“Financial year-end is the perfect time for reflection and assessment of what was achieved, learnt and changed – an annual recognition of how the inevitable bumps in the road were met and managed,” says Tracey Loubser, director of Confident Cashflows.
“Unfortunately for many, through no fault of their own, gauging their business success is normally set by one Key Performance Indicator: how much they sold during the year, or more formally known as their annual turnover.”
According to Ms Loubser, this simplification of business finances is a “recipe for disaster”, as it gives only a very limited view of a company’s performance.
“One thing business owners are really good at is putting their head down and bum up and working really hard. But often they don’t understand all the numbers in between, such as where they are spending their money,” she tells My Business.
“They should be looking at the areas of the business that make the most money with the least effort – not doing so is a recipe for disaster.”
Ms Loubser admits that it can be all too tempting for busy business owners to simply think that because sales volumes are up it’s a job well done, or if sales are down then it’s a need to work even harder the following year.
However, she suggests taking full responsibility for your numbers and exploring the inner workings of your business in more detail to see where both threats and opportunities lie so they can be attacked head-on.
“Spend at least one hour per month having a conversation about the numbers with your business coach, bookkeeper, accountant or a financial performance consultant who specialises in this area. You just need to have that conversation,” she says.
“When things get tough, we tend to just work harder rather than taking a step back and looking at what is working well and what is not.”
She adds that this is a critical oversight given that “87 per cent of business failures are because of a lack of understanding of the money side of a business.”
Ms Loubser says that business operations can be categorised into the good, the bad and the ugly. And while the good is performing well and the bad may only need minor tweaks to boost performance, the majority of a business’ time is often spent unwisely on the ugly.
“The ugly keeps everyone running around like headless chooks chasing a sale, but not enough profit is spinning out at the end of it,” she says.
“I’ve worked with businesses that have completely gotten rid of a product that was their ugly, and they have less stress and more profit as a result.”