In the previous post, we looked at the importance of knowing your numbers. This, however, is not enough. You must do something with this information.

For years, I have been reading about Ray Kroc and how he took McDonald’s from a family run business to the world’s highest turning restaurant chain. I recently watched the 2016 movie The Founder that portrays this story from Kroc’s perspective. Without getting bogged down in who did what to whom, there is one snippet that I would like to share with you.

The McDonald brothers opened a food stand in San Bernardino in 1940 that followed the trend of the era in the menu and service – it was called McDonald’s Barbeque, a traditional drive-in diner.  In 1948 they reduced the 25 items on their menu to focus on hamburgers, French fries and soft drinks with an order-at-the-window service model and introduced the speedee service system.

The brothers did not implement these radical changes on a whim. They interrogated the numbers and, according to the movie, found that 87% of sales were on these three menu items. They also understood their processes and cost structure and streamlined these to achieve significant savings in both time and costs. The rest, as they say, is history.

Revenue

You can increase revenue by activating more customers, increasing sales prices or expanding your product range, or combinations of all three.
Increased revenue does not necessarily increase profit. Selling more of your most profitable products, those with the best gross profit, are bound to, though.

Expenses

You can reduce fixed cost by cutting out non-essential expenses, or trimming the must-haves to the bone. Buying smarter can drive down the variable cost of items sold. The same goes for the unit cost of manufacturing, coupled with using less material in the process.

ROCE & ROI

Profitability is usually the measure used to decide whether your business is performing well, coupled with return on capital employed (ROCE) and return on investment (ROI). ROCE evaluates how well management runs operations and makes the best use of the assets. This is the profit before interest and tax as a percentage of the net assets used. Similarly, ROI is an indicator of how well the shareholders did on their investment in the business. The net profit as a percentage of shareholders equity shows whether the owners got a reasonable return for the inherent risk of their investment.

Knowing your numbers empowers you to make smarter decisions and better plan and control your actions. However, as entrepreneurs, the reward for running a business is measured in so much more than just numbers. Making money should not be the reason for your business, but the result of doing good business. And remember that enough for one person is certainly not the same for another.

So say the Bosses

“If you don’t know your numbers, you don’t know your business.” – Marcus Lemonis

“Know your numbers’ is a fundamental precept of business.” – Bill Gates

The reason why casinos ban systems like counting cards are that they work. It reduces the guesswork associated with gambling, and thus the risk. This is illustrated in the movie 21. The same goes for business. By knowing your numbers, the guesswork is reduced and you can focus on improving.  – Anton

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.