“What would you do if you wanted to grow your business?”
This is a question that accountants are commonly asked, posed in the hope that some sort of Swiss Army knife-type solution will in turn be offered up, capable of being adapted for businesses of all types.
If only growing your business was so simple! The truth is, there are any number of techniques that can be applied to grow your business – however, when all is said and done, it simply won’t grow unless you project your numbers into the future.
To be absolutely clear:
Your business will not grow unless you project your numbers into the future.
You might be thinking, “Shaun, that’s a little harsh. If I work really hard and reinvest the profits, my business will definitely grow.”
And you’re right: your business might well grow, if you consistently make the right guesses, and hope for a good deal of luck when it comes to spinning the wheel of fortune.
This is, of course, a far from ideal business strategy, and will undermine the hard work put into building a business over time, especially so given the tried-and-tested approaches that can be harnessed.
A future-focused approach to drive results
Unless you’re blessed with an infinite pot of money, predicting the future is required to grow your business – and it’s the only way to make important decisions, because otherwise it’s simply guesswork.
For instance, right now, could you accurately state:
- What your business’s operational requirements (such as staff, occupancy and materials) are going to be in 3-6 months? How about 12?
- What you’ll need to buy to invest in your business (such as equipment, trademarks and infrastructure), and when you’ll need to do so?
Most businesses we speak to haven’t thought about those questions, or are making decisions based on what’s in their bank account – and this is actually quite common, especially among smaller businesses seeking to navigate a path forward.
For instance, this was the case when we first started working with Luke Winder, owner of regenerative farm Tathra Place, who was making decisions based on the business’s bank account balance.
If there was spare money, Luke would spend it on whatever project he felt needed prioritising – from fencing to chicken tractors, Luke would buy the materials and then build it himself, all while also trying to raise a young family.
If a business is in its early start-up phase, this is actually the best way to run lean and make sure that it is viable – however, beyond 12 months and the expansion of your main sales channel, it can start to be a hindrance.
This was the case for Tathra Place, with Luke quickly finding out that one person can’t:
- Feed thousands of animals daily.
- Build never-ending infrastructure.
- Maintain a farm.
- Deliver stock each week.
And this certainly isn’t possible with only one week’s bank balance.
There’s no doubt that Luke had a vision for the future – one which he could describe in great detail and with great passion – along with the dedication and ambition to match. However, he was unable to provide details about how fast this vision could be realised or the funding required.
This is a problem faced by Luke and many entrepreneurs who want to grow their business:
How do you grow a business when it is made up of an ever-evolving multitude of moving parts?
The numbers, of course, tell the real story of what’s happening inside a business, and can be harnessed to make forward projections, allowing for new projects to be undertaken and investment in growth.
Numbers vs money
Numbers and money are two very different concepts, however most people are inclined to bundle them together, when it’s actually easier to divorce the two completely, and to focus entirely on the numbers of your business.
The underlying rationale behind this is money’s ability to act as a great procrastinator.
For many business owners, their operational numbers make complete sense, however dollar figures have the capacity to cause great headaches. This can lead firstly to procrastination and ultimately to neglect.
Here’s how Air Accounting helped Luke to approach his business numbers, beginning with the raw numbers:
- How many products can you produce?
- How much machinery do you need?
- How many product variations are desirable?
- How many people do you need?
These numbers are the foundation of making a business forecast, and, as such, should be able to be quoted any day of the week.
Following this, it was necessary to price each aspect of Luke’s business operations:
- How much can we sell the product for?
- What will a casual staff member cost?
- How many hours do we need them for per week?
The end result is a dollar figure, which subsequently helps to create a model about what areas of a business affect the others.
Removing the relationship between costs and sales increases may well provide motivation to invest in a wholesale buying model, and in the case of Tathra Place, the focus turned to the potential benefits of a three-year fixed-price contract on duck feed.
How to harness business numbers
Being able to visualise your business numbers can help greatly in making sense of them – and for this reason, rather than coming back to our clients with a forecast for their business, we like to involve them in the process of understanding their numbers better.
We have adopted this approach because:
- It helps businesses make better business decisions immediately.
- It removes any fears associated with looking at business numbers.
- It allows us to work with our clients to make sense of the entire business.
- It ultimately helps all parties to focus on growing a business.
By contrast, if we show up with a page full of numbers, most clients immediately grasp their forehead with a pained expression on their face.
As Luke notes:
“Over the last 16 years of owning and running businesses, the part that makes me most anxious is worrying about the finances.”
As accountants, there’s nothing we like more than staring at a page of numbers – however, for many entrepreneurs, this is simply not the case.
Meanwhile, studies have shown that around 65% of people are visual learners, which strongly supports the approach of visualising business data to facilitate better decision making.
Air Accounting seeks to visualise client business numbers via interactive graphs, allowing for variables to be added or removed (such as the relationship between feed costs and an increase in sales), showing the potential profit from a venture, as well as how much money will be in the bank.
This is a rewarding part of the job, as when clients see a visual graph, typically everything clicks into place, and we can literally see whether a project is possible, along with how long it will take to achieve.
In the case of Tathra Place, all of the business decisions came down to one simple question, “Luke, how many ducks can you sell?”
Retail vs wholesale
If you’re on this blog, chances are you’re a small or medium-sized business owner. You may even be a producer, like Luke, which is why you’ll understand how difficult it is to choose between retail and wholesale.
Yes, retail is tempting – you can focus all of your energy and resources on higher-margin retail sales, and, in fact, this often seems like the most natural choice from a revenue-per-product perspective.
However, retail does come at a cost – namely, the cost associated with staffing, rent and, more importantly, finding customers for each location. For these reasons, it’s not an easy route.
This was a question we tackled with Tathra Place, and rather than solely making a decision based on the revenue Luke stood to make, we also zoomed out to gain additional perspective, considering the numbers involved with the duck industry.
It represents a growing market, however unbelievably most of the duck produced in Australia isn’t free-range and is treated with chemicals. Luke’s aren’t and that’s what makes his ducks so special.
However, Luke faced a challenge: he needed to build a free-range system where his ducks could survive all year round, allowing him to fulfil a wholesale contract.
