- This is the most, in my opinion,
the three most important things that a business owner
should be doing when it comes to commercial awareness.
Number one is produce, whatever size you are,
a monthly profit and loss.
No longer care about annual accounts.
Annual accounts are for tax.
They are for raising finance.
Well, profit and losses are for raising finance as well.
Do you need to look how profitable
you are on a monthly basis?
Screw the annual accounts.
Accountants mess 'em around for tax reasons,
they move this over there and they move that over there.
The reason these are called management accounts,
there's a clue in the title, they help you manage.
Annual accounts has a clue in the title.
They help you look at it annually.
I didn't start producing management accounts
until we were like into the two million phase,
just didn't do it.
I'll tell you how I judged how good our business was doing,
by what was in the bank.
You never wanna be the accountant that says,
"I'll know how profitable I am once my accountant tells me."
You don't ever wanna be the accountant that says,
"I've just got to give all my receipts to the accountant
"and then they'll tell me how profitable I am."
This is the right way around, listen carefully.
You tell your accountant how profitable you are
through management accounts and then your accountant
makes it tax efficient, that's the right way round.
You tell your accountant not your accountant tells you.
Now this is easier than ever before.
Who's got Xero or QuickBooks?
It's easier than ever before if you've got Sage?
Frankly any business up to three million of revenue
should have a one page set of accounts
at the end, by the, the rule of thumb is
by the 15th of the month,
you should have the previous month's accounts.
I get them 30 days after now, because we're much bigger.
We've got 11 sites, 5 day now freeze
Uncle Tom Cobley and all workin for us,
so it takes ages to get all the invoices
together, but monthly management accounts
will change your life.
Who's producing monthly management accounts?
People produce some who's looking at them
and really using them to help you make decisions?
This is really important.
Number two, the second KPI.
Do you know really what you should force yourself,
that you don't look in the bank.
If you're not producing them.
You guys Johnny and Maxie you don't
produce monthly management accounts?
How often do you look in the bank,
see what's in the bank?
Yeah well imagine if you did that every week.
I promise you that's more important.
Number two is your labor to turnover ratio.
This is the second KPI.
The biggest business sorry, the biggest cost in most
businesses walks on two legs.
We need to find out what is the ratio for our sector.
So if you work in retail,
it's about 13% of your turnover goes on staff.
If you're own a Day Nursery it's 50%.
if you're in software it's 80%.
If you're in leisure it's 25 to 30%.
I don't know what it will be for every single industry,
that's what general most people who go
"Joe oughta know my industry."
I don't know it for every industry,
but for those ones that I've just described,
because they're my businesses, I do know.
So you need to find out what the
labor to turnover ratio is for your business.
Here's the next piece of advice.
If I'm a loft builder in Durham,
I need to go and find a loft builder in Brighton,
that's in a different geographical patch to me
and say "Hey you've got a similar size business to me,
"can we meet out twice a year, three times a year?
"I'll come to you once, you come to me once,
"and we'll chew the fat.
"I'll show you my management accounts,
"you show me your management accounts."
You'll see where he's making some savings.
He said "Blimey, his insurance it's half
the cost of ours. Who you usin there?"
That one day can literally save you
tens of thousands of pounds.
I do it in every industry that I work in.
I share my management accounts for our farm park
with other farm park owners, that are not on my doorstep.
"How you getting your labor under so much control?"
Oh and they go "We did this this and this
"and then we've taken this this and this
"and put it into our business."
Lo and behold twenty thirty thousand pound saved.
And for them too.
So that works both ways yeah?
Point number three, the big one.
Average customer valued. Spend per head.
Whatever you want to call it.
So many businesses are so hot on raising revenues.
I'm like yeah, I get that but what you really
want to raise is your average customer value.
How do you work it out?
You get your turnover, you divide it by
the amount of customers you've got.
Under commercial awareness, if you do those frankly right,
even if you just did number one, I'm over the moon,
but they are the three things that I look at religiously.
I look at average customer value,
so at Marsh Farm I get sent our weekly income sheet,
or a daily income sheet, we call it the DIS.
I get sent it and I'm looking, but those two things.
I'm looking what have we spent,
what's our average customer?
What people spent on retail?
What they spent on food?
What they spent on emissions?
And what have we spent on a percentage of labor?
And if they're low or high,
I want a description of why from my team.
Sorry we spent too much on labor today, we had training.
Fine. I understand it, give me a reason for it.
So you're gonna do some shopping around
if you don't know the answers to those things
on labor yeah?
Thanks for watching the video,
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