We recently assisted a business restructure and as a team learned a valuable lesson on what will make a business survive. The comment of the manager of the business is that “numbers don’t matter.” Our bookkeeper had the same look of shock as we did.
The manager told us all that mattered was the income. They also conveyed that data and analytical information was nothing against how the business felt. So what did we learn?
How much is revenue costing you?
In our example, each dollar of revenue was costing 37c to gain. This was a combination of marketing (and in our view unrelated marketing), promotion using third party sellers, financing options which were more expensive than all other suppliers and loss leading activities that could not be tracked to further sales.
Looking at the top line in isolation is a huge risk for business as this skips what it is actually costing you to get there. In this industry, the margins (without revenue cost) is 14% for a high performer. So for every $1 of revenue it was losing the business at best case scenario 23c.
What is it costing?
The statistics of this business were telling. Prior to the restructure, the business had a few issues but post the spending went out of control. Wages almost doubled to non-productive staff and general overheads increased as the manager purchased $25,000 in non required capital purchases.
The data analysis told us that the place was overstaffed with the wrong people, the manager assured us that they were all necessary.
Against it’s peers, it had double or even triple the administrative staff and half the production staff. The productivity was dropping as there was insufficient labour staff in order to complete work.
What did it tell us?
The numbers don’t lie.
The availability of bookkeeping, accounting and analytical software is significant and there are no excuses for a business to not have these available.
What the comment did tell us was that the manager had no idea what was going on and, what was even more scary, didn’t believe that the data would be helpful.
Unfortunately by the time we were brought back in, the owners had torn up a large amount of their capital and due to over expenditure of the manager had taxation and superannuation liability for a raft of unnecessary staff (including themselves). The owners had failed to love their numbers and make sure that they were on top of the intricacies of their business.
Having a team with backgrounds in accounting and finance, we pride ourselves on loving the numbers and working closely with our partners we ensure that we are analysing the data to ensure the success of your business.