Back in my student days, I had to make a plan to earn some extra cash. Cars still had distributors, drum brakes and plugs and points, so I played mechanic from time to time. I installed car radios when the opportunity presented itself. And as it happened, I ran the iconic Stirling Fisheries in East London one December holiday.
The owner was a silent investor and the manager got married during the holiday and went on honeymoon. My girlfriend at the time ably assisted me, and we had our hands full during one of the busiest times of the year. The queues on a Friday evening would snake down the block. We became experts at smoking yellowtail for Christmas functions and dishing out well-known secrets on cooking calamari, prawns and crayfish.
As is my nature, I got my hands dirty in getting to understand how the show operated. The owner had expressed his frustration on the lack of profits shown, and I started checking this by making sure that the daily cash banked reconciled to the sales recorded. No problem there. After a few weeks, I got around to checking the basic sums. As I recall, we bought whole frozen hake for around R5 – R8/ kg. We sold it for between R12 and R16/kg. At first glance a good profit. The problem was that we sold filleted portions of hake. And as it turned out, we lost at least 50% of the weight in the process. Which meant that we were selling at no gross margin. That’s one sure way of not making money.
You must know and understand the basic numbers in your business to make smarter decisions and take better action. Gaining a good understanding of your variable cost will ensure you not only know the nuts and bolts of your offering but also whether your gross profit is in line with your investment of time and resources up to this point. Knowing what your break-even numbers are will give you clear minimum targets to aim for on a daily, monthly and annual basis.
Many of you may have been involved in calculating provisional tax, completing tax forms and e-filing tax returns over the last couple of months. Perhaps your auditor or bookkeeper was solely involved with these activities on your behalf. I’m sure you’ve heard me say that you must know what your key activities are, and focus on that. These are the activities that deliver your value proposition to your customers. Completing tax returns and the like are certainly not key activities. Leave that to the professionals.
But, you must know and understand the important numbers in your business. These should be aligned with your key activities. Review your numbers regularly by way of daily, weekly, monthly and annual reports. To make sense, numbers have to be seen in context, relative to each other and previous periods for instance. Depict them graphically and display them visually. Get someone knowledgeable to review them with you until you are confident that you have the hang of it.
And please do not only look at the financials – these are generally closer than they appear, but still in the rear-view. Your quotations or tenders submitted, sales orders received, customer satisfaction, production or output planning and employee engagement are equally if not more important.
So say the bosses
“Budgeting is not about numbers, but about decisions. For that very reason, the budget is far too important to be left to an accountant. – David Madié, CEO GrowthWheel
In 90 Rules for Entrepreneurs, Marnus Broodryk has 2 important things to say on the matter. Know your break-even figure, it gives you a daily sales target and is huge for inspiration and motivation. And even if you’re not a financial person, you must understand the basic mechanics of business, starting with profit and cash flow.
The Sologix solution
We have developed a short online course called Understanding Finance to help you better understand the various reports available and make sense of the numbers to better manage your business. The course material is made up of a short article, video material of approximately an hour broken down into 9 chapters that can also be downloaded as audio and a slide deck. The following topics are covered in this course:
- Types of financial reports
- Income statement & key ratios
- Variable & fixed costs
- Explaining VAT
- Balance sheet & key ratios
- Working capital management
- Managing cash
- Operational management
Access the Understanding Finance online course for R999 incl VAT by following this link.
You can join an online group session on Master your Finances for R3450 incl VAT. This consists of 3 x online group sessions of 60 minutes each and a one-hour personal session with Anton to review your finances. Access to the Understanding Finance and Elevator Pitch online courses are included in the fee. Groups are limited to 8 participants to facilitate maximum participation.
For personal business coaching send us an email here or book a slot on Anton’s calendar here.
