How Graphs Can Be Used For Your Business
Graphs can be used by Financial and Non Financial managers in a variety of ways.
Sales
Sales Managers have targets that are set for them by the company they work for. They can track their sales in a variety of ways.
Our example shows Sales split by category/or segment and shown against budget. Targets that were set at the beginning of the year.
This graph also tells you the most popular and productive products on sale.
You can take this further and look at the margins of each product category, you might not sell a lot of something but if it returns a higher margin/profit rate, you don’t have to sell as many to get the same profit figures. There may also be seasonality in that product line.
Ie in hot weather a newsagent may sell a lot more drinks than bars of chocolate.
In cold weather the icecream freezer might go untouched. Easter, Half Term, Christmas. You would tailor your sales targets to match demand.
Apply this method to your particular product line.
Cashflow
You might want to set yourself a target bank balance for you to meet your overheads and make a profit.
The graph will show against budget whether you are meeting that goal.
It also gives indication of the business behaviour, see our example the graph shows above the line at first, then dips over February to April then comes back up. Back into the target position and above.
If the graph had shown erratic it would give an indication of how well the manager is managing the business. In a planned approach, or finger in the air approach.
Gross Profit
This is a key figure in your accounts, it indicates whether you have made enough sales to now cover your overheads and make a profit.
Our graph shows a rise and then a sharp dip in May, this could be down to several factors. The Sales themselves were generally low that month, an error in charging the right selling price for a new product line, an operational issue.
If you see a dip in any of these things, look for the reason, if easily explained, you could be putting action in to put yourself back on track. Also look out for high peaks, these should be explainable. ie a new contract, timing issues, seasonality, or it could be an error.
This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.
Tips To Cashflow Success
Cashflow funding of a business is key for its survival. A number of businesses fail within their first two years of trading, not because they didn’t have a good product or service, not because they didn’t have a market. They simply ran out of cash.
Sales Income
Prepare a detailed cashflow of your normal business trading, information from Sales already in your diary, if you have been trading for a few years. Use past history to project forward. For the new business set an achievable goal. Always look ahead a minimum of a year, three years if possible.
You may have peaks and troughs, downtime or seasonality, build these into your forecast.
Don’t forget VAT if that applies. Ideally shown it separately, and offset the VAT on purchases. Your sudden inflow of cash may belong to the Inland Revenue.
Your Costs
Main costs first
Materials
Wages
Rent
Travel etc.
At the bottom, how much do you have in the bank to start off with. Show the opening balance of the bank.
We always look at forecast cashflows, ie a budgeted one along with an actual one. As the months pass by update the cashflow with your actual figures and roll forward. So that you are always looking at a year to date. It does not necessarily need to be in line with your year end. Do a separate one for the year end if necessary.
By now you will know ahead of time your cashflow issues, peaks and troughs, you can now put a plan of action to make sure that you are covered in the troughs, and are saving in the peaks.
If you need a large amount of cash in six months time. Don’t leave the sudden influx of cash to the last minute. Build up over a period of time.
You might be wanting to buy capital expenditure, or take on more staff, it will help you predict when this can take place.
Look at your marketing to increase sales. Check your margins to make sure your sales cover your costs. Keep a close eye on the costs themselves.
Look at other options for finance other than your cashflows from the business.
Gain credit from your suppliers
Finance leases from the banks and other money lenders
A mortgage
Your credit score can even affect you being able to take on a large contract. You will still need the credit from your supplier to make that important sale.
By gaining credit it will increase your credit score and make you more attractive to lenders.
Nicola Cross
26/9/11
This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.
