What are the best ways to assess your company’s performance?
Changing market conditions and the UK position on Brexit make close monitoring of your business more important than ever.
Knowing your business’ strengths and weaknesses will help you manage your business efficiently.
There are various Apps that add-on to your accounts in Xero, to help you, and knowing where to start can be tricky. Here are our Tips to get you started on Business Performance Measurement.
1. Think Cashflow
One of the biggest challenges is to ensure there is always enough cash to pay expenses when they are due, as running out of cash will threaten the survival of your business, more than any other factor.
Plan ahead – arrange an overdraft or invoice factoring well in advance of when you need it – to give yourself flexibility.
Keep a cashflow forecast – whether it’s scribbled down on paper or an Add-On App that takes all you accounting data and does the cash forecast for you, regularly reviewing and updating your cashflow forecasts will show the money flowing in and out of your business.
Do this on a monthly basis. Be aware of the flow, which means the actual dates you receive cash or have to pay someone for example paying PAYE Tax or Pension contributions weeks after you pay the staff.
Check your sales forecast and profits against your costs due and this should enable you to identify any potential problems before they arise.
Every business wants to increase profits. Here are some measures to consider;
• gross profit margin – the total amount after sales less direct costs
• break-even – the volume of sales needed to start making a profit
• net profits – the figure after all overheads, interest and tax deductions
• return on assets – the level of profit in relation to net assets
Measuring profitability should highlight areas for potential growth or under performing areas of your business.
Accounting ratios compare one aspect of your business against another. They make it easier to interpret financial statements by giving you a greater insight into your business’ performance.
Other important ratios to consider include:
• liquidity ratios – measures your business’ ability to pay its debts. Divide current assets by current liabilities. This tells you if you have enough assets to cover your liabilities when they fall due.
• efficiency ratios – measure how well you are utilizing your business assets.
There’s no business with out customers who want to buy what you sell. Retaining existing customers is as important as attracting new ones, so treat them well and check if you are meeting their expectations. Know your client types, groups and top 5.
The more successful you are the more staff you are likely to take on. Scaling up can mean fast training and cultural change. Set performance targets and development opportunities.
Another thing to consider is how your staff reflect the identity and brand of your business, particularly if they are dealing with customers. Even the smallest one person business has built an identity, usually based on the owners personality and attitudes – so match or train your team to stay true to what you want.
Benchmarking measures your company’s performance against your competitors. It enables you to find ways to improve performance and understand different approaches to achieve best practice or keep up.
If your business is a member of a trade association, you may be able to access industry-wide statistics, or your accountant may offer a benchmarking service where you can be measured against other businesses. Strategic benchmarking is about measuring yourself against the best in class performers in your sector. Most small business benefit from analyzing competitor data and finances that are in the public domain.
Any of the above can be done on a DIY basis if cash is a problem and you have the time and expertise. Or you can ask your Xero Accountant to advise on the best place for you to start.
6. The small things
Don’t forget – all things are possible from your financial data IF you keep your processing up to date. Paying attention to the little details and keeping up to date mean you can undertake analysis any time you want.
If you need help getting up to date and getting to grips with your business finances please give us a call.