Yes, sales is an important number. But this number alone is not a reliable way of telling if your business is going well. If your sales are strong and growing it's a great start, but it doesn't necessarily mean your business is in good shape.
As Ryan has discovered.
Ryan's IT company has been steadily growing at about 20% a year.
He is taking on more staff, has lots of new customers, and has worked hard on getting more sales.
“Sales are good,” he thinks, “I’m on the right track.”
He regards sales as the “all important number” in the business.
But if we look a little closer, there are some things Ryan is missing.
Cashflow has been getting increasingly tighter.
And lately, some of his bigger customers have been grumbling that there are too many mistakes and call backs which is disrupting their business.
Some have even been saying service is not like it used to be when Ryan's company was smaller.
These are all signs he is heading for trouble if he doesn’t pay attention.
Sales are important but not the most important number. Here’s why….
- Mainzeal had 7.5 Billion in construction projects but still went into liquidation
- Pumpkin Patch’s turnover was 238 Million, now in receivership
- Dick Smith Electronics are in liquidation, previous turnover of 87 Million
These companies all went broke, even though they had more sales than most NZ companies can only dream about.
Those companies are gone, while much smaller ones (like yours and mine) are still standing and actually making money.
The difference is, although sales were big, some of the other numbers were way off with these companies.
Here are some of the other numbers as a services business you should be watching every single month.
Make sure your margin is holding and watch the mix between hardware vs installation as margins will vary greatly between the two.
This can be a killer for any growing business.
If you run out of money and the bank won’t back you, in just a few months you will be dead in the water.
Ignoring cashflow and focussing exclusively on sales is like rearranging deck chairs on the Titanic.
The reality is, as you grow you will have higher accounts receivable, wage bills, you will need to carry more stock, equipment, and gear.
These things all suck up cashflow and if not managed well, can become the iceberg.
Keep a close eye on which jobs or products you sell are making money and which ones aren’t.
Often you can be making good profits in some areas and leaking in others.
You must know which ones are leaking and why, as those leaks can get bigger quickly.
I was recently talking with a company that was losing over $100,000 and did not know why (don’t worry; we are sorting this out, pronto).
Are you staying in contact with your customers to make sure they are still getting good service.
How many customers gave you good feedback and how many gave you bad?
How much new business did your marketing attract and are they the right kind of customers that are profitable to your business?
Are your employees numbers growing but you’re not making any more money?
Watch this to make sure you don’t get too top-heavy.
Keep an eye on where you are spending your time.
Are you putting out fires all day or focussing on the important parts of the business like training staff, talking with your best customers, sales, marketing, strategy, making better systems and more profit.
Watch your top clients and their average spend. Are they spending more each month or less? Are you losing any of them? If so, WHY?
As you grow, you will need more stuff including equipment and gear, office furniture, tech and software, vehicles and maybe even bigger premises.
If you don’t know in advance how much this is going to cost and when you'll need this, it will be a very unpleasant surprise.
Once Ryan gets a handle on these other numbers, he will have a whole new level of control he never had before.
If you have the right numbers when you need them, you have time on your side.
You will know early where the problems are before they get out of hand. If things are going south, you’ll know. And have plenty of time to adjust to get back on track.
But you will only be able to pull this off when you have the right numbers, which is much more than just the sales figures alone.
Now Ryan can grow his sales further, be more profitable and have more fun doing it.
Written By: Daniel Fitzpatrick, Business Solutions
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