Making the business numbers add up

Julia Leask of Warwickshire-based Leask Accountancy Solutions is a Chartered Management Accountant (CIMA) and trainer with over 20 years commercial experience working in a broad range of sectors.

Julia has been specifically dedicated to working with SMEs for five years and she offers some tips on how SMEs can make the numbers add up and realise their true potential.

What numbers help SMEs make key business decisions?

There is almost certainly more you could be doing to help your business. Businesses need to know which numbers to concentrate on and how to understand them. These are the numbers that help make the important decisions that make a difference in business.

There is not a simple solution like buying a piece of software off the shelf.  As your business is different, it follows that you will need a solution tailored to your specifications.

To start with it is important to understand that three groups of numbers need to be monitored, controlled and reported. These include both financial and non-financial data. It is not just the pounds and pennies that you must know about. If you can measure it, you can control it, compare against it and change it.

Group A

Key performance indicators (KPIs are specific to your business).

A KPI not reviewed at least weekly is useless in helping manage your business. These should be the numbers you think about most, the ones that motivate you to take action. They identify what looks good in your business and pinpoint where improvements are needed.

These could include some of the following: -

• Sales leads (new potential customers)
• Conversion rate (at what rate a lead converts to a customer)
• Conversion cost (how much it costs to obtain a customer)
• Sales per salesman (how much each salesman sells)
• Commission per salesman (£x commission earned)
• Number of new customers (how many new customers)
• Number of returned customers (loyal customers)
• Average sales (sales value)
• Cost per sale (direct cost of each sale)
• Profit per sale (sales value less direct cost)
• Debtor days (how quickly your customers pay)
• Creditor days (how quickly you pay your suppliers)
• Cashflow (12 month forecast of all income and expenditure)

This list is not complete - there could be many more KPIs relevant to you. They will help you measure and monitor whether you are hitting your targets. It is worth noting that many of these figures cannot be taken straight from your accounting records and so you will need a bespoke system to calculate them. This should be simple and automated as much as possible so that the results can be checked each day.

Group B

Your accounting systems dashboard numbers

These are the numbers produced by your (preferably cloud-based) accounting system and are the sort of numbers that might have sprung to mind at first - the more traditional money numbers which include total sales, gross profit, overheads, cash (bank and petty cash), creditors and debtors.

They summarise and confirm your daily figures and give you a slightly bigger picture but tend to lack the detail and timeliness needed for making key decisions. With a good cloud-based system you should be reviewing these figures weekly and discussing them monthly with your accountant.

As bookkeeping has become more automated, most good accountants should offer you a monthly fees plan which includes a discussion about your performance and the improvements you can make.

Group C

Year End figures otherwise known as your Statutory Accounts

These are prepared months after your Year End with all your historic data. They are perfect for ensuring you are compliant with all your legal requirements and supporting your tax return. However, as far as being used for quick decision-making they have little or nothing to contribute.

The overheads they detail are primarily needed for HMRC to support your tax calculation rather than performance and efficiency. With the development of cloud-based systems most good accountants will offer these services as an add-on to their value-added services as the software takes care of your compliance. If your accountant is only doing Year End compliance and not offering you any business advice you may be losing out.

Those A and B numbers (the first two groups) are crucial for planning your businesses success. These need to be known daily or weekly so that you can act on them as soon as they stray from your ideal. Making decisions in your business has to be supported by up to date information. Knowing YOUR important numbers is key for your business.

So, what are your important numbers? Make a list of the top 10 numbers you think are vital to your business, can you find them easily?

You do not need to wait for your accountant to highlight the bad news in your business months after it happened. By putting simple processes in place to review your daily numbers you will remain in control whilst also being able to delegate a great deal of the work to others.

* For more details please visit http://www.leaskas.co.uk/