‘Every so often I get feedback from my clients, in the way of testimonials, and this reveals many aspects of the work we have been doing together and how we are affecting the opportunities for the business. I always see coaching as a partnership with a common goal,and that is to create success by having a full appreciation of your numbers, which in turn perfectly highlights your opportunities and future direction for the business. This is an article which has been penned by the MD of a business I work with and is going to appear in a magazine that focuses on the clients sector in the retail industry…’
Did you know there are around 5.7 million small businesses in the UK and many aren’t making a decent profit! It’s certainly a sad fact that the majority of businesses in this country are not making their owners wealthy and that, for most (financially speaking), it’s a daily struggle.
Where we were…
Overall, 2017 felt like a relatively tough year for us. We experienced a reduction in sales appointments but successfully increased turnover by 14%, we boosted our overall bridal sales conversion rate by 6% (4% in Menswear) and yet our profit was not increasing and cash-flow always felt very tight indeed.
I’ve always said,‘ chase the customer’s happiness and the sales will follow’ and, to a degree, that’s true but there’s little point chasing extra sales, turnover and market share without a relative increase to the bottom line. In short, last year (our twelfth year in business) we realised we were becoming busy fools fixated on the wrong type of business growth!
It was time to take some action…
We decided, once and for all, that we needed to grab our business by the metaphorical balls and do something about driving profit up! We cast around looking for a Coach who could help scrutinise figures and business operations with one goal in mind; to improve our bottom line. Did I feel self-conscious about asking for additional advice in this way? No way and neither should you! If Branson and Zuckerberg can outsource, I’m flippin’ sure it’s acceptable for me to do so! Pride aside, our search began…
We found our man (Stuart Allan) although initially I winced at the monthly fee. Stuart interviewed us before agreeing to work together (irritating at the time but understandable now). He enthused about our success and strategy so far and congratulated us on our achievements. I liked his no-nonsense direct communication - he lacked fluff and waffle! We talked about business so far and he commented that 41% of small businesses survive only 5 years and that only 10% of small businesses survive past 10 years!! A stat I never knew - in my mind l popped a cork or two! He also then said that we won’t always like what he has to say, he often delivers home truths and he was going to take us to some dark places! Good GodI thought - all sounds a bit bottom-clenchy!! Nevertheless, we signed on the dotted line and got to work.
Taking back control…
Essentially, a year later and we now understand that knowing our numbers and understanding the financials (inside out and upside down) is absolutely fundamental to business growth and success! Although, to be honest, we thought we had a relatively good handle on them. We’ve always had the latest accounting software, regular meetings with the Accountant and obsessed about our own sales analysis and reporting. Quickly however, we learnt that we had been focusing on the ‘wrong stuff’.
Following an unbelievable amount of numbers work with our newly appointed numbers Guru, plus the formulation of additional bespoke reports,we conducted a thorough evaluation of our business followed by the implementation of new controls and training which orientate around newly introduced profit-driving- KPI’s to get us where we want to be. Here are a few pointers and a few key things that we did (and are doing) to aid our cause. Some may be of interest to you…
Accurate reporting that provides 100% clarity
There are a few essential reports needed to help you manage your business and support the quest for more profit. Embracing the additional reporting was a challenge for us and we’ve built in 20% growth across our relevant target areas. Reports we’re now religiously using are as follows:
- Sales Activity Analysis– This captures appointment levels, seasonal trends and sales conversion rates by team member/department.
- Profit and Loss (Statement of Comprehensive Income)– A monthly report summarising everything in and out of the businessincluding revenues, costs and expenses incurred.
- Budget vs Actual- This evaluates performance, forecasts future income and identifies any operational areas that are performing differently than expected.
- Cashflow Statement– helps estimate the amount of money that'll move in and out of your business. It should reconcile to the penny on a weekly basis against your bank statement.
- Costing Matrix– Includes every item you sell and details the net profit (it includes operational costs and overheads to extrapolate the real profit made not just gross margin).
- Daily Financial Planner– actual sales performance against targets detailing net profit in each department per day.
Our Goals and Targets
Successful ‘profit whirring’ businesses set their goals and work backwards to work out what needs to be done in terms of sales and enquiries in order to achieve it. In terms of targets,we aim for 20% growth year on year. We’ve realised that without our goals and targets in place we’re just ‘winging it’ so I’d encourage you to consider what they are and how you might get there and to formally capture them. We’ve built a 5 year growth plan, something I would never have dreamed of doing before!
Discounting (with a warning)
Did you realise that if you consistently discount your products by 10% you need to sell 33% moreproduct to make the same profit? I shared this insight with a few fellow retailers recently - some were as astonished as I was (conversely, an exciting positive impact when prices increase by 10%).
We’ve trained our team on profit erosion, empowered them to take ownership and taught them that discounting hinders profit potential! We were never big discounters but this has certainly helped the team understand the detrimental impact even small discounts (e.g. 5% off a dress) can really have. I’d encourage you to do the maths with your team and show them in pounds the annual differential. It really did openeveryone’s eyes to the dangers of discounting!
Know your margins
Our new detailed costings matrix is excellent! Our previous report didn’t take into account operational costs such as labour and overheads. Every cost element is now included and all of this is locked down so the report details the TRUE net profit behind everything that we sell and not just gross margins.
Regular stock taking
These are now carried out quarterly but we were guilty of haphazardly doing them when our Accountant gave us a nudge! Now that we understand their significance we have absolute clarity on where we are at any given time.
Processes and efficiencies
Driving efficiency within our business has also become a core goal. Like many retailers, we have several people carrying out various tasks in slightly different ways. We’ve now streamlined processes to save time and money and to ensure that the customer experience is consistent. This has meant creating hundreds of written ‘how to’ processes which detail all of our business tasks. They cover everything from switching on the lights to closing a sale. It may seem monotonous but trust me - efficiency is a beautiful thing!
What is the outcome from all the hard work?
The greater control over our finances, efficiencies, new how-to processes and shear focus on the important things has seen a 508% increase in net profits and that is just within eight months of employing Stuart’s expertise. The impact has been extremely positive on our finances but also generally on the business, the team and myself. I haven’t felt this excited about our future prospects for a long-time, and cannot wait to achieve those five year goals we now have in place thanks to Stuart’s coaching.
Feel free to check out www.stuart-allan.co.uk for more ideas on how to improve your own financials or to compare him to a financial coach you might be considering. If you want to hit the ground running in 2019 maybe it’s time for you to scrutinise your financials and really get a handle on this aspect of your business. We certainly thought we knew our numbers but, oh my goodness, we’ve certainly learnt a lot! What is it they say? ‘Do what you’ve always done and get what you’ve always got’ and I’m delighted to say that we’ve achieved so much since we appointed Stuart and are doing things differently!
We have a long way to go and a five year plan to follow but it feels good to be on the right path!
‘Scrutinisation of figures is absolutely crucial to longevity and continuous growth. I spend a great deal of time with clients to fully understand what the figures mean, how we can stay in control of them, and how they can contribute to high growth in the business. Understanding costs in their entirety is where many businesses fall over. They simply don’t take into consideration the enormities of how poor financial accounting can be hugely detrimental to a business. I help clients take a full grasp of those all-important figures through the use of essential financial reporting tools. It is hugely empowering providing complete transparency around performance and how the business can grow in the future.’