Measuring and managing your cash flow is an important piece of your business analysis. Both struggling businesses and those experiencing explosive growth can feel overwhelmed while trying to balance essential and extraneous costs. Before you attempt to analyze your income and expenses, you must understand what drives the bulk of your business.
Do your profits rely mainly on customer service, production speed, product quality, dependable delivery, or some other impetus? What factor fuels your profits?
Any expenses beyond manufacturing, operating, and administrative costs should bolster the thing that drives your business. The best way to grow and manage your business is to focus your profits where they will make the biggest impact. With your focus determined, the next step in effectively analyzing and managing your cash flow is to establish benchmarks to measure your success.
Determine what those benchmarks are by comparing your firm with firms of similar size and objectives and answering a series of questions:
- How do you measure up to these firms?
- Are they doing anything you want to emulate?
- What makes them effective? Will it work for you?
- Do you see areas where you can improve?
- How efficient is your operation by comparison? Compare production technique, quality control, stock management, customer care, advertising, social media presence, website design, etc.
- Are you superior in all these areas, or do you need to try something new here and there?
- Do you need to reallocate your resources?
- What’s important to your customers?
- Can you improve your customers’ experience?
- Do you cater to your target audience? Can you expand your audience?
- Are you doing all you can to communicate your message to the right people?
- Do you have a marketable brand?
- Do you carry your branding throughout your communication efforts? Everything from signage to answering machine messages and Facebook pages should support who and what you are and what you have to offer.
- Are you getting repeat business? If not, you need to figure out why and correct it.
- What do your customers complain about most often and what can you do to reduce complaints?
Establishing benchmarks and setting goals that will improve your profits lays the groundwork for wise decisions regarding where your resources should be spent, but to really know what’s working and what’s not you need to know your profit margins.
Your gross profit (what’s left after the cost of goods and services sold), tells you how efficient your production processes are. Once you subtract your fixed costs such as utilities, rent and administrative expenses (including your salary), what you have left are your discretionary resources. Your advertising and digital costs, as well as aesthetic improvements to your establishment, will come out of these resources.
If you know what drives your business and what benchmarks you need to reach to keep you on track to achieve your goals, you’ll know exactly how to spend these discretionary dollars. At Portal CFO Consulting, Inc., we can help. We help businesses stay in business.