Where is all my money going?

by mike tombs
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So, you have sorted your pricing out correctly. You are winning the right customers at the right rate, everything is brilliant…but your costs have spiralled out of control and they are eroding your profit margin. You need to act fast.

Having a cloud-based accounting system and a management accountant will help you to keep your costs under control and prevent them sabotaging your profit. Taking the time to regularly check your costs is an investment in the future of your financial health.

The first step is to review all processes and procedures. Many of the things that we do every day, we do simply because that is how it has always been done. Often these systems have been set up when your company was much smaller or operated under a different structure. Many operating systems have grown over time and can be a poor fit for your current operating model. Go back to basics and examine a system in all its detail. Can you find a way to save 10 minutes of someone’s time by changing some small, daily, procedure? If you can then over a year, they’ll gain a whole working week.  Imagine if you could do that across your workforce! Often the changes we are making are small and simple, but their impact is massive.

Are you optimising the potential of your IT systems? We recommend Quickbooks as a cloud-based accounting system. If you are running multiple IT systems, the chances are that you will have some overlap. That overlap is where your inefficiencies lie. Are you entering the same data into two systems? Are you having to manually transfer data from one system to another? IT systems can be expensive which tends to act as a deterrent to change. But employing people is expensive, so making sure that you use your team effectively is imperative. Your management accountant will be able to show you the figures, so that you can weigh up the cost of a new IT system versus the hours of time gained through improving the efficiency of your workforce.

Look at each of your products or services independently. We tend to view our profit margin right across the board, but if we look at each one, we can see where our strengths and weaknesses are. If a product or service is not profitable something needs to be changed. If you use a loss-leader product as a hook to attract new customers, you need to make sure that you know the conversion rate of this product and ensure that the other products carry a healthy margin to pay for the cost of the loss-leader. Ask yourself if your loss-leader actually converts purchasers into on-going customers, or are people simply buying the cheap product? If a product is simply not making money, raise your prices. There is no point selling anything if it makes no money. A higher profit margin on fewer sales is always better than scrabbling around to make a tiny profit on a large quantity of sales.

Make sure your customers are using what they are buying. Sometimes we can over-provide to our customers, when they may have been happier with less. Communicating with your customers will help to assess whether you have pitched the levels of service that you are offering correctly. You may find you can offer a simpler package at the same rate, reducing your costs, while keeping your customers happy. Asking questions of your customers can be uncomfortable, but feedback will always help your business to grow.

Speaking to your existing customers will help you in the acquisition of new customers. It is important to track the results of your marketing, so that you can see the return on investment (ROI) from your different marketing activities. If you know that your current customers read a certain industry publication, and you can track the resulting leads from your marketing campaign in that publication, you can make a measured decision for your next campaign. If you had simply run three campaigns across three publications but did not know where the resulting leads had come from, you would have to continue to run the campaign across all three. By tracking and analysing the results, you could effectively reduce your marketing cost by two-thirds in this scenario, now that you know which publication your leads are coming from.

Don’t fall into the trap of thinking that once you have reviewed everything once, you don’t need to do it again. Continuous improvement is the process whereby you continually make small changes to your business. This process of constantly reviewing and changing will give you a honed and fit business. One of the advantages of working with a management accountant is that you can set up an ongoing schedule of reviews throughout the year, so that checks to make sure that you are keeping costs down and profits up happen on a routine basis.

If you are looking for support to help you optimise the success of your business, contact TLA Business Services today, to arrange a meeting with a management accountant who will help you. Call us now on 01905 21411

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