28 May 2015
Revenue — it’s the amount of money your company brings in, through sales and services, before anything is taken out, such as the cost of a product or the expenses associated with it. Keeping track of revenue is a must if you want to your business to thrive and meet or exceed its goals. How your company tracks revenue matters, as well. The best companies use systems that give them a clear idea of what areas are working, what areas need a little help, and what areas are dragging the business down.
Methods that Work
One of the best ways to track how much money is coming into your business is to divide your revenue into a number of different streams, based on the source of the income. If necessary, you might want to create categories based on location, too. For example, if you run a company that distributes produce and that has two warehouse locations, you can create a category for the amount of vegetables sold at location A, the amount of vegetables sold at location B, the amount of fruit sold at location A, and the amount of fruit sold at location B, and so on.
Dividing your revenue streams into categories allows you to see what areas are helping your business and which are not. Location A might not bring in a lot of revenue from vegetables, but might bring in twice as much revenue from fruit than location B. Knowing that can help you decide to reduce the vegetable side of the business and focus on fruit, for example, or decide to dedicate location A to fruit and location B to vegetables.
While creating some detail about each revenue stream is important when it comes to helping you see what aspects of your business are bringing in more income than others, it’s also important that the system you use not become too complicated. In the case of the produce distribution company, it might seem that it makes sense to further divide the fruit category into apples, oranges, exotic fruits, but getting too detailed can end up complicating things, making it more difficult to see what is working for your company and want isn’t. Making each category very specific can also distract your from the larger picture. Apples might be more popular than oranges, but that doesn’t mean you want to stop offering oranges to customers, for example.
Analysis of the revenue should go hand in hand with tracking it. Once you know the amount of revenue your company brings in, you can begin to focus on ways to increase it or to maximize its value. In the case of the produce distributor, for example, vegetables not only bring in less revenue at location A than fruit, they cost the company more. In that instance, the business owner might actually not only improve revenue, but also profit, if he or she decides to focus that location on fruit sales and reduce the amount of vegetables bought and sold. Had the business owner not separated the revenue into two separate categories, he or she would never have been able to see that the vegetable side of the business was holding the company back.
Goals and Next Steps
Tracking revenue not only gives you an idea of how much money your company is bringing in and whether it’s able to bring in enough money to cover the business’ expenses, it can also help shape your company’s goals and help your company make the next steps needed for growth.
Working with a virtual CFO, such as the team at New Direction Capital, allows you not only to increase your company’s revenue but also to find ways to make the most of that revenue so that the business can move forward and continue to grow. Learn more about revenue tracking and achieving business growth by contacting us today.
21 May 2015
How well is your business doing? Measuring your business’ performance and success means looking not only looking at how it stands financially, but also taking a close look at how it is doing in a number of other areas, such as customer satisfaction and retention and employee turnover. Knowing where your company stands today allows you to plan for its future, whether you hope to expand the business or increase profits.
Set Goals and Priorities
Before you can measure anything, you want to have an idea of why you are keeping track. Otherwise, you are collecting data that serves no purpose.
Setting goals and determining what your business’ priorities are will give you an idea of what you need to pay attention to. For example, if you’ve been losing clients or customers, and want to reverse that, you will most likely want to take a close look at customer service at your company. If your goal is to increase revenues by a certain percentage, you’ll want to examine the financial state of your business, including what money is coming in and where it is coming from. If having to constantly hire new staff is costing your company a lot of money, your goal might be to reduce turnover by a certain percent.
Use Key Performance Indicators
Once you know what you are aiming for, the next step is to determine the best way to measure. Key performance indicators (KPI) are simply measures that your company can use to see if it is on track when it comes to reaching its goals. The KPIs that are relevant to your company will vary based on what you intend to measure and what your company’s goals are.
For example, if your goals focus on the financial side of your company, the KPIs that matter to you might be the net profit margin, the return on assets, or the return on equity. The net profit margin lets you see how much profit your company brings in compared to its revenue. It’s your net profit divided by revenue.
Your goal might be to increase your company’s net profit margin to a certain percent within five years. Knowing what the margin is for the past few years will give you a sense of whether your company is on track or not, and can give you an idea what needs to be adjusted. You might need to increase revenue, for example, or find a way to decrease your costs or expenses so that your profit goes up, even if your revenue does not.
Performance isn’t based on finances alone, but if certain other areas of your company are floundering, you might start to see an impact on the financial side. For that reason, you might set goals to increase customers or to increase customer retention. Your company’s goal might be double your customer retention rate or to double the number of new customers. In that case, the customer retention rate is a useful KPI to track. To figure it out, you make note of the number of customers you had at the start and end of a period, such as a month or quarter, plus the number of new customers gained during that time.
Subtract the number of new customers from the total number left at the end of the period, then divide the difference by the number you had at the beginning. If you ended the quarter with 500 customers, started with 550, and gained 50, your retention rate is about 82 percent, meaning you lost 100 customers. If your goal is to increase that percentage to 100, you’ll either want to focus on keeping the customers you have or on finding ways to replace the ones who leave.
To know where your business is going, it helps to know where it currently stands and where it has been. At New Direction Capital, our goal is to work with you and help you determine which performance measures will help your company get to the next level and continue to grow.
14 May 2015
No matter what industry your business is in, the field is most likely crowded. Even in a small town or city, there might be hundreds of companies offering what seems to be the same service. Think of all the certified public accountants you see advertising during tax season, or even the number of pizza restaurants located along the same stretch of road.
In a crowded field, one of the more pressing issues for your business might be how to stand out from your competitors. Focusing on what makes your company different from the others will help it stand out in a crowd.
Find Your Niche
Standing out from your competition means finding what makes your company different from the others. You might be selling products or offering a service that is very similar to what your competitors are offering, but your method of doing so differs or you’ve found a niche area that the other companies don’t address.
An example can be seen in a company such as Everlane, an online clothing store that focuses on basics, such as T-shirts and sweaters. There are hundreds of other companies that sell the same products as Everlane, but they don’t sell them in the same way. The company focuses on transparency, providing a description of the factories the garments are produced in and breaking down the cost of each garment, as well as the profit the company earns. Since it only operates online, the clothing company is also able to offer high quality pieces to customers at much lower prices, as its overhead is much lower.
Part of carving out a specific niche is deciding what you want people to think about when they think about your company. You can set yourself apart from others in your field by offering a higher quality product, by offering a product that is somehow different from the others, or by working to establish your company’s authenticity with its products. If you provide a service, your positioning and niche might be that you don’t give up until your client is completely satisfied or that you work until the problem is fully solved.
Take a Different Approach
In addition to finding a niche, your company should take a somewhat different approach to the services it offers or the products it sells. Take a look at what similar companies are doing and find what is missing.
For example, if similar firms in your area sell their services as part of a package, you might consider selling your services on an hourly basis or a la carte. Doing so opens up your firm to a new segment of clients, who might not want a package deal or who might only need your services for a few hours at a time. If you are selling products, you might consider offering a more relaxed return policy than similar companies.
Get to Know Your Clients
One way to figure out how to take a different approach or what niche your company can fill is to find out what your clients or customers want. For example, for some customers, price is more important than quality, while others are willing to pay more for a product that they think is high quality and will last them for years to come. Knowing that some customers want value and others want high quality will help you tailor your products or services to meet their expectations.
Knowing your customers and clients can also help you stand out. A customer might want a specific service that he or she can’t find anywhere else and ask you to provide it. If you do, instead of thinking of that service as a one time situation, consider adding it to your repertoire.
There may be a lot of businesses out there, but only one (or a few) of them is yours. Determining what makes your company great and different from the rest will help you stand out in a sea of similarity. The team at New Direction Capital is committed to working with your company to help it find a way to stand out from the crowd. Contact us today to learn more about how we can help you.
07 May 2015
It can seem like a catch 22. If you want to obtain a loan or other type of financing for your company, you need to have some proof that you’ll be able to pay back that loan. But, if you’ve just launched a company or haven’t needed to apply for financing before, many lenders are unwilling to let you borrow money, since your business doesn’t have a strong enough credit history.
Business credit scores aren’t the same as personal credit scores, though many of the same criteria are used by the organizations that calculate them, including payment history, length of credit history, and the amount of credit in use. Depending on the company determining a credit score, it can be between 1 and 100 or between 101 and 816. Whether your business has no score or a low score, there are a few things you can do to bring it up.
Keep Your Own Credit in Excellent Shape
Although you do want to keep your business’ credit separate from your own, it helps to make sure your own credit score is in good shape. A lender might check an owner’s credit just to be on the safe side, and you don’t want to have a score that sends a bank running. Some business credit bureaus will also offer a combined business score and personal or consumer score, meaning that if your own score is low, it could drag down your company’s score, too. Ideally, your personal credit score should be at least in the mid 600s, if not higher.
Make Sure Your Company is Listed
While individuals might start building a credit history and score once they apply for their first credit card, a business owner usually needs to take a few steps to make sure his or her company is listed with the various business credit reporting bureaus, such as Experian and Dun & Bradstreet. Businesses need an Employer Identification Number or Tax ID and to be a limited liability company or incorporated in some way before a business credit bureau will start tracking them. You’ll also want to apply for a DUNS number from Dun & Bradstreet. The DUNS number is used by the bureaus to track your credit.
Just as you would for consumer credit, take a look at your business’ credit reports from time to time to make sure the information is accurate. Errors, even small ones, can lower your score or make it more difficult to obtain financing.
Consider a Commercial Credit Card
Being proactive about establishing credit, when you don’t necessarily need it, is one way to raise your business’ score and improve your chances of getting financing when your company does need it. One way to establish credit for your company is to apply for a credit card or line of credit from a supplier or vendor you work with often. For example, you can talk to a supplier about setting up a payment plan for purchases, so that you pay invoices within 30 or 60 days.
If your company regularly purchases from large retailers, such as office supply stores or hardware stores, it might be a good idea to apply for a credit card from those stores, using your business’ credit information. Use the card to make purchases as you normally would and be sure to pay the balances in full each month. When applying for any credit cards or setting up a payment agreement with a company, confirm that it reports the trades to the various business credit bureaus.
Pay On Time
Your business’ payment history plays a big part in raising or lowering your credit score. One of the best ways to build your score is to make sure you never pay any bills late. It might even be in your company’s best interests to pay bills early, when you can.
Strong business credit can help your company meet its financing goals or obtain the financing it needs to take the next step. If you have any questions about building your business’ credit or about determining the financing mix that works best for your company, the team at New Direction Capital is happy to work with you. Contact us today to learn more.
In some cases, terms that are commonly used in one industry, such as real estate, can also apply to other industries and fields, with a small amount of tweaking. One such term is “highest and best use.” Commonly used in real estate to determine how to use land, applying the concept of highest and best use to your business can also help it to grow or to help it develop a strategic plan.
What is Highest and Best Use?
In real estate, highest and best use is a principle used when a parcel of land is being zoned and/or appraised. The value of land is closely tied to how an owner uses it. For example, if the owner of a plot of land in the business district of a big city decides to build an office tower on the land, that is generally a better use of it than if the owner decided to build a shopping center on the land. Setting up a farm on a plot of land in a rural area is generally a better use of that land than creating a parking lot, especially if the area is sparsely populated.
The location of the land isn’t the only factor that comes into play when determining highest and best use. Competition and timing also play a part, as does the physical limits of the land itself, legal barriers and and finances. If a lot of other companies are constructing office buildings in the same area, at the same time, deciding to build your own office tower might not be the highest or best use of that land.
How it Can Help Your Business
The principle of highest and best use doesn’t have to be restricted to the area of real estate. You can also apply a similar concept when making decisions for your company. The principle works when deciding how to spend your time, whether to make a hire or to outsource a certain role or task, or whether to keep a product or discontinue it.
Let’s look at the principle of highest and best use when it comes to your time, either as the CEO, president or owner of your business. You want to find ways to spend your time that create the greatest return on investment for your company and that help your company become as valuable as possible. But, if you are spending your days making sure that your employees are completing their assignments or tasks, you’re most likely not making the highest and best use of your time as a CEO. Instead, it might be in your company’s best interest for you to spend your time laying the groundwork for the business’ next step or figuring out how to move the company forward.
Deciding to hire a new employee or to outsource certain tasks to a virtual CFO can help you make the highest and best use of your time as the CEO. But, the principle also comes into play when deciding to outsource or hire someone.
Outsourcing certain roles lets your current employees make the best use of their time, especially if the position you are outsourcing involves tasks or assignments that only need to be performed sporadically. Instead of having your administrative assistant try to solve any IT problems that arise, outsourcing those tasks to a vendor can be the best solution for all involved. The same is true when it comes to your company’s financial records. If you have been handling them, hiring a part-time bookkeeper or working with a virtual CFO allows you to make the highest and best use of your time and energy, and the highest and best use of that person’s talent and time.
The team at New Direction Capital wants to help your business grow and succeed. To learn more about what you can do to make the highest and best use of your company and of your time, give us a call today.