Chartered accountant Elaine Clark, managing director of CheapAccounting.co.uk, explains what clues your financial records can reveal
By law, business owners must maintain accurate financial records. However, too few take time to look more closely at their key numbers. It’s a missed opportunity, because it can help you to judge your business’s performance and health. It could help you to identify where your business needs to improve. So, what could your financial records be telling you?
1. You need to attract new customers
If your financial records show diminishing turnover, your market could be shrinking or your customers could be going elsewhere. Now could be the time to put extra effort into attracting new customers. You could target new markets overseas or nearer to home, or maybe new types of customer. Your accounts might even show that you’re overly reliant on too few customers, which is risky. It could even be time for a total rebrand or rethink.
2. You need to improve your offer
Decreasing turnover could also show that your products or services have lost some of their appeal, certainly as regards some customers. Why not develop new products or introduce new offers to breathe new life into your sales?
3. It’s time to reconsider your prices
If rising costs have eaten into your profits when compared to previous years or months, it might be time to put your prices up. Knowledge of your customers and competitors will help you decide if you can do this. If not, you’ll have to slim your costs.
4. Your marketing isn’t working
If revenue is falling, you may need to carefully consider how you market your business. Seek professional advice if you have the budget. Is your business making the most of social media? Have you done enough to set your business apart? Come up with a new marketing plan.
5. Your costs are too high
If your prices are right and sales are good, but profits are disappointing, your costs are too high. Whether it’s wages, materials, utilities or marketing, find where this could be the case. Why have certain costs increased? Better control of your costs – either by eliminating waste, cutting back or getting better value – could make a big difference.
6. You’re not controlling your cash flow
Your financial records may tell the tale of a business that continually risks running out of cash (or one that sometimes does). Why? If it’s a seasonal problem, could you introduce new products to boost revenue? Maybe your credit control isn’t up to scratch, with late payment affecting your business. Your costs might be too high, or your prices too low.
7. You urgently need to free up cash
Ongoing cash flow problems caused by high costs, as shown in your financial records, could be partly a result of failure to manage stock. If your business is holding too much stock, holding a sale might free up cash. Maybe offer items as cost-effective incentives to attract sales on other goods.
8. You’re living on borrowed time
If your sales are disappointing, your costs out of control and customers continually late paying your invoices, the prognosis isn’t good. Lack of cash could soon spell the end for your business. If your financial records don’t paint an optimistic picture for the future, you need to act now or suffer the consequences.
9. You’re doing pretty well
Alternatively, your financial records could show a business that’s growing by maximising its sales, protecting its margins and controlling its costs and cash flow. Looking closely at your financial records regularly can enable you to better understand your success and sustain it.
Get advice on how to keep financial records.