Blog & Resources

The 3 questions you need to ask in order to have a healthy business

 

If you told me you wanted to run a marathon and were going to prepare for the big event by going for a slow jog once a week, I’d say you were crazy. In fact, most people who run marathons prepare meticulously – they know that in order to achieve a big goal, they need to have a rigorous training schedule and stick to it.


They start with small goals and work towards a big one.


But what does running a marathon have to do with the health of your business? Well, quite a lot.


Your business needs an overall health strategy in order for it to flourish. Just like lifting weights won’t automatically get you fitter and going for runs won’t build your muscles, every part of your business need a workout in order to ensure it’s in the best shape it can be.


There are three key questions you need to answer in order to have a thriving, healthy business. If you can answer ‘yes’ to each of the three questions below, then you’ll maximise your chances of building a strong business year on year.  

 


1. Is my revenue growing annually?
This is essentially asking if your income is increasing each year. If you’re going to have a healthy business, you want to ensure you are growing. A number of factors influence your revenue, but there are always opportunities for development.  Ask yourself:


•    How much am I charging for my products or services?

•    How many clients do I have?

•    How often are customers or clients spending?


If you can increase your prices, sell more or sell more often you will grow your revenue year on year, and that’s the first part of having a healthy business. 

 

TIP: There may also be opportunities to develop new products, find new customers or increase the productivity of your staff – all these can be excellent ways to increase revenue.

 


2. Are my profits improving?

Once you know the ways to increase your revenue, you can look at decreasing your costs, which will improve your profits. There are many strategies you can use to decrease your costs and these include:


•    Decreasing inventory (do you have a stock control system that helps streamline your business?)

•    Using technology to your advantage (such as using social media for advertising and content creation rather than traditional advertising methods)

•    Reducing direct costs (can you get a discount for buying in bulk?)

•    Consider subcontracting pieces of work to trusted consultants rather than turning opportunities away


TIP: Where your costs are fixed, increasing revenue is the main way to increase profits.

 


3. How can I improve my cash flow?

In my work, I see many clients missing opportunities to improve their cash flow (the amount of money going in and out of your business). Managing your cash flow can be a delicate balance, but there are lots of options for ‘quick wins’ that will see you decreasing costs and stabilising what’s coming in and what’s going out each month.


Some fast and effective ways to improve cash flow are:


•    Delaying payments to creditors and suppliers (but only to the point where it doesn’t impact your relationship)

•    Billing for work in stages (e.g. receiving a certain percentage upfront on agreement or signing a contract)

•    Accepting credit card payments

•    Giving customers a discount for paying before the due date

•    Look at your terms for payment – are they too generous? (Consider reducing from 30 day to 15 day payment terms)


TIP: Cash flow can be complicated, but it’s crucial to businesses. Creating an annual budget can help you to work out how much cash you need to pay recurring bills and expenses.

 

Building a successful business is not rocket science, but you do need to be able to answer ‘yes’ to all three questions above in order to have a robust, healthy business.


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If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com