Growing your Small Business from within

The importance of quality management reports improves your growth potential.

Why are Management Reports – In particular the Profit and Loss and the Balance Sheet some of the most important things to understand for any small business?

Simply, management reports highlight any inefficiency within your business.   A lack of reliable reports or misunderstanding of those reports can become costly if not monitored properly, leading to a lack of cash and therefore, no growth from within your business.  To ensure you have potential to grow your business from within, you need to improve your cash flow and increase your efficiencies by firstly, checking your Profit and Loss Statement and secondly, by monitoring the Balance Sheet.

Essential planning tools for any small business is having a thoroughly prepared profit and loss and balance sheet that represents your business structure. The most important business rule is the 80/20 rule. That is:  where you concentrate on the 20% of your customers, products and services that provide 80% of your profits.  By looking through your Profit and Loss you can find ways to grow your business by firstly, improving your sales.  Determine your best money making sales products and/or services and concentrate on the profitable lines.

Secondly, by concentrating on a reduction in your business costs can be attained by looking at your supplier costs.  Are you buying your goods and services at the right price?  Negotiate better deals with long term suppliers or look for other opportunities to shop around for new suppliers.  Ensure your quality of goods remains to your standards as cheaper is not necessarily better.  Improve efficiency with freight and delivery costs negotiating better deals with freight suppliers.  Finally, review your overheads as this is an area where excellent savings can be made.  Ask questions like do I need to spend money on this good or service and if so, does it provide good value to my bottom line?  Can I do this differently and still achieve the same result, but with less costs to the business and compare with your competitors to see if they can deliver this product or service and what would they charge?

To find efficiencies within your balance sheet you need to concentrate on chasing your customer accounts. This will ensure your cash flow remains at its optimum as slow payer’s leave your business with fewer funds to grow your business.  When paying your own bills you should ensure you pay your invoices within the credit terms agreed and no faster than required to ensure you maximise your cash flow.  If you pay your bills too soon and your customers delay paying you, then you are at a serious disadvantage to growing your business.  With your stock levels you need to closely monitor the trends.  If you have idle stock then this impacts on your cash flow as it ties up further funding until the stock is sold.  If you can get deposits or progress payments for larger items or services to cover costs this will help with your cash flow and improve your opportunities to grow your business.  If you can find a way to implement the above improvements into your business you will have the potential of freeing up your working capital and strengthen your cash position and this will lead to growing your business.

At Insight Management Accountants we provide a regular reporting package as part of your business analysis which entails your profit and loss and a balance sheet where we highlight areas of improvement to ensure you continue to grow your business.  At Insight Management Accountants we are passionate about the success of small business.  Contact us today to discuss how we can help grow your profits and the value of your business.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

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