Over the last few weeks I have given you some things to think about around working "on" your business as opposed to "in". I likened your business to that of a Marathon runner - in order to complete the race you need to ensure you prepare (train). Well business is exactly the same. Before you start in business you need to prepare and while you are in business you need to do the same.

I challenged you to set aside some time each week for this planning and to look at your own roles and scorecard within the business then to look at your internal systems & processes.

How are you going at identifying what needs to be done inside your business?

Sometimes the fear of the unknown stops us from drilling down into our business and getting the true picture. But the reality of this is that the fear of the unknown stops us reaching our full potential. What do I mean?

Well despite what some people think, the amount of money in your bank account does not give you a true picture of your business! How many of you have asked the question of your accountant at the end of the year "if i have made that amount of money - where the hell is it!" So along with your bank account balance, your Profit and Loss does not give you a true indication of how your business is going. Why not?

A Profit and Loss tells you how much profit the business has made - it does not tell you however the Financial Health of the business. Profit can be tied up in Plant and Equipment, people owing you money and your stock - your profit will never equal what you have in your bank account. Similarly if you are making a loss unless you look at the whole picture you can't really tell how your business is going.

Let's look at an example:

Your business at the end of the year has made a healthy profit of $159,586 - after you have paid your interest + tax - now on the surface of things you may think this business is on fire. I'm sure many of you would like a business that made $160,000 profit after interest and tax.

But what if i told you this business had a change in debt of $-295,195 and they did not purchase any additional plant and equipment! What i mean there is that the business borrowed an additional $295,000 to pay it's liabilities! But how can that be when they have made $160,000 profit???????

Well the business in this example takes 70 days to collect their debts which means as at the 30th June they were owed $652,438 from their customers! They also had $1,004,753 in Stock! On average it took them 154 days to sell their stock! Now looking at the negative cashflow, debtors days and stock turn makes this business look a lot less desirable than just looking at their profit figures!

If the business took some time to understand their true picture borrowing an additional $295,000 from the bank could have been avoided all together. How? Just by collecting their debtors within 60 days not 70 days would put them in a positive cashflow position for the year! Reducing the amount of stock they have or selling their stock within 100 days would also put them in a positive cashflow position. Just by doing 1 of those things they would not have had to borrow the additional $295,000.

Now let's imagine the business did not have the capacity to borrow the $295,000 from the bank and was unaware of the Drivers of their Business Health. This business would either have some very unhappy suppliers or would have already had to close the doors.

How does your business compare? When was the last time you looked at your business in total?

Call the Growthwise Team if you need help understanding your Business Key Drivers.