1. Know your numbers off by heart, i.e If you were asked the question, how much do you need to sell to break even, can you answer it, without checking? Do you know the point where you cover all your costs and start to make money?
If I ask how much have you sold this month? Would you know roughly how much. I know how much Et Voila Accountancy Services Ltd has sold, how much we need to Break even and what I forecast to sell for the next 3 months. It is not a bad discipline to get yourself into. You can also then decide what profit/loss will be earned and if you are not happy with the answers, you can do something to alter it.
It would help if you do a list of all your orders which you can invoice. Then work out what your costs are and the profit that should yield.
Keep the figures realistic, it will be very demotivating if you make your forecasts too high and you don't yield the profits that you are expecting. If you are not happy with your forecast put a strategy in place to increase the sales to the desired profit.
2. Know you bank balance, know when money is coming out and when it is coming in.
Do a list every month of the balance in the bank, then list down what has to come out and what you expect to come in. Prioritise payments to suppliers, so if your customers pay slower than expected you can match customer payments to supplier payments. Then your cash flow will not suffer.
3. Know your customers. This is going to show how much risk you are putting your business under.You need and deserve to get paid. Credit check them or buy a copy of their accounts for a £1 from Companies House.
Also look for worrying signs, even if you have been dealing with this client for years. Examples are putting payment off for longer and longer, reducing staff numbers, making other cut backs.
Credit Checks give a score, which enables you to decide whether you want to trade with the company on credit terms. Don't be afraid to deny credit as a lot other suppliers to that company will be doing the same thing, if the business is not credit worthy. Credit worthiness depends a lot on the financial state of the company and whether the company has had any county court judgements lodged against it. From the credit check you should be able to see some accounts information. The more assets the company has the more healthy the company is. The higher the value of creditors (money owed to various organisations), the less healthy it will be. The balance sheet total gives a lot of information, you can see the net worth of the business. If it is negative then warning bells should ring.
Sally Wainwright ACMA Practising Accountant and Managing Director of Et Voila Accountancy Services Limited www.et-voila.co.uk