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Financial issues that keep you awake No.3 – Understanding your business’s profitability

We’re down to number 3 on our countdown of financial issues that affect business owners’ sleep patterns.

 

This time round, KPMG found from their survey of 250 business leaders that not understanding the profitability of their business was a big concern.

 

28.5% said it was a current concern that they were working to resolve.

 

29.2% said it was a past concern that had now been resolved. 3.4% said it was a concern, but they hadn’t tackled it yet.

 

This shows that the business leaders clearly believe it’s a real priority.

 

When it comes to running a successful business, profitability is what keeps your company going.

 

It’s a measure of your overall profit, worked out by offsetting income against expenditure. While similar to cash flow, it is more concerned with prospective figures rather than the cash that’s in the business right now.

 

This includes any outstanding invoices you’re owed, and of course income can vary due to fluctuating sales and prices.

 

Not knowing exactly when money will make its way into your business can cause business owners to worry.

 

It’s also an extra hassle having to chase up invoices from troublesome customers.

 

If this continues on a long-term basis, it’s easy to see why an entrepreneur could lose sleep over it.

 

According to the survey, the solution here was a combination of seeking additional support from their accountant and also changing internal business practices.

 

A quote from the report says: “Just understanding more about our profitability and getting an accurate handle on this through the year (rather than just at year end). Resolved by spending more time with our accountant to help understand how to interpret the data.”

 

Another states: “[Addressed] cash-flow and profitability… by involving the staff in targets for success [and] altering our terms of business to invoicing on the date the ‘deal is done’.”

 

So the key to knowing the profitability of your business is to ask for more from your accountant so they can give you an overview on a regular basis.

 

This is helped by tightening up your payment terms, so you’re not waiting for money you’re owed indefinitely.

 

It sounds like common sense, but these simple things can help your business and your personal wellbeing.

 

If you’re in the dark about your business’s profitability, help is at hand.

 

You can find an accountant and tips on staying in profit right here:

 

https://www.madenotborn.com/accountancy/

 

David