Improving business performance usually comes from a series of small, deliberate changes rather than one big idea. The businesses that improve steadily tend to know their numbers, review them regularly and act on what they find.
Here are ten practical steps, grouped into four areas, that apply to most owner-managed businesses.
Know your numbers
1. Get monthly management accounts
Annual accounts arrive too late to steer by. A monthly profit and loss, balance sheet and cash position, produced within a few weeks of month end, lets you spot problems while there is still time to fix them.
2. Track a few key measures
Choose four to six measures that drive your results, such as gross margin, average order value, debtor days and enquiry conversion rate. Review them every month alongside the accounts.
3. Set a budget
A budget turns your goals into numbers. Comparing actual results to budget each month shows where you are ahead or behind, and prompts the question of why.
Protect your margins
4. Review your pricing
Many small businesses under-price. Check your prices at least annually against your costs and the market. On a business with a 30 percent gross margin, a 5 percent price increase lifts gross profit by around 17 percent if volumes hold.
5. Know which work makes money
Look at profitability by customer, product or job. It is common to find that some work barely covers its costs once time and overheads are taken into account. You can then reprice it, change how it is delivered or stop doing it.
6. Control overheads
Review recurring costs every year. Subscriptions, contracts and insurance renew automatically and are easy to overlook.
Manage cash
7. Get paid faster
Invoice promptly, make paying easy and chase overdue debts consistently. Every day you take off your average collection period releases cash.
8. Forecast ahead
A rolling cash flow forecast for the next three months shows pinch points early, including VAT, PAYE and corporation tax payments.
Develop the business
9. Free up the owner's time
If every decision goes through you, the business can only grow as fast as your diary allows. Identify tasks you can delegate or systemise, and use the time released to work on the business rather than in it.
10. Invest in people and systems
Training, better software and more efficient equipment often pay for themselves. Work-related training is generally tax-deductible, and the £1 million Annual Investment Allowance means most qualifying equipment can be deducted in full in the year it is bought.
Make it a habit
None of these steps is complicated. The difference is doing them consistently. A short monthly review meeting, with the accounts and key measures in front of you, is often enough to keep improvements on track.
Agree a few actions at each review, give each one an owner and check progress the following month. Over a year, a dozen small changes that stick will usually do more than one large project that is started and then dropped when the business gets busy.
What to do
- Pick the two or three steps above that would make the biggest difference to your business.
- Set a date for a monthly review and keep it in the diary.
- Make sure your bookkeeping is up to date enough to produce reliable monthly figures.
If you would like help setting up monthly reporting or a budget, book a free call.
