The 6 Magic Numbers in Your Business

Happy 2016!

Time to start your new year with a bit of magic – you may have not ever thought numbers were magic but keep reading and you’ll see what I mean.

At AdviCoach (the coaching organization I am part of), we use a tool called The Profit Equation to show how these 6 Magic Numbers impact the profit (cash) you take home at the end of the day, week year. And yes.. the goal of owning a business is to get cash out on a regular basis and to create a company that is steady, predictable and scaleable so that it becomes an asset that you sell or transfer to family someday so it does the same thing for the next owner.

This is an introduction to the numbers you must impact in your business to grow – we’ll be expanding on each in the weeks ahead.

The 6 Magic numbers of Your Business:

  1. Lead Generation – Potential customers who want the solution you are offering.  This is not just any potential customer in the universe. This is someone who you could potentially reach and provide a solution for.  Specifically:
    1. They may not know about your product or company yet
    2. They may know about it but not understand how you could help them
    3. They may want to buy but not yet
  2. Lead Conversion % – Potential customers who turn into buyers. Calculate this by taking # Sales / # Leads.
  3. Average Revenue per Customer – Does your customer spend $100 each time or $10,000?  Calculate this by taking Total Sales / # of buyers (customers)
  4. Gross Margin (or Cost of Goods Sold)  – What you spend to produce your products or services These costs vary in proportion to sales and are the “pure” costs of making your beautiful widget. Not office supplies or rent or expenses like that.
  5. Fixed Costs  – The costs in your business that you will spend whether you sell anything or not.  Examples are Rent, Utilities, Office supplies and probably some of your Salary expenses.. including yours.
  6. Your Happiness Factor – If you’re not happy with what you are making, achieving or life in general.. it will show up in your business. Owning a business can be lonely, frustrating and exhilarating. Talk to a friend, a coach, a counselor or your mother and figure out what needs to change first. Focus on what matters to your life and your business. In that order! You can make changes that move you in your right direction.

The Magic Numbers all work in relationships that produce your Net Income. Net income is what you keep and take home beyond your salary if you are able to collect the cash for the goods/services you have sold. (that topic is for another day)

 If you do not have a positive Net Income number, you are either using up savings or increasing debt. No Net income = No Cash that belongs to you. That old expression “Cash is King” is very true if you want to stay in business.

In my next post, we will look at the Profit Equation to see how these numbers really create a magical result and even more importantly… how YOU can start making changes that grow your Net income.

If you’d like to have a quick chat about any of this, email me at kathy@kathymrichards.com or use the contact form.

Cheers!

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Cash is king.. except when disguised in false clothes

 

fishbowl

Which method of accounting do you use: Cash or Accrual?  

Most people who are not accountants say that they don’t understand the difference.

Accrual method includes both your Accounts Receivable and your Accounts Payable and therefore reflects the best feedback for how your business is doing because it includes what you’ve earned and what you owe.

Cash method only includes what you’ve actually collected and deposited and what you’ve paid out.

If you don’t have accounts receivable and you pay your vendors and your credit card balance in full the minute the bill comes in (yes.. some people have businesses like this!) then your cash basis is pretty much same as accrual for you.  For most of the rest of us, accrual is more accurate.

Your cash balance is important.. in fact it’s crucial.  If you don’t have enough cash to pay your bills and payroll, you’ll be using your savings, adding debt or jeopardizing your credit score until you do!

Spoiler alert!  If you use the Cash method… have a big cash balance and a lot of unpaid bills and a credit card balance that hasn’t been recorded, you’re not seeing the true picture of how your business is doing.  On the flip side if you bill your customers by using a Word document and don’t record them as Accounts Receivable invoices in your QuickBooks or accounting systems, you’re understating your net income.  

You could be doing much better or much worse than you think you are!

Take the necessary steps to reveal the true picture of your company’s financial health.  More about that in my next post.

 

 

 

 

 

Creating freedom with and from your business

Creating freedom with and from your business

20140705-094117-34877536.jpg Happy 5th of July!

I’m happy to say that I didn’t do computer work on the 4th.. and for me, that’s freedom! I also cooked, had friends and family over (BIG goal for husband and I) and got to read… more freedom! Because I’m a goal nerd and a linear thinker (my sister might compare me to Mr. Spock), I had to define what’s meaningful to me so I could make sure I was doing those things.

Being busy (which does not = doing the best things with my time) is what I both enjoy and have to fight. Being busy too much of the time can bring about loss of creativity, loss of enjoyment.. loss of self! (Been there, done that and trying not to keep doing that!)

You created your business to give you more freedom than you had as an employee. How’s that working for you?  For a lot of us, it’s not! We often find that we’re:

– Working more hours- Taking less “real” time off

– Making a smaller income

– Worrying, worrying, worrying…

This is NOT the freedom we dreamed of when we started!

It’s the weekend now. Make yourself take an hour to be quiet.. get away from everyone and breathe a little. Think again about what freedom you want to create in your life and how your business can help bring that about.

Could you give up some income i.e. pay someone else to do tasks that would free you up?

Could you gather your work team and strategize on how to solve some issues that keep you tied up too much?

Could you take a work retreat day and think about where you are in your business and how you can keep moving to more mature levels and solve new problems rather than the same ones over and over?

Could you schedule a day or two off.. a week (gasp!).. I mean, really… it’s your company and you’re making this thing up as you go like all of us, aren’t you? I sometimes find myself following some unspoken, undefined plan like a zombie sometimes because it just didn’t occur to me to do things differently. Wake up and take a day off!

Would it help to talk to someone about the freedom you want to create?

Make this a great weekend. Sleep late, take a nap, jump in the pool or the lake, get in the hammock, paint the guest room, read 2 more chapters, have a really cold beer or whatever gives you a moment of peace. Savor it..And then be thankful for all of the people who helped you enjoy that moment of freedom, past and present. Today really is a gift. To freedom!

What do you want this season?

Twas the day before Christmas and all through the house,
Only two of us stirring, only one was a grouse.
The house was a mess but no one did care
Because we’re all family and this time together is rare.

What is your wish this season so bright?
Are you wishing you had done more to make it all right?
It’s time to reflect on the 2012 things you did well
Then move on to next year where possibilities dwell.

Were you hoping the numbers would give you a clue?
That QuickBooks would tell you what you need to do?
Or Facebook would put new clients your way?
That Twitter would show you the trend of the day?

The economy sputtered and rallied in waves,
The ups and the downs..seems like nothing behaves.
We all keep watching, hoping all will work out,
And I tell you it, I have absolutely no doubt.

If you focus on customers, employees and care
Quality, service and more if you dare,
Listening, thinking and doing your best,
Implementation will take care of the rest.

Enjoy this happy time, friends that are dear,
I’m glad to have been part of your lives this year,
Now dash away, dash away, dash away all,
There’s fun to be had ….Happy Holidays, all!

Thanks for letting me be part of your lives this year! Let’s make 2013 a fabulous year together!

Kathy

4th Quarter Hail Mary Pass

Owning a business is like being a first year head coach of a promising football team working toward the regional championship.

It’s the beginning of the 4th quarter and the score is tied…plenty of time on the clock to win or lose the game.

As the coach, you have to assess your own team’s remaining energy, the field conditions and the strength of your opponents. You have to decide whether to try and slam as many points on the scoreboard as possible or whether to stall and put points on the board at the very last minute with a Miraculous Hail Mary Pass.

What is your Game-winning Finish Strong (thanks Lance) strategy for 2011?

  • Straighten out your financials and figure out how in the world you really are doing

  • Define what you want the company to be when it grows up

  • Figure out how to free up 5 hours a week to work ON the business not just in it

  •  Turn loose of that energy-draining employee that makes you grit your teeth

  • Develop a hiring plan so you get solid, energetic employees to help you grow

  • Create a Tactical Marketing Plan so you spend your hard earned $$ on actions that truly bring in customers, clients, patients and Raving Fans

  • Take a vacation, go to a ballgame, call your mom and dad, play your guitar…. your choice

  • Stop repeating yourself…wishing, hoping.guessing….and GET MOVING!

    The clock is ticking and it’s your call, coach.

Priorities…or where did all those weeds come from?

“Oh woe is me”  says the gardener who has not been weeding much this hot alternately steamy and dry summer….

As I was catching up on my weeding (wishing I was catching up on reading) early yesterday morning, I had the time to think about how much a garden mirrors life.  The weeds at our side gate had gotten so tall that it was hard to get the gate open…so I had ignored them and started to use the front gate which was neat and tidy thanks to my wonderful husband’s mowing.

Because I waited weeks before getting those pesky plants out of there, it made it a lot more difficult and took away a chunk of time I would have loved to spend doing something else.  It also looked awful for several weeks… not the greeting I want folks to have when they park and come into my yard.  I think that profusions of flowers make my white picket fence look artsy…but this was way beyond that..and definitely not artsy!

During weeding (which thanks to my neglect was sweaty work at 8am), I remembered those old nuggets…. “Pay now or pay later”…… “Reap what you sow” (or in my case sow but don’t weed!)….. “Taking my eye off the ball”  and then the biggest thought:

Why in the world did I wait so long to do it?

Obviously I thought that everything else was more important… in other words…it just wasn’t Priority #1.

So here’s what I decided to do to prevent  myself from being overwhelmed:

  1. Look around my workspace and home (inside and out) once a week and assess
  2. Take 2 hours a week to put things back where they belong
  3. Get up 30 minutes earlier during the week to enjoy the cool, quiet mornings to either “weed” emails or the plant variety
  4. Make the outside weeding meaningful by – being thankful for farmers, for growth, for being in good health and able to use my muscles, for the incredible design of the plant world.  And for a time to be quiet
  5. Make the inside “weeding” meaningful by – being thankful for the clients, friends, family who I’m in contact with through email, for work that provides for our needs, for new connections and new opportunities

Everything you choose means you’re un-choosing something else and making sure that your choices line up with your beliefs goes a long way toward having a satisfying business and home life.

My weeds were just a small consequence of not dealing with a problem.  In our businesses, the longer we ignore a problem… the harder it is to correct and the bigger the consequences.

The Power of the Picture

Images are incredibly powerful!  I admit that i put the banner picture on my blog so I would think the nice, happy calm thoughts I have when we are out paddling every time I log in….and to make me get outside more.  So far, I’m inside typing …..but I do feel calm, so perhaps my plan isn’t such a bad one!

I’m sure many of you have read The Secret and other books like it that promote the power of having a vision… and making the vision become reality by acting as-if or making a vision board or book.  I love that stuff and wish I did more of it!  And I do think images can change the way you act and react in very powerful and sometimes subtle ways that may take a long time to manifest but are still part of what shape your choices and outcomes. 

My husband and I both love being around and on water…oceans, lakes, rivers… and dreamed of living on some sort of shore. Without it being any sort of plan, through many years, whenever I saw a water picture that made me feel hopeful, I would cut it out.  I also bought a variety of framed prints of water scenes and hung them in our home because they made happy to look at them.  I could imagine being there!    About three years ago, we decided that my Kingsport,TN (my hometown) was the right spot for our next move for a variety of reasons and lo and behold… there are several lakes in the area.  We eventually were able to buy a house we could afford with lots of shoreline and now have a pretty lake view.  I don’t think it’s any sort of coincidence that there’s a lot of similarity to my dream place and what we found.  It has been a huge surprise that I had to “go home” to find it which makes me laugh every time I’m thankful to be here.  All I need now is those adirondack chairs!

So now it’s time to come up with some new images for my work dreams and Id love to hear about images that are important to you.