Gain more confidence in making business decisions by answering these five basic business analysis questions.
Think you know your business? Test your assumption and see if you can answer these five basic questions about analytics, that should be at the core of your business decisions and goal setting.
1. What is your minimum required sales volume?
You’re probably acutely aware of what your sales are, or at least have a rough estimate. But do you know the volume of sales you require on a daily, weekly, monthly, or yearly basis in order to cover your basic expenses and pay the rent?
Covering expenses is a basic goal for every business owner. Knowing the figures behind this goal is essential to making the right decisions to achieve it. However, ask many business owners and you’ll find this information is bundled into the “I’d have to ask my accountant” category.
Efficient staffing levels, stock ordering, menu specials, even opening hours – you’ll be hard pressed to find an aspect of your business where knowing the sales volume you need to meet cash requirements wouldn’t improve your decisions.
Also, by breaking down your required sales by week/month/year and season, you give yourself the information you need to better manage debt servicing, fluctuations in cash flow, and any seasonal impacts that may affect your business.
2. How much do you need to take home?
The focus here is on how much you need as a personal income, versus how much you are actually receiving from your business.
Everyone knows there should be a clear distinction between personal and business finances. Often though, business owners divorce these two matters so completely that they forget to ask the most basic question – is my business generating the income I need to make it worth my while. If the answer is no, there are some decisions to be made.
If your business is doing well, and you’re happy with the income being generated you can use this information in a different way. Knowing the minimum income you need from your business means that you can work out what your buffer is, and how much of a pay cut you could take should it be necessary.
This is extremely useful information in the event your business faces a lull, you need to manage some larger than expected business expenses, or you want to fund an exciting new project.
3. What actually pays your rent?
What would say if someone asked you what the star performer of your business was? More importantly, what would you be basing your answer on?
Instead of analysing actual sales and undertaking cost analysis, many business owners answer based on the products they are proud of, or that generate the most comments from customers. Basically, they guess.
It might be a good guess, but the risk you run is that you could be missing a golden opportunity to improve your business.
You may pride yourself on your steak but is it your toasted sandwiches that are really performing? If it turns out the toasted sandwiches give you twice the profit margin and outsell the steak 3:1 then you might want to change what you’re promoting on the blackboard out the front.
4. Sales versus ordering – do they match up?
One of the earliest and easiest warning signs a business can monitor is how well sales figures match ordering quantities. A gentle creep in wastage, or discrepancy in stock levels can go unnoticed for a long period, especially where business owners are not directly involved in day to day operations.
Using basic cash flow analysis to compare ordering levels against sales is one of the quickest and easiest ways of knowing your business is running efficiently. This information can also give you an indication that there may be issues with staff giving out freebies, or actual theft.
5. Why do people choose you?
Do you really know why people choose you over your competitors or are you just guessing?
Let’s say you’re the owner of an inner-city café. You may have spent a large amount on a new fit-out and be under the impression that the reason people come to you is for the atmosphere. But if you are relying on your atmosphere to maintain your clientele you are looking at a future of frequent, expensive re-fits to keep yourself in the game.
Now this may be a necessary evil depending on your location, but unless you have undertaken proper market analysis, you may be spending money on fit-outs when all you really need to do is hire a better barista. That’s a pretty expensive guess.
The importance of market analysis applies to every industry. It doesn’t matter if you’re talking coffee, or sheds, or widgets. Knowing your market means you can make better decisions for your business.
So how did you do? Five out of five?
Business owners who have the answers to these sort of basic analysis questions have a definite advantage when it comes to making the best business decisions for their business.
For most, the thought of crunching the numbers is probably about as attractive as pulling teeth. But for a little bit of short-term pain the reward is confidence in the decisions you make for your business.
Buy some Panadol.