How to make sure you’re building a sustainable business

Recent media reports, in almost every single Australian newspaper, about the catastrophically unsuccessful usage (and hence budget) projections for Australia’s public/private partnerships on toll roads got me thinking about how often business owners get their business projections wrong.

And the answer is…all the time. Most projections are really just a best guess.

Where projections truly come into their own though, is how well or not your business is tracking against them. And what else you’ve factored into those numbers (ie: how you came up with your numbers).

5 questions to see if your projections need correction

Are you on track?

If the answer’s yes, that’s great, but did you set your sights too low? The great sculptor/painter Michelangelo once said that mankind’s “greatest danger lay not in setting their aim too high and falling short, but in setting aims too low and hitting the mark”. Maybe you might want to consider aiming a little higher.

If the answer’s no, you need to look at why. Did you over-reach and set yourself an impossible goal?

Were your projections realistic?

So many times we’ve seen business owners just pull their numbers out of thin air – think “I will sell a million dollars”, it’s such a nice round number, it’s tempting to do. Or we’ll hear something like “I’ll settle for one percent market share of the industry” or “there are 26 million people in Australia, we just want 10% of the population to own this widget” or “Surely I must be able to sell 50% of my competitors sales and they’re selling x” – of course if you’ve worked for that competitor you have an edge, but it’s still a risky way to forecast.

Every business and business owner for that matter are different. Two cafes in the same street might have very different goals, clientele, opening hours, cuisines and service levels. And their numbers could vary wildly. For example – we know of cafes turning over a million dollars a week and others struggling to reach $5,000 a month.

Which numbers are you tracking?

So often people just track sales and expenses and whilst that’s important from an accounting perspective, there’s just so much else you can track that will help you refine your projections and your business over time.

You can track revenue, range of products/services sold, profitability, peak/slow times, cost of goods sold (COGS), other expenses, market responses, types of customers, what products are purchased together, numbers of referrals, etc.

What if you’re not reaching your goals?   

If you’ve not over-reached or factored in ‘unrealistic’ assumptions and you’re still not tracking to plan, you’ll need to think about where the answers to achieving your goals might lie. Best review some of the inputs in your process such as potential customers, leads, meetings or enquiries, conversions, repeat business.

Work backwards. Look at how many sales you need you need to reach your monetary goal in customers. (Hint: if you have say two widgets or services in your portfolio – one that sells for $5 and the other for $1000, you might create two or more distinct customer types.) Then look at how many customer store entries, meetings (or online visits) it takes to sell each one of those items. Then how many people you need to reach in order to have that one customer visit or request a meeting. Look at what’s worked in the past, what hasn’t and tweak your processes.

Or perhaps you might look at your sales or customer service process – there’s little point selling more if all you’re doing is creating more dissatisfied customers along the way. You can read a previous blog post on efficiencies vs effectiveness that explains the concept in greater detail.

How often are you reviewing your numbers?

As with all planning documents, your numbers need to be part of a working document, not something that sits in a drawer or on the shelf gathering dust.  Depending on your business your reviews could be daily, weekly or monthly. If you haven’t started at least monthly reviews yet, start now. As every business owner knows, there’s huge buzz when you hit your numbers and an even bigger one when you exceed them – especially with stretch goals or growing your business to the next level.

If you’re concerned that you’re not meeting your current projections, seek advice early from a good business advisor. You’ll be amazed at what someone with an objective point of view can see and how he or she can help you avoid an even more difficult situation.

Of course, if we can help you with providing business advice or you need assistance in planning your finances or minimising your tax, we’d be delighted to talk with you.

You can call us on 6023 1700.

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