actually converting into sales? How are customers finding you? If you’re running marketing campaigns, how effective are they in reaching your target customers? Is this marketing activity driving interest and engagement in your products and/or services? By tracking these metrics, you can quickly identify whether the return you’re getting on your investment into such sales and marketing activity is proving itself worthy. In addition, monitoring conversion rates can uncover any potential holes in your internal sales processes, presenting opportunities for further training and improvement. The more detailed information you can track, the more accurate the picture of where your efforts should focus.

Revenue from sales and other sources
A vital measure of any new business venture is revenue tracking, and is pivotal in gauging the financial health of the business. Simply put, when customers buy your goods and/or services, this creates income (or revenue) for the business, and no business can succeed in keeping the lights on day in, day out, unless it’s generating enough revenue.

You may have various revenue streams, and tracking those helps you not only stay in control of your finances but to plan effectively and make informed decisions. Revenue targets should always be set out from the get go, and working with experienced business accountants and advisors like the team at Fitzpatrick & Robinson, can help you set those targets and outline ways and means of measuring performance on these targets. Forecasting how much working capital you’ll have at a future point in time is also a benefit in closely tracking revenue and can determine whether there’s enough cash in the bank to fund any future growth plans or projects you’re considering.

Ongoing Cash Position and Cashflow
Balancing the process of cash coming into and going out of the business is what good cashflow management is about. With the latest in cloud accounting software like Xero, and even apps like Spotlight Reporting and FUTRLI, this process is made all the more easy and will help you in recording and tracking your cash position. Our professional team at Fitzpatrick and Robinson are always here to help guide you and can even provide training on such methods should the needs arise.

It goes without saying that your ideal scenario for the business is to be in a position of positive cashflow – i.e. more cash coming in, than going out. To achieve this, seeing cash flows in and out in real time can certainly help. With the most up-to-date metrics on your cashflow position, your decision on payment of bills, any spending or other business expenses or perhaps where additional cash and funding may be needed, is more informed.

Aged Debt and Debtor Days
An unfortunate yet not uncommon occurrence in business is the issue of aged debt. This is when customers fail to pay your invoice on time. When that happens, this creates aged debt – or money that should have been received by a certain time but which the customer has yet to pay. Aged debtor reports show which invoices are unpaid and which customers haven’t paid, and the total size of this debt.

Your ‘debtor days’ number is a metric that shows the average number of days it takes your customers to pay you. The ideal range to keep this number between is 14 to 30 days where possible, and anything above 45 days is not favourable. By having a large amount of aged debt, this leaves a significant hole in your cashflow which can quickly start to impact the day-to-day running of the business. For help or tips on how to reduce your debtor days, simply reach out to us.

Gross Profit Margin
For continued success of your business past the startup phase, generating a reasonable profit is paramount. Putting in place measurable metrics to track your profitability is important for managing your finances, and one routine way to do this is by tracking your gross profit margin.

This metric shows the amount of profit made before you deduct your business expenses, like all overheads and the cost of goods sold (COGS) shown as a percentage. Here we outline a formula to help you calculate your gross profit margin:

Gross Revenue minus COGS, divided by Net Revenue, multiplied by 100 = Gross Profit Margin

Gross Revenue minus COGS will give you your Gross Profit

Divide your Gross Profit number by your revenue

Multiply the resulting number by 100 to get a percentage

This is your gross profit margin as a percentage of gross profit. So what’s a healthy number? A percentage of 50% – 70% is good. But why stop there- aim for as big a margin as possible!

Keeping a close eye on these financial metrics and KPI’s gives you the best possible insights and can help you better understand your startup’s performance as it evolves. And if you’re looking for tips or guidance on ways to continue profits on an upward trend then the professional and experienced team of business advisors and accountants at Fitzpatrick & Robinson are here to help. Simply get in touch with us today, or join us in our upcoming webinar ‘7 Ways to Massive Profits’ on Tuesday 31st May where we’ll address the key areas in your business that you can influence, and the strategies you can adopt to achieve growth. We’ll help to outline what KPI’s you should be measuring and hash out steps you can take to grow and improve your business and achieve those all important goals. Simply register your details via our online form.

Rick & Bryn
Rick & Bryn

Experienced accountants who love helping other business owners in Sydney to maximise profits, improve cash flow & grow their business.

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At Fitzpatrick and Robinson our purpose and reason for being is to help business owners make more money, pay less tax while growing in a sustainable & methodical way. We have a team of bookkeepers, accountants, tax accountants for business, a CPA, Xero accountant specialists while also providing business advisory services.

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