How do you practically tell how your business is performing?

"I just want someone to tell me how I'm going with my business. I can see the figures OK, but I don't really know how I'm doing!"

So said a prospective client this morning.

While each client is different, these are the Top 5 Fundamentals we look at to see how a client is going:

1. Profitability.

This is a yes or no question. Are you making a profit? If yes, how much?

- Show it as a % of income.

- As a rough rule of thumb, shoot for 10%.

Clearly this depends on the industry, but it's a good place to start the discussion.

2. Sales compared to last year.

Again, it's a yes or no question.

- Are sales up, or down compared to last year.

- If up, how much as % of last year.

- If down, stop analysing and start planning for how to deal with the downturn. Develop an Action Plan ASAP.

3. Gross Profit. (GP)

- Convert this to a % of sales income.

- Compare it to last year.

- Is it up, or down compared to last year.

- Understand the reasons for any change.

GP% is one of the most important measurements for a business. A change of even 1 or 2% can have a significant impact on profitability.

4. Wages as % of Sales.

- Convert this to a % of sales income.

- Compare it to last year.

- Is it up, or down compared to last year.

- Understand the reasons for any change.

For many small businesses, wages are one of your biggest costs. It's essential to understand what the business is getting from each $ of wages paid. Productivity is the main discussion to have here.

5. Solvency.

Compare your Current Assets with your Current Liabilities.

- Do you have enough coming in to cover what you have going out.

- What about the next 30 days?

- Include any unpaid taxes, GST and super.

There are many more measures to look at to assess the financial performance of a business. But the above will give you a quick snapshot of how things are going.

But to me, it's even more important to understand what the next 90 days looks like.

- A 90 Day rolling cashflow forecast will give you an insight into what your immediate future will look like.

- It's close enough for you to have a pretty clear picture of what your income will be.

- You should also have a good idea of what your outgoings will be.

Take a good look at what this forecast is telling you. It gives you time to make any adjustments you need to make.

This is an essential element of running your business. It's not the exclusive domain of the finance people to deal with. Get in there and take a look. Your business will be all the better for it.

You can contact Peter Knight for assistance in your business HERE