Business operations, business financeIn our blog post this week, we continue a series looking at the three key steps that businesses need to tackle to get their business finances sorted. And our focus this week is on how to improve your business operations.

Step 3 – How to integrate your accounting with your business operations?

So you now have an accounting system in place and want to look at improvements to your business operations. Here are some questions you should be asking:

Revenues

  • Sales – how are you pricing your product / service. Do you have low sales $ yet you’re always busy- there’s a problem!
  • Composition of sales / How is each product performing? Are some product lines not making you any sales? Do you have product lines where you are making a million sales? They could both be as bad as each as as they’re unprofitable (we’ll look at this in Gross Profit as well)
  • Look at trends across months – helps in forecasting. Busier months? What can you do to pick up business in quieter months.

What could you change in your monthly management report. Consider a breakdown of sales data so you understand where your sales are coming from and which product lines.

Direct costs

Direct costs relate to sales as they are the cost of producing what you are selling. It is a good idea to track these as every dollar saved here is a dollar extra in your net profit.

Gross profit

  • Gross profit is the money you make from a product after considering the sale price and product costs. If you’re not making enough money here, you will need to consider whether your sales price is too low or your direct costs are too high
  • Although you could be making a million sales, if they’re unprofitable sales at the gross profit level, is this really good for the business?
  • If you are not profitable at this level, there should be massive warning bells.
  • Use your profitability here and compare to industry benchmarks to work out whether you are maximising your performance.

Expenses

  • What’s the purpose of your $ spend? How does this tie back into the sales you make? You need to spend money to make money but ensure that everything has a purpose.
  • Is your advertising spend paying off and are you maximising the returns from your marketing spend?
  • Is there fat in your business that you can eliminate?
  • What can be automated to reduce your expenses?

Net Profit

  • Are you profitable?
  • Could you be more profitable. If so, what changes will you make to your operations that can feed back into your finances.

What is your net profit – if you don’t know it – why not?

This blog post is part of a three part series on managing your business finances. You can read the first part on invoicing and cash here and the second part on accounting software here.