Small business owners always seem to be very busy running their company but simply running a company is not a sure way to success or growth. The company may be profitable but do you know which parts are the most profitable? And do you know which parts are not profitable? Some people would argue that as long as it is profitable that’s all that matters but if you want your business to grow you need to have a sound grasp of where profits are high and conversely where costs are high. Because in areas where profit is low and/or costs are high you are missing out on opportunities for growth, or, worse, will focus growth efforts in the wrong part of the business.
As a small business owner do you know the profit margin on every product or service that you supply or provide? This is not particularly difficult for product-based businesses but can be notoriously difficult to ascertain in service-based businesses, which can have hidden costs that significantly reduce the actual profits versus the perceived profits. Properly tracking time spent and accounting for it is vital to understand where profits are really generated in a service-based business.
But if you grasp the financial details of your business you will be able to make more informed judgements about how to increase profits and/or reduce costs. All small business owners should review your accounts on a regular basis not just at the end of the financial year. The business owner is in a much better position to come up with ideas for growth and cost-savings than an accountant who may not have a close relationship with how the business actually functions day-to-day.
If you are planning to grow your business by obtaining additional finance be absolutely certain that you are investing in the right area of your business. Assign the additional funding to specific targets for growth and don’t just throw it into a general business pot. Remember there are alternative types of loans that can help you raise business funding and finance such as provident loans.
When making decision about where to allocate additional investment money make sure you take account of seasonal high or low periods. Seasonal businesses should always look for products or services to sell in the low season and not just rely on high season profits to carry them through the year. For instance, a seaside hotel could offer themed winter breaks such as cookery courses or musical events.
A detailed analysis of the up-to-date profit and loss account of any business will always offer up ideas for improvements to the finance-savvy business owner so don’t assume these accounts are best left to an accountant; they can provide a wealth of data that could reveal new opportunities for growth. And it is the business owner who is best placed to generate new ideas for growing the business or making the existing business more profitable, not the accountant.