‘Business is a numbers game, played by a team’…
My last article helped you to establish your T.E.R.M.S number – the number that relates to what YOU can put into your business to give you sufficient money for now, and in the future. So, moving on with that knowledge, we can now look at what your BUSINESS can reveal about itself to deliver what you desire, and your hard work deserves.
Your T.E.R.M.S number tells you your future, your accounts tell you where you are right now, so what business numbers do we need to bridge the gaps?
Your business numbers can be daunting if you’re not used to dealing with them. I understand that, but we do need to tackle them to help you reach your goal, so let’s not overcomplicate the task…
Your seven key numbers
You can find all the information you need in your accounting software (Xero, QuickBooks, Sage etc.) or you can refer to your latest set of accounts from your accountant to help you create your seven key numbers.
- Profit and loss. How much profit did you make last year? This should be easy to find, simply deduct your expenses from your income.
- Operating costs. How much do you have to spend to keep the business running? Don’t forget to include non-sales related figures only. For example outsources and utilities. I’ve written about reducing operating costs in a previous article, ‘Essential costs to running a business’.
- Gross margin/gross profit. This number comes from profit minus operating costs.
- Cost of sales. Here is where you include the cost of your sales team, so salaries, vehicles, training etc. This number is created from anything, and anyone related to a sale. It will also change in line with your sales, whereas operating costs will largely remain the same.
- Revenue. your revenue is your sales income (less VAT and any local sales tax of course)
- Average order value. Take the total value of sales last year and divide by the total number of sales made.
- Number of customers. You can average out this number over last year as well if you have a high turnover of short-term clients, or you can work on the number of retained customers.
Your seven key numbers are all related
You should be able to see from the list, how these seven numbers are all connected.
The first step to changing your business for the better is to put together an accurate set of these seven numbers so we know where your business stands right now. I can certainly assist you in this step if you’re not comfortable with numbers, I’ve done it for my own businesses and for many of my mentoring clients. Numbers are always a point of consideration in business growth, and these seven can be considered the jumping off point…
Why not make ‘creating the seven key numbers’ your next 30-day goal? Remember, we’re making a step change towards a better business, so you can afford to take your time to get this step right. In the next article I’ll take you through some considerations for using these numbers to create a strategy that delivers your life plan. Until then, I hope you have found the motivation to tackle a tricky part of business change. If you would like some assistance, please don’t hesitate to get in touch.