Running a business
Giving your business a regular health check
How can you tell if your business is doing well?
A regular review can help you discover early on if things are going as planned, or whether you need to take action. There are different indicators you can look at on a daily, weekly or monthly basis. What these indicators are will depend on the type of business you are running.
If you’re an online business, you could measure the number of visitors to your website and the most popular times. If you run a shop, you’ll want to know on a daily (or hourly) basis how many people are visiting. In a bricks and mortar store this is called footfall.
A builder might count the number of appointments in their diary and measure how many quotes they make. An accountant or solicitor might record the number of telephone or email enquiries that they receive.
A proportion of these visits and enquiries should turn into paying customers who provide sales or revenue for your business. This is known as your conversion rate - and an important indicator of whether your sales and pricing strategy are effective.
You may want to measure the number and value of your sales over time, to learn the most profitable point of the day or week for your business. You could also analyse sales to date, to find the most lucrative type of enquiry.
Revenue
Revenue is a key indicator that can be measured daily, weekly, or monthly depending on the type of business that you run and how often you invoice customers. You may also want to look at this on a per product, store or employee basis.
Some businesses find it easier to measure the number of units sold each day and only look at the value once a month. Use the numbers that are easy to measure in your business so that you can quickly spot if they are getting higher or lower. The key thing is to find a way that works for you and to make a habit of doing this frequently.
Revenue is the first figure on your profit and loss account and excludes VAT. But what’s a good revenue? Obviously higher revenue is better but really you are looking for the trend. If you’re selling more each month then your business is growing. If you’re selling less than in your business plan, you may not be earning enough to cover the planned costs of the business.
If you have a seasonal business such as ice cream sales, then it might be more appropriate to compare sales to the same period last year, or to other days with similar weather, as you’re unlikely to sell as many ice creams on a cold, wet school day as on a scorching weekend or bank holiday.
If your sales aren’t matching up to your business plan and you can’t link this to a seasonal or temporary fluctuation - it’s time for a review. Go back to your business plan and try to nail down the reason for the difference in projected vs. real revenue. Were you over optimistic? Do you have a new competitor? Don’t worry, as it’s never too late to change your strategy. In fact, adapting to market needs can be a very important part of a successful business.
Money in the bank
It’s useful to measure the money in the bank each week or month. This represents the sales which have been paid for and the costs that you have incurred. It will not give you any idea about unpaid sales or bills and taxes that you still need to pay. It can be helpful to use your different saving spaces to save money towards your VAT or annual tax bills and other big bills. This means that the money in your main account represents the more normal trading activity.
Cashflow
Cashflow is the amount of money coming into or out of the business. You need to know when in the month and year money flows in from sales and when you will pay out to settle your own costs, payroll and taxes. Most of the cash should come from trading but there may be other flows of money from and to shareholders, investors, and loan companies.
You generally want positive trading cashflow with more money coming in than flowing out. In order to remain solvent you must be able to settle all your debts as they fall due.
Profit Margins
Profit margin indicators are useful for ensuring that you’re actually making money on each sale. Margin is the amount of profit included in the selling price of a product. Each industry will expect different rates but you should ensure that each customer and product line is making a suitable profit margin. Margins should be measured after discounts.
Customer satisfaction
Customer satisfaction is an indicator of future business expressed in the form of repeat sales and referrals. It can be helpful to look at sites like Trustpilot to see how you’re doing, as well as of course talking with your customers.
How are you doing?
As a small business owner, you are the most important asset in your business. Do keep a check on your own wellbeing. There are all sorts of ways that you can measure this.
On a scale of one to ten, how happy are you in your business? If you have consistently low scores and you also feel low outside your business, then you may need to think about contacting your doctor or counsellor. Here are some useful resources to help you monitor and stay aware of your mental wellbeing:
The health of your business
Use the indicators to identify trends and pinpoint if any early action is needed to improve your business.
Compare these figures with your business plan, your historical figures or industry norms to see how well you are doing. You may wish to talk with your business adviser or coach. Don’t be scared to seek support if you need it: overall, you need your business to work for you.
This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult your legal advisor or accountant