Podcast Summary
Monitoring Monthly Financials for Better Business Understanding: Regularly examine profit and loss statements to track cost of sales, gross profit, operating expenses, and net profit for informed business decisions and profitability improvements
Producing management accounts on a monthly basis is crucial for business owners to understand their financial situation and profitability, rather than relying solely on year-end accounts. Most business owners don't have a firm grip on their monthly profit and loss, and while accounting software like Xero can provide access to financial health data, many business owners still rely on Excel sheets or only focus on net figures or sales numbers. According to Tamir from OSAM Accountants, it's essential to pay attention to the profit and loss statement, specifically the cost of sales, gross profit, operating expenses, and net profit. By monitoring these numbers regularly, business owners can make informed decisions and adjust their operations to improve profitability.
Monitoring Gross Profit for Small Business Success: Regularly monitor gross profit and margins to ensure enough revenue covers expenses and make a net profit. Xero and OSEM Software can help. Ideal GP% varies by business stage. Ignoring GP can lead to financial struggles.
Closely monitoring gross profit (GP) and margins is crucial for small business owners to ensure they have enough revenue to cover expenses and make a decent net profit. GP is a key area of focus for investors and is essential for growing businesses. Regular reporting on GP trends and taking action to improve them is necessary. Xero and OSEM Software can help provide this information at the touch of a button. However, it's important to note that the ideal GP percentage varies depending on the stage of business. Small businesses with lower revenues may struggle to achieve the same GP percentages as larger corporations, and it may be necessary to reevaluate strategies if GP is not improving. Ignoring GP and focusing solely on revenue can lead to financial struggles and even the failure of the business.
Understanding both P&L and Balance Sheet: Monitoring P&L and Balance Sheet helps make informed decisions, manage cash flow, and build a stronger business.
Understanding both the Profit and Loss (P&L) statement and the Balance Sheet is crucial for running a successful business. While the P&L statement shows your day-to-day financial performance and profits, the Balance Sheet provides a snapshot of your business's financial situation at a given moment. It reveals the net worth of your business, inventory levels, gearing ratios, and your ability to pay off debts. Many business owners focus solely on the P&L, but neglecting the Balance Sheet could lead to overlooked opportunities or potential financial risks. As your business grows, administrative costs increase, making it essential to monitor your GP (Gross Profit) closely to cover these costs. Tools like Awesome and Xero can help you customize your reporting and keep track of your P&L and GP. Ultimately, having a solid grasp of both financial statements will enable you to make informed decisions, manage cash flow effectively, and build a stronger, more sustainable business.
From 2 to 10 years for profitability, 10+ years for resilience: Focus on marketing, strategy, and seizing opportunities during the first few years, persist through losses for potential growth and expansion later
Building a financially stable business takes time, with estimates ranging from 2 to 10 years. While some businesses may start making profits as early as six months, many more take at least 2 years to turn a profit. However, according to the speaker's experience, it takes a decade or more to build a business that can truly weather economic storms. He emphasizes that during the first few years, business owners should focus on marketing, strategy, and taking advantage of opportunities like the shift to e-commerce during the COVID-19 pandemic. While losses are common during this period, the speaker encourages entrepreneurs to persist, as the opportunities for growth and expansion become more significant in the later years. If you're starting a business, aim for at least 2 years of focused effort, but be prepared for a longer journey to build a truly resilient enterprise.
Learning and growing businesses through Open Sea Minerals and masterclasses: Continuously learn and grow your business through free resources like Open Sea Minerals and affordable masterclasses offering insights on buying, financing, growing, and selling businesses, as well as building strong teams.
Learning from this podcast episode is the importance of continuously learning and growing your business. The guest speakers, Osam and Tamir, shared their insights on using Open Sea Minerals (OSEM) to help businesses grow, which is free to access through the show notes. Additionally, the host mentioned creating new content on their YouTube channel and an upcoming Business Masterclass in London for learning various aspects of buying, financing, growing, and selling businesses, as well as building a strong team. The masterclass tickets are affordable, and attendees can learn from the host's experiences. Overall, the podcast emphasizes the value of acquiring knowledge and skills to help businesses thrive and succeed. Don't miss out on these opportunities to learn and grow!
