Lots of small businesses struggle to keep on top of their finances – typically, the directors are too busy doing marketing, bringing in new customers, or providing the services themselves (see my article about getting away from providing the services yourself and moving towards a grown-up business if this applies to you.)
Once you have a few staff, and/or maybe someone else to do the books for you, you should be able to at least have monthly management accounts to see how the business is doing. But management accounts are not enough for you to see the truth health of your business, because running a business is not just about the money, and your accounts will only tell you about what’s happened, not what’s going to happen.
What do you need to do to keep track of how your business is doing?
The two biggest areas to keep an eye on are cashflow and future sales leads.
Cashflow is the number one killer of small businesses – I see plenty of profitable companies who are having real problems because they don’t manage their cashflow properly and the owners have sleepless nights worrying about how to pay the bills.
You need to track who’s going to become a customer in the future because while your accounts will tell you how you’ve done in the past, it’s the size of your sales funnel that will determine how you do in the future.
I feel so strongly about this that there’s a whole article devoted to cashflow management. Don’t let cashflow bring down your business!
Your sales funnel
Your sales funnel is a way of measuring how customers come into your business. At the top of the funnel, you’ve got lots of people floating around who may or not be interested in buying from you. You start to feed the ones who are interested into the funnel by attracting them with your lovely marketing techniques.
Further down the funnel, you get the people who are interested and thinking seriously about buying. These are the people that you need to establish a relationship with so that they feel confident and happy about buying from you.
And at the end, are the people who actually buy from you.
This idea is sometimes called the sales pipeline, but sales funnel is a better term because a funnel narrows as it goes down, and the number of leads who actually go all the way through to the point of giving you money will always diminish. It’s your job to make sure that you feed as many interested people into the sales funnel and make sure that you don’t lose too many on the way.
What to measure
I advise setting a time at least once a month to consider these key factors. This might be a regular item on the agenda at your board meeting, or just a date in your diary where you think about these things. You’ll want to look at:
- Profit and loss account for the last 6 months – are you on target, or do you need to do more marketing to increase sales?
- Cashflow plan – how much money do you have in the bank, and will it be enough to pay the bills for the next few months? Have you got money set aside to cover any strange expenses? When will you be able to take on that new member of staff?
- Sales funnel – how many leads are you attracting? How many people are you actively talking to about buying from you? How many people are on the point of buying from you, and how will this affect your cashflow?
Obviously, this is a fairly simple version of what you will need to consider. However, don’t fall into the trap of working out a very complicated monitoring system, and then never having the data to give you any meaningful information. It’s better to have a simple system that gives you a reasonable idea of what’s going on than to be fooling around in the dark.
If any of the points in this article have struck a chord with you, and you’re in Brighton, Sussex or London, do get in touch to see how I can help you to grow your business.
Photo credits to Austin Smart and Fleur Treurniet from Unsplash