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June 27, 2018
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Know your numbers

The numbers stuff can be overwhelming - but it doesn’t have to paralyse you and cause stress and anxiety. You don’t have to do all of it by yourself either.

Engaging a good bookkeeper can save you hours of time, and actually take less time than you to get the job done - that’s their craft, just like whatever business you’re running is your craft.

You should also choose an Accountant with care. One that will help you run your business from a Management point of view, so you can understand your monthly profits/losses, rather than just for Compliance (submitting your Business Activity Statements (BAS), Business Income Tax Returns and Fringe Benefits Tax Returns).

So, what does a bookkeeper do?

A Bookkeeper is someone who inputs your daily financial transactions into a computer program – for example Xero or MYOB. Some examples of transactions are: purchases, receipts, sales, payments and payroll.

They basically handle most of the data entry and data management, including reconciling your bank accounts and BAS. But, just because you have a bookkeeper, it doesn’t mean you can stick your head in the sand when it comes to dealing with your business money. You need to look at your numbers and pay attention to them. That way you can make smarter decisions.

What does an Accountant do?

An Accountant is responsible for interpreting, classifying, analysing, reporting and summarising financial data. An Accountant should be able to tell you not only what has happened, but why it happened and the outcome and its effect. More importantly, an Accountant should be forward looking and strategic and help you plan and achieve the results you want.

Money loves clarity

Your world changes when you understand the numbers in your business. It’s so much easier to:

  • Make decisions
  • Be in control
  • And make more money

If nothing else, ensure you know what these three numbers are for your business on a monthly basis:

  1. Revenue ($)
  2. Gross Profit Margin (%)
  3. Net Profit Margin (%)

Revenue ($) – represents Sale of Products and Services - in service-based businesses this may be Consultancy Fees or Labour charged and is represented in dollars.

You really should know what your Revenue is on a daily basis, so you can make adjustments throughout the month to ensure to reach your monthly Revenue goal.

Gross Profit ($) - represented by Revenue less Cost of Goods Sold (COGS). In a product-based business, COGS is the cost of the product and the cost of any transformation to the product (including direct labour costs) to prepare it for sale. In a service-based business, COGS would be the cost of the hours charged out as Consultancy or Labour fees.

Gross Profit Margin (%) - is Gross Profit divided by Revenue multiplied by 100 (expressed as a percentage). This is the percentage of money that the company makes from selling goods or services after subtracting the costs of producing them.

Net Profit ($) – Gross Margin less Overhead Costs, expressed in dollars. This is the final amount left after all costs have been deducted from Revenue.

Net Profit Margin (%) – Net Profit divided by Revenue multiplied by 100 (expressed as a percentage). The Net Profit Margin measures how much out of every dollar of sales a company actually keeps in earnings.

Calculating these numbers on a monthly basis is a great start to knowing your numbers! Track these numbers from month to month and implement corrective actions when the numbers are heading in the wrong direction. If they are continually heading in the right direction (ie. higher), pay attention to what you are doing to generate these results, and do more of it!

You should also Benchmark these numbers against other businesses in the same industry to work out how you are tracking in general. If your numbers are well below that of your peers, you must be doing something wrong. Once you understand this, corrective action can be taken.

With business and finance “What You Measure Grows”, so keep measuring and growing your Revenue, Gross Profit Margin and Net Profit Margin.

By Joanne Jarvie
Jason Manning
Jason Manning
Jason Manning is a cutting-edge Change Facilitator, Business Analyst, Leadership Coach and Business Growth Specialist. Jason is driven by the desire to see business owners earn what they want to earn, experience freedom in their business and create a lifestyle they have always wanted. The skills and knowledge he possesses allow Jason to provide business owners with the tools and the mindset they need to succeed. This is his legacy, what he contributes to the world. Individuals living to their true potential, integrated at all levels.

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