Category: Profit

How can small business owners work with their accountants to improve their profits?

Posted on | by Jessica Weston | Leave a Comment on How can small business owners work with their accountants to improve their profits?

???? Small business owners! ???? Want to boost your ????profits? Look no further than your ????accountant! Here’s how to maximize the ????business potential with their help:

1️⃣ Lay the groundwork: Build a strong relationship with your accountant from the get-go. Share your business goals, challenges, and financial records. Communication is ????.

2️⃣ Track it all: Stay on top of your finances. ????Record and categorize income, expenses, and investments. Regularly update your accountant to ensure accurate and up-to-date financial statements.

3️⃣ Budget like a boss: Work with your accountant to create a realistic budget that aligns with your goals. ????They can provide insights on cost-saving strategies and identify areas where expenses can be reduced.

4️⃣ Analyze, analyze, analyze: Your accountant can be your ????️‍♂️detective in deciphering financial data. Together, analyze profit margins, sales trends, and costs. Identify areas where profit can be increased and inefficiencies eliminated.

5️⃣ Tax planning: Don’t let taxes drain your ????profits! Collaborate with your accountant to develop a tax strategy that optimizes deductions and minimizes liabilities. Stay updated on tax law changes to ensure compliance.

6️⃣ Cash flow management: Smooth cash flow is essential for business success. Your accountant can help you manage receivables, payables, and forecast future cash needs. ????Plan ahead to avoid liquidity crunches.

7️⃣ Financial forecasting: ????‍♂️Predict the future! Work with your accountant to create financial projections and scenarios. Anticipate market changes, plan for growth opportunities, and adjust strategies accordingly.

8️⃣ Review and adjust: Regularly meet with your accountant to review financial reports and discuss performance. ????Identify areas for improvement, tweak strategies, and adapt as needed to drive profit growth.

Remember, your accountant is your ????BFF (Best Financial Friend). They have the expertise to guide you on the path to profitability. Collaborate, communicate, and watch your small biz soar! ????????????

Project Cost Management – A Quick Guide

Posted on | by Jessica Weston | Leave a Comment on Project Cost Management – A Quick Guide

Cost management is one of the most important aspects of any project. Without careful planning and monitoring, costs can quickly spiral out of control, leading to disastrous results in terms of the project itself and your business’ profitability.

In this blog post, we’ll review the basics of project cost management, including how to estimate costs, track spending, and stay within budget so that you can ensure that all of your projects are profitable.

What is Project Cost Management?

Project cost management is the process of estimating, tracking, and controlling the costs associated with a project. It includes both the direct costs, such as labour, materials and equipment, and indirect costs like travel and overheads.

Why is Project Cost Management Important?

Project cost management is key to success because it ensures that your project stays within budget. By carefully estimating and tracking costs, you can avoid cost overruns which can quickly eat into your profits.

Gathering actual data from past projects also helps you to create more accurate cost estimates for future projects, making them more likely to be profitable.

Resource Planning

One of the most important aspects of project cost management is resource planning. This involves estimating how many resources, such as labour hours or materials, will be required to complete the project.

In order to perform accurate resource planning, you need to create a clear blueprint of the time, resources and activities required to see the project through to completion. You must understand the long- and short-term goals of the project and identify any areas where there may be resource deficits.

Cost Estimation

After you have created a resource plan, you can begin to estimate the costs associated with each task. This includes both direct and indirect costs.

Direct costs are those that are directly related to the project, such as labour, materials, and equipment. Indirect costs are those that are not directly related to the project but still need to be considered, such as travel and overhead.

To estimate costs, you will need to consider the quantity of resources required, the cost of those resources, and any other associated costs. For example, if you are estimating the cost of labour for a project, you will need to consider the number of hours required and the hourly rate of pay for the workers.

Once you have estimated the costs for each task, you can add them up to get an overall estimate for the project. It is important to remember that cost estimates are never 100% accurate and there will always be some uncertainty.

As such, it is a good idea to create a contingency fund to cover any unexpected costs. Having a detailed resource plan in place helps you to see where costs may increase and allows you to make adjustments accordingly. For example, if you know that a certain task will require more labour hours than originally planned, you can budget for overtime or hire additional staff to complete the task.

Budgeting

After you have estimated the costs for the project, you need to create a budget. The budget is a document that outlines all of the expected costs for the project and how those costs will be paid. It also breaks down the project into stages, so that you know how much money you will have available at different points.

Creating a detailed budget helps you to track spending and ensure that you stay within your overall project budget. Once you have a solid budget in place, it’s time to get to work – and that means practicing cost control.

Cost Control 

Cost control is the process of monitoring and managing project costs. It involves tracking actual costs against the budget, investigating variances, and taking corrective action where necessary.

It’s important to closely track costs and compare them against the budget on a regular basis. This allows you to see where money is being spent and identify any areas where costs are exceeding the budget before things get out of control.

Once you have a good understanding of how much things are actually costing, you can start to make adjustments to keep costs under control. For example, if you find that labour costs are higher than expected, you may need to adjust the budget or find ways to reduce the amount of time required for each task.

Careful cost control will also help you to improve cost estimation and management in the future, because you will have a better understanding of the factors that impact project costs.

Summary

Project cost management is an important part of ensuring that your project is completed on time and within budget. By carefully estimating costs, creating a detailed budget, and practicing cost control, you can keep your project on track and avoid any unexpected surprises.

How to Scale Your Business – 4 Key Principles to Follow

Posted on | by Jessica Weston | Leave a Comment on How to Scale Your Business – 4 Key Principles to Follow

Are you looking to take your business to the next level? If so, you need to start thinking about scaling your operations. Scaling a business can be difficult, but if done correctly it can lead to tremendous growth. There are certain steps required when scaling, but it’s also important to have overarching principles to guide you on this journey to ensure that you stay on track for success.

#1 – Attitude and Values are Everything

When it comes to creating the right team to help you scale, it all starts with attitude and values. You need to be very clear about what your company stands for and what kind of people you want to work with. The right team will help support the culture you’re trying to create and maintain as you grow.

It’s important to define your company values in order to attract the right staff and contractors. If you want to create a customer-centric business, then your team should reflect that. 

If you’re looking to be the most innovative company in your industry, again, your team should be a reflection of that. Your values will help guide you in making the right hiring decisions as you look to expand your business.

Basically, it’s all about practicing what you preach.

#2 – Think Ahead

Scaling is about creating the business you want, not running the one you have. This means you need to think ahead to what the future looks like for your business. What are your long-term goals? What do you want to achieve?

This is where a lot of businesses make mistakes. They get caught up in the day-to-day and lose sight of the big picture. If you want to scale successfully, it’s important to have a clear vision for the future and make sure everyone on your team is aligned with that.

If you’re not ready for growth, then things will start to break down in your business as it expands. You need to ensure that your systems are able to cope with increased demand before it arrives. You need a team that is ready for challenges before they appear. 

In short, you need to be prepared for success before it happens.

#3 – Company Culture Matters

It’s not enough to just have a great product or service. You need to have the right team in place to support your growth. And that starts with a great company culture.

As your business grows, it’s important to maintain the culture you’ve worked so hard to create. And if you haven’t yet created a positive company culture, it’s time to change that.

Your team are at the centre of everything you do. The working environment you create affects spending, turnover, productivity and profitability, so it’s important to get it right.

A good company culture attracts the right people, reduces staff turnover and helps you scale successfully. It’s also something that should be constantly nurtured and developed as your business grows.

#4 – Be Flexible

Yes, you need to stay true to your core values, but as a business owner you also need to be open to change.

Flexibility is key when scaling. You need to be able to adapt to change quickly, without compromising your values.

Just because you’ve always done things a certain way doesn’t mean that’s the best way to do them. As your business grows, be open to new ideas and ways of doing things. You need to be willing to experiment and try new things, such as tweaking your processes or the way you structure your team.

The most successful businesses are those that are constantly evolving. They’re always looking for ways to improve and grow. The covid-19 pandemic in particular highlighted the importance of being able to pivot quickly and adapt to change.

So, don’t be afraid to mix things up a bit as you scale. It could be the key to your success.

Final Thoughts

Growing a business is never easy, but if you follow these four key principles, you’ll be on the right track. Having a clear vision for the future, maintaining your company culture, being prepared for success and being flexible are all essential ingredients for scaling your business. 

If you’re not ready to scale or don’t have a good team in place, then it’s time to reevaluate your priorities. Remember, scaling is about creating the business you want, not running the one you have.

Things You Didn’t Know Your Accountant Could Do

Posted on | by Jessica Weston | Leave a Comment on Things You Didn’t Know Your Accountant Could Do

Did you know that your accountant could do more than just help you with your taxes? In fact, accountants can help you with a variety of tasks, including bookkeeping, financial planning, and even business consulting. If you’re not taking advantage of all the services your accountant has to offer, you’re missing out on valuable assistance and wasting money. 

Let’s take a look at six things that your accountant can do for you that you may not have considered until now.

#1 – Strategise

One of the most important things your accountant can do for you is help you plan for your business’ future. They can help you set financial goals, identify key performance indicators (KPIs) and create a strategy to improve the financial health of your business.

This is especially important if you’re thinking of expanding your business or making any major changes. Your accountant will be able to advise you on the best course of action to take and create a plan of action to ensure your success.

#2 – Cash Flow Management

Another important task your accountant can help you with is managing your business’s cash flow. They can help you track where your money is coming in and going out, identify any areas where you may be overspending, and provide advice on how to improve your cash flow situation.

This is vital for all businesses, but especially small businesses who may have limited resources. By keeping a close eye on your cash flow, you can avoid any financial problems down the road.

#3 – Debt Management

Not all debt is bad. In fact, some debt can be used to help your business grow. But it’s important to know how to manage your debt so that it doesn’t become a burden. That’s where your accountant comes in.

Your accountant can help you understand the different types of debt and their pros and cons, as well as develop a plan to pay off any debt you may have. They can also negotiate with creditors on your behalf and help you get better terms.

If you’re struggling with debt, your accountant can be a valuable ally.

#4 – Help with Loan Applications

If you’re thinking of applying for a loan, your accountant can help you with the process.

They can advise you on what type of loan would be best for your business and put together a package of financial statements and other documentation that lenders will require.

They can also help you understand the different terms and conditions of loans so that you can make the best decision for your business.

Applying for a loan can be a complicated and stressful process, but with the help of your accountant, it doesn’t have to be. A great accountant will prepare a strong pitch for your business to maximise your chances of success and help you to negotiate the best rates and terms possible, whilst ensuring that you understand exactly what you’re signing up for.

#5 – Increase Efficiency

Your accountant can help you to streamline your business operations and increase efficiency. They will take a close look at your current systems and procedures and make recommendations for improvements. This could include automating tasks, eliminating redundant processes, or improving communication between departments. In addition, they can help you to implement new technologies that will save you time and money.

By increasing efficiency, you can free up time and resources to focus on other areas of your business. This not only makes your business more profitable, but also more enjoyable to run.

#6 – Support You

Accountants are often thought of as primarily being number crunchers, but first and foremost, they’re actually great listeners who take the time to understand their clients’ individual pain points. This allows them to provide targeted support and advice that is tailored to each client’s specific needs.

In addition to providing expert advice, your accountant can also be a great sounding board for your ideas. They can help you to flesh out your plans, identify potential problems, and find creative solutions. And when things get tough, they’ll be there to lend a supportive ear.

Final Thoughts

At the end of the day, your accountant is more than just someone who does your taxes. They’re a valuable business partner who can help you to overcome challenges, grow your business, and achieve your goals. If you’re not taking advantage of all the services your accountant has to offer, you’re missing out on valuable assistance and support.

Quick Tips: Registering for Value-Added Tax (VAT)

Posted on | by Jessica Weston | Leave a Comment on Quick Tips: Registering for Value-Added Tax (VAT)

When first setting up your business, there are multiple decisions to make – and a key consideration will be whether to register the business for Value-Added Tax (VAT), the tax that’s added onto the price of certain goods and services.

When does VAT registration become mandatory?

When your business’s turnover reaches £85k over any rolling period of 12 months, it’s currently mandatory for you to register for VAT. Because of this, it’s important to keep an eye on your turnover and to start making plans for VAT registration as you get closer to the threshold.

Is it better to be VAT-registered?

Where your customers are VAT registered, you’ll always be better-off registering – as long as you don’t mind factoring in the minor administrative work that’s required.

As a VAT-registered business, you can add VAT to your selling prices without it actually costing your customers more – VAT registered customers just claim the VAT back from HM Revenue & Customs (HMRC). You can also reclaim VAT on your own expenses in the same way. If the administrative work is a concern, the flat-rate scheme is a more straightforward alternative.

What happens if my customers aren’t VAT registered?

If you’re a business-to-consumer (B2C) company, your consumer customer base is unlikely to be VAT registered. In this circumstance, if you charge your customers VAT, they’ll end up paying more for your goods/service – which could affect your competitiveness in the marketplace.

Think about whether this additional VAT cost is likely to have an impact on your sales. Then weigh that against the additional costs you’ll incur if you don’t register – and, as a result, can’t reclaim VAT on your costs.

Why would I register early for VAT?

Legally, you don’t have to register for VAT until you meet the £85k threshold. But some businesses operating below the registration threshold choose to register voluntarily.

Some companies believe being VAT registered makes the business look more substantial and professional. And some businesses will register to make use of the ability to claim back VAT on certain business expenses, especially if these are for significant assets.

Talk to us about registering for VAT

For a new business, even if you anticipate that your sales will go over the £85,000 registration threshold in the first year, there may be advantages in delaying registration until you have to. Equally, there may be benefits in registering even if you are trading below the threshold.

Tell us about your business plans and we’ll be happy to advise you on the best point in the business journey to register for VAT.

Startup Tips – Setting up the foundations

Posted on | by Jessica Weston | Leave a Comment on Startup Tips – Setting up the foundations

To trade as a business, you need to meet the right compliance requirements. It’s certainly not the most exciting part of creating a business, but setting up the right legal, accounting and tax compliance foundations ensures that you’re doing everything by the letter of the law.

Here are the main compliance steps to think about, and why they’re so important to the smooth running of your business.

Decide on a legal structure for the business

First off, you’ll need to make a decision about the legal structure of the company. There are two key choices here – incorporated (a limited company) or unincorporated (usually either a sole trader or a partnership). The key difference here is around liability. In other words, do you want your business to be a limited company, where you and the business are treated as separate legal entities? Or do you want to be unincorporated, like a sole trader, where you and your business are seen as one single entity.

Open a business bank account

To trade, take payments and pay your suppliers, Ltd companies need to have a business bank account that’s separate from your own personal current account, this is also highly recommended for all businesses. This helps to create a tangible divide between the money you’ve generated from the business, and your own personal cash.

Most high-street banks won’t let you use a personal current account for business purposes. Banks will offer a variety of different business accounts, with varying levels of fees, overdraft levels and additional business features. Set up the business account and then use this account for ALL transactions going in or out of the business.

Set up a bookkeeping and accounting system

It’s a legal requirement for your limited company to keep adequate records and to submit annual statutory accounts. To be able to meet these requirements, it’s essential that you have a bookkeeping process and a reliable accounting system in place.

There’s a dazzling choice of different cloud-based accounting platforms aimed at the ambitious startup owner. Xero, QuickBooks, MYOB and Sage are big names in this space, and all offer easy-to-use systems that make the accounting process relatively straightforward. It’s a good idea to engage an accountant, right from the start, to get the best possible accounting advice.

Register for the relevant business taxes

Tax is an unavoidable part of running any business. It’s mandatory for you to register for the relevant business taxes, and you’ll also need to factor in that a certain percentage of your profits will end up going to the tax authorities at the end of each financial year.

If you’ve opted for the limited company route, you must register for corporation tax. Corporation tax is paid based on a percentage of your year-end profits, once reliefs and other allowances have been taken into account. Approximately a quarter of your end profits will end up being paid over in tax, so it’s imperative that you put this money away in a separate tax accounting, or ring-fence it in your accounts, so you have the money to pay the bill at year-end.

Other taxes to register for include:

  • Self-assessment income tax – although you’ll pay corporation tax on your company’s profits, directors are also taxed on their own personal earnings too. If you’re an unincorporated sole trader, this is also the way you’ll be taxed on your business profits, as your personal and business income are treated as the same thing.
  • VAT – is an indirect value-added tax for goods and services. If your turnover is over £85,000 or you opt in, you’re responsible for collecting these taxes and paying them to the tax authority on a quarterly basis.
  • Pay-as-you-earn(PAYE)– if you have employees or CIS subcontractors, you’ll need to make income tax deductions from your employees’ wages and pay these taxes directly to the relevant tax authority. This is all done via your regular payroll or CIS run.

Get in touch to talk through your compliance needs. We’ll help you understand which taxes apply and how you register for them.

How to Use Profitability Ratios to Grow Your Small Business

Posted on | by Jessica Weston | Leave a Comment on How to Use Profitability Ratios to Grow Your Small Business

If you’re looking to grow your small business, you need to understand profitability ratios. These ratios help you measure how efficiently your business is using its assets and generating revenue. There are three main types of profitability ratios: operating, asset use, and contribution. In this blog post, we’ll discuss what each one is and how to use them to make smart decisions for your business.

What is a Profitability Ratio?

A profitability ratio measures how efficiently your business is using its assets and generating revenue. Profitability ratios are used by lenders, investors, and profit-seeking businesses to evaluate a company’s ability to generate profit relative to sales, assets, or equity.

Profitability ratios can be calculated on an annual basis or over any period you choose. For example, if you’re evaluating your company’s profitability ratio based on the sales of widgets in a specific month, you could calculate each ratio using that period.

Operating Profitability Ratio

The operating profitability ratio measures how much profit your business generates from its operations compared to the revenue it earns. To understand this better, let’s look at an example.

Let’s say you own a company called Widget Co., which manufactures widgets and sells them to retailers for $100 each. In one month, your business produced 100,000 widgets and sold 70,000 of them at $100 each. The operating profitability ratio would be calculated as follows:

First, we calculate the gross profit by subtracting the cost of goods sold from the revenue. This gives us $700,000 (70,000 x $100 – 100,000 x $60).

Next, we divide the gross profit by the revenue to get the operating profitability ratio. This gives us 0.70 (700,000 / 1000000).

This tells us that for every dollar in revenue Widget Co. generates, it earns 70 cents in gross profit.

Asset Use Profitability Ratio

The asset use profitability ratio measures how much profit your business makes from the use of its assets, minus the cost of those assets. This ratio is helpful for businesses that have a lot of fixed assets, such as property and equipment.

Let’s use the same example as above to calculate asset use profitability ratio. In this scenario, Widget Co.’s fixed assets are worth $200,000 and its total revenue is $100,000 (70,000 units sold at $100 each). We’ll also assume that the company has no debt or other liabilities.

First, we calculate the net profit by subtracting all expenses from revenue. This gives us $300,000 (100,000 x 100 – 70,000 x 60).

Next, we divide the net profit by fixed assets to get the asset use profitability ratio. This gives us 0.15 ($300,000 / 2000000).

This tells us that for every dollar in fixed assets Widget Co. owns, it earns 15 cents in net profit.

Contribution Profitability Ratio

The contribution profitability ratio measures how much money your business makes from each sale after deducting variable expenses such as material costs and labour. It’s also known as the gross margin percentage because it is calculated by dividing the gross margin by sales.

Let’s use the same example as above, but this time we’ll assume that Widget Co. has a contribution margin of $40 per widget (meaning it costs the company $60 to produce each widget, but it sells them for $100).

First, we calculate the gross margin by subtracting the cost of goods sold from the revenue. This gives us $600,000 (100,000 x $100 – 100,000 x $60).

Next, we divide the gross margin by sales to get the contribution profitability ratio. This gives us 0.60 (600,000 / 1000000).

This tells us that for every dollar in sales Widget Co. generates, it earns 60 cents in gross profit.

This figure can help you to understand how effective your marketing efforts are and whether you’re pricing your products correctly.

How to Use Profitability Ratios

Profitability ratios are helpful when used alongside other financial metrics because they can help you make sense of your business’s overall profitability and identify areas where you can improve performance. For example, if your company’s asset use profitability ratio is low, you might consider investing in more fixed assets to increase profits.

Likewise, if your contribution profitability ratio is high, you might be able to reduce the cost of goods sold by finding a cheaper supplier or streamlining production.

Final Thoughts

Keeping track of your company’s profitability ratios can help you make informed decisions about how to improve profitability, reduce expenses and grow your business. A more profitable company is better positioned to earn more revenue, hire new employees, and reinvest.

How to Use Social Proof to Drive Sales

Posted on | by Jessica Weston | Leave a Comment on How to Use Social Proof to Drive Sales

As an business owner, you probably already know that social proof is an important factor in generating leads and sales. However, the vast majority of businesses I speak to, aren’t using enough reviews and testimonials as part of their marketing efforts.

Your clients love you and the value that you provide, but often, you’re afraid to ask them for a testimonial because you’re afraid it will seem unprofessional and don’t want to hassle them.

The truth is, most of your clients are more than happy to sing your praises if you give them the opportunity.

When you learn how to leverage social proof properly, it can have a significant impact on your sales funnel and help you to close those high value clients that you really want.

With that in mind, let’s take a look at how you can use reviews and testimonials to drive sales for your business.

Website Testimonials

It’s important to include plenty of  testimonials on your website. It’s a good idea to have a dedicated testimonial page, but you should also include them in the sidebar and in other strategic locations throughout the site to maximise their effectiveness.

When adding  client testimonials to your website, make sure that:

  • They are featured prominently
  • Concise and easy to understand – new leads don’t want to read an entire novel
  • Include specific details about how you solved the client’s problem
  • Feature the client’s full name, business name and a photograph 

Social Media Testimonials

Your social media accounts are a great place to showcase reviews and testimonials from happy clients.

It’s a good idea to create social media graphics that you can share across a variety of platforms. This is also a clever way around Twitter’s character limit!

Your graphics should all align with your brand, using your colours, fonts and style.

YouTube

Video testimonials are  a great way to add social proof. They are more convincing than  text testimonials and can be effective at building trust with a new lead. It’s easy to write a fake review, but video testimonials are hard to fabricate.

Just like social media graphics, you can  use these videos  across multiple platforms and also add them to your website.

Facebook Reviews

Using the Facebook reviews feature, you can encourage clients to leave a review on your business profile that will then show up in search results when someone is looking for an accountant or bookkeeper in your area. This helps build trust and encourages new leads to get in touch.

When someone leaves a review on your Facebook page, make sure to respond and thank them. This also helps to show that you’re engaged with your clients and care about their experience.

Case Studies

Client case studies are  a more in-depth look at  how you solved a specific problem for a client. They can be very helpful in convincing someone to become a  client, as they show that you have the experience and expertise to help them too.

Case studies should be well written, easy to understand and visually appealing. You can include images, infographics and videos to make them more engaging.

A typical case study format would  include:

  • What was the client’s problem?
  • How did you solve it for them?
  • What were the results and outcomes? 

Google Reviews

Google Reviews are crucial in building trust with your audience.  They are one of the first things that people look at when they’re considering working with a new business and can be the deciding factor for some.

As discussed, it’s fairly easy to fake a testimonial on your website, but Google requires users to have a verified account  in order to leave a review. This makes them much more trustworthy.

Make sure you ask your clients for a Google Review after they’ve had a positive experience working with you and make it easy for them to do so.

The more reviews your business has, the more trustworthy you will appear.

Awards and Affiliations

Showing that your practice is a member of a professional association or has been recognised for its achievements through awards can help to add credibility and build trust.

If you have any awards, consider creating badges that you can display on your website and social media accounts. 

Press Features

If you’ve been featured in the press, make sure to include a screenshot on your website and share it on social media.

When you’ve been featured in a major publication, this not only signals to your audience that you are a trustworthy accountant or bookkeeper but also helps to establish you as an authority within your niche – and this is essential if you want to have high value clients queuing up to work with you.

Numbers

How many businesses have you worked with? How many decades of experience do you have? How many years have you been a member of the professional association?

Displaying numbers that show your experience, expertise and scale can help build trust with leads. If you’re new to business or just starting out, including testimonials from previous roles is a great way to show some social proof and gain credibility early on.

Influencer Endorsements

Influencer marketing is an incredibly powerful way to add credibility to your business. Collaborating with the right influencer can be extremely powerful in convincing leads to work with you, because they have an established audience who trusts their opinion.

Make sure you only work with influencers who have a similar target market to yours and are relevant to what you do. This will ensure that their audience is more likely to be interested in your services. It’s also important to choose a creator who shares your values and reflects  the brand you want to portray.

Joint Venture Partnerships

Business owners often overlook joint venture partnerships when considering how to use social proof to drive sales. However, they can be incredibly powerful.

Working with a complementary business is an amazing way to reach new audiences and add credibility to your firm in the process.

A partnership with a trusted business is essentially a stamp of approval from them.  Clearly, they believe  in you, your business and what you do. If a lead is already familiar with the partner organisation, there’s a good chance they will trust them enough to at least find out more about your services.

Final Thoughts

When it comes to growing your business, social proof is incredibly important. It’s essential to use it to build trust with your audience and stand out from the crowd.

When done well, social proof can be a game changer for your business because it helps you to fill your sales funnel with more high quality leads and allows you to nurture them along the customer journey more easily.

Four Steps to a Successful Profitability Analysis

Posted on | by Jessica Weston | Leave a Comment on Four Steps to a Successful Profitability Analysis

Are you uncertain about the level of success you achieved? There’s a quick way to get an overview of your finances.

Not enough companies run a profitability analysis – a defining indicator of profit. Such an analysis relates to costs and overall revenue and it can provide insights into how a business runs.

The occasional analysis can also indicate if it’s time to make some changes. 

Maybe some clients require too much time for the money. Perhaps there are other opportunities around the corner that you can jump on.

Either way, it should be on your list of tasks if you want to ensure long-term business growth. And here’s a simple blueprint to follow for a successful profitability analysis.

Step #1. Calculate Margins

Two of the most important variables in a profitability analysis are gross and net profit margins.

You can get the gross profit margin by knowing your sales revenue minus the cost of labour.

For the net profit margin, you must subtract all expenses from your revenue to get the magic number – the margin – and then divide the previous result by your revenue

Don’t forget to look at the segment profits, too. 

Odds are you offer a suite of services that each has its own revenue stream. Take the numbers for each segment, subtract the costs, and include overheads in your calculation.

If you do this, you get a more detailed insight into how money moves in your business.

Step #2. Perform Client Valuation

Here, you must look at each client and figure out how much each of them brings.

Performing a client valuation essentially means to determine the worth of each client. So, subtract from the revenue all of your costs, such as marketing, hourly labour, travel expenses, and so on.

After all, you want to find out the costs of keeping each client satisfied. 

Some clients may not pay a lot for your services. But you may have a better profit margin with them if their projects take very little time from you or your team.

Maybe you have good cash flow. But it’s possible that when you draw the line, there’s not a lot of profit in it.

Step #3. Look at the Past Numbers

A thorough profitability analysis looks at past quarters over the years.

Why?

Although your current numbers may look good on paper, you need something to compare them to if you want to know where you stand.

Step #4. Benchmark Industry Ratios

Your numbers only mean something in the context of your niche. It’s because profitability numbers aren’t the same in accounting as in health care, education, e-commerce, etc.

If you look at your past and current numbers, you can figure out your business’s progress so far. But what about compared to your competitors?

What about your position in relation to the market?

Always be sure to check average industry ratios to give you a better sense of where your company is as opposed to where it should be.

Do It for Peace of Mind and Direction

A good profitability analysis can help curb anxiety when it comes to your business. At the same time, it can tell you what you should be doing to improve and grow it.

If you ever find your business lacking direction, remember that an analysis can help you spot issues that you couldn’t otherwise. 

It’s a game changer.

How to Set Up and Maintain a Budget for Your Startup 

Posted on | by Jessica Weston | Leave a Comment on How to Set Up and Maintain a Budget for Your Startup 

Creating and following a realistic budget for your startup is essential. In fact, it can even determine whether or not your business makes it out of the gates. A budget shows you how much money you’ll need to make in order to break even and highlights what you can and can’t afford. It also helps you to forecast and manage your cash flow, which is essential to keep your business in good financial health. Budgeting can be a daunting task but this guide is here to make it easy by breaking it down into four simple steps. 

1. Calculate Your Costs

It takes money to make money, and it’s important to work out how much you’ll need to launch your business. Think about what you’ll need in order to start serving customers, whether that means setting up a website or opening the doors to a brick-and-mortar establishment. You can generally group your costs into three main categories: 

  • Facilities: this could be the location of your shop, restaurant, co-working space or offices. If you haven’t found the right place yet, it’s worth doing some market research to give you an estimate of how much the rent or mortgage will set you back. However, the costs don’t always end there. You might need to remodel your chosen location to fit the needs of your business. 
  • Capital Expenditure: this is how much money you’ll need to maintain and improve your facilities. Office furniture, equipment and decorations all fall under this category. 
  • Materials and Supplies: these are the items you’ll need to use in order to run your business, such as ingredients for a restaurant or beauty products for a salon. 

Remember to stay mindful of smaller costs; it may be tempting to overlook them, but they can add up very quickly.

2. Work Out Monthly Expenses 

Your monthly expenses are the costs associated with the items and services needed to run your business. You’ll need to have an idea of how much you’ll be spending each month in order to calculate the amount you’ll need to earn to break even. These expenses fall into four different categories:

  • Fixed expenses stay the same each month. Examples of fixed expenses include rent, internet packages, subscriptions and insurance.
  • Variables are more difficult to predict as they change in line with your volume of sales. Supplies, shipping costs and raw materials are all variable expenses. 
  • Semi-variables are fixed costs which can become variable if production volume dramatically increases or decreases. A surge in demand might require you to pay your staff overtime or result in a higher electricity bill than usual. 
  • One-time expenses are often unforeseen costs such as equipment repairs, but also might account for planned events such as business conferences. 

3. Estimate Your Monthly Revenue 

It’s difficult to know how much you’ll actually earn during your first few months in business. What’s more is that your monthly revenue is likely to fluctuate, so do your research and take a look at how similar business models fare throughout the year. If you’ve hired an accountant or financial consultant, they might be able to offer some valuable insight. Factors such as retainer contracts and industry-wide seasonal trends will also help you to predict what your income. However, it’s advisable to remain conservative with your estimates to prevent overspending. 

4. Review Cash Flow 

Cash is king in business and maintaining a healthy cash flow is essential for survival. Bear in mind that you won’t always be able to collect money for your goods and services straight away, which can lead to cash flow issues even if profits are sky-high. A booming sales month is great, but you may have bills that are due before you’re able to collect payment. If you don’t have money set aside for this instance, you’ll find yourself in hot water. In this sense, cash flow is just as important as profit for the financial health of your business. 

It’s wise to set aside some business savings for times when the cash flow slows to more of a trickle. Review your cash flow each month to spot patterns, prevent overspending and budget for the future. 

The Golden Rule 

Finally, it’s important to follow the golden rule as you work through the above steps: stay conservative. Highball your expenses estimate and be prepared for low sales. This helps to protect your profits and keeps you on your toes to prevent overspending. Careful budgeting allows you to make prudent financial decisions and keeps your startup on track for financial success.