Over the past 14 years I’ve helped a lot of business owners build their business. Over that time the most common misconception has been the only way to make more money is to get more sales!
More sales can certainly go a long way to improving revenue, but does it make you more profitable? I think profitability is about harnessing information and then doing something smart with it. The trouble is that sometimes the information isn’t that clear.
If you’re the sort of person who, when confronted by a bunch of numbers, suffers from a sudden onset of intellectual paralysis then it’s time to toughen up!! Those numbers have the potential to make or break your business and you need to find a way to make them stick.
From experience I know that about 50% of the population prefer to receive information in a visual format. That means pretty pictures. I have worked with some pretty savvy and RICH business people who preferred pictures to numbers. So, stop feeling bad about what you don’t understand and find someone who is capable of explaining what you need to know in a pictorial or other format. (Usually it’s graphs but not always.)
Now, here are three questions to ask your accountant that should help you harness some information so you can make some smart changes or bed some smart things down to improve profitability:
1: What is my gross margin?
Once you know the answer you can then link over to the tax office website and see what the averages are for your industry. If you’re higher or lower than the average you need to know why. If the answer to that question worries you, you should look for a way to fix it.
Here’s the link that will take you straight to the ATO benchmarking page. Just find your industry and click through. Benchmark Link If you have trouble interpreting the information don’t stress. Just print it out and take it with you when you visit either your accountant or someone who can interpret it for you.
2: What expenses seem too high?
You already know that keeping your expenses low is good for you but do you know what they represent when compared to your income?
Usually this information is best reported as a percentage. EG: If your electricity expense is 50% (that’s half) of your income: that’s a problem. You’ll be surprised by what this simple question can reveal about where your money goes. Some averages for total expenses can also be found at the ATO site but they don’t reveal individual items. However, a comparison of the total expenditure can be helpful.
3: Can you show me my key financial information in a graph so I can understand it better?
Most accounting software now prints graphs so there should be no reason why your bookkeeper or accountant can’t do it for you at the click of the mouse so don’t be afraid to ask. You can also ask for them to explain what the numbers mean if talking it through is your preferred style of receiving information so you can understand it better.
Gut feelings are a good starting point but knowing, understanding and using financial information is an important part of working smarter not harder. If you don’t understand your numbers ask for the help you need.