Bookkeeping lays the foundation for money management in your business. However, there is much more to financial management than raw numbers. You need to know what those numbers mean, what they have to do with your present operation, and how they will shape your future.
You need the ability to answer important questions about your finances. The answers will reveal not just your present condition but where you business will wind up in the months ahead. Understanding the cause and effect of your financial flows puts you far ahead in business, More importantly by far, it can keep you from going out of business. A business that ends successfully knows where it is going well ahead of time.
How Long Does it Take You to Gain a Customer?
The length of time it takes to sell your products matters. You use up the resources of time and materials during sales cycles. A person selling T-shirts can expect a sale in a matter of minutes. If you are selling cars, your sales may only take part of a day, if you are selling houses, the lag can be months. Find out and record how long your average sale cycle lasts. You can then determine the resources in in manpower or actual materials it takes to create the profit you reap from a single sale.
How Do Your Browsers Compare to Your Buyers?
Lots of people will browse what you have to offer. The question to answer is what percentage of those browsers become buyers. That’s your conversion rate. You can do a lot with that number. You can use it as index for advertising dollars to spend in the future or you can play with it to improve your conversions by using better ads or better displays. If you know your conversions, you sit in a much better position to manipulate that number in your favor.
How Much Do You Spend to Acquire a Customer?
Once you know your conversion rate, compare it to your advertising expense and you will arrive at your cost-per-customer acquisition. When talking of numbers you can use or manipulate, you can leverage that cost to gain an advantage across the boards. The goal, of course, is to lower the cost for acquiring a customer. Lower that and you raise your profits just that much more.
How Much Do You Earn Per Customer?
When you calculate your average earning per customer, you gain just that much more power to influence your numbers. Here’s were clever upselling might improve your income. You might also use the average cash value per customer to anticipate how much to maximize advertising value in the future. By working this number against the others you have collected, a solid expense plan will unfold.
How Sustainable is Your Budget?
Running your numbers can reveal the course you are on, even if your present operations don’t show it on the surface. If you are in danger of going out of business, that end will appear in your numbers well ahead of time. Current operations may seem successful, but is your budget sustainable? If you spend $20,000 a month but only profit $15,000, you are on the road to insolvency.
Map out a plan for sustainability. If all goes well, you will operate on a curve of increasing income toward an end result of stable operational profits. On the road to that end, however, expenses often outweigh profits. Businesses that fail often do not map out how long they have to achieve that viable profit margin. When the end comes, they aren’t ready for it. Knowing the sustainability of your budget is absolutely essential.
Managing Your Budget for Long Term Success
Bookkeeping is just the start. Once you have your numbers recorded, look well past a mere profit margin to measure your future growth. An operating business has more going on than the over-simplified concept of profits over expenses. With the myriad tasks required to run a business, you require smart and stable financial management.
PHOTO: Pixabay / CC0 Public Domain