Budgeting | Numbers Knowhow

Know Your Numbers & Financial Ratios

Mahmood Reza — Fri, 02 Feb 2024 09:28:52 +0000

Numbers are everywhere, and for the most part, we just ignore them. That is unless we’re forced to pay attention to them when it comes time to do our monthly taxes or budget. But, for most people numbers don’t seem interesting. And this is something I’ve seen over and over again. Know your numbers I can’t emphasise enough how important it is to know your numbers. In your business, your numbers are your best friend. Once you realise that you will become less anxious about them. The enormous benefit your business numbers give you is clarity about how healthy your business is. They will help you in the good and not-so-good times. Because numbers don’t lie to you. They will always give you that reality check. They’ll wake you up from slumber and prompt you to take action. Financial ratios Your numbers can be turned into financial ratios. Consequently, they can tell you a lot about your business’s health and where it could be headed in the future. Here’s a quick guide to how to know your numbers and how to use the most essential financial ratios. Subsequently, you can start using your numbers to make smart decisions for […]

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The Mistakes In Borrowing Money

Mahmood Reza — Tue, 12 Dec 2023 12:14:00 +0000

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Final Steps Of A Business Plan

Mahmood Reza — Fri, 01 Dec 2023 11:51:10 +0000

Each business plan needs to be meticulously constructed in order to be effectively used in the future. This blog will discuss the final steps of a business plan and give you an overall idea of what needs to be done. The three groups that encompass these final steps are the following: Management Financial forecast Presentation Final steps of a business plan: management One of the final steps of a business plan is defining the management roles within your team. You can achieve this by outlining the strengths and weaknesses of each team member as well as describing their background and experience. Consequently, you will have a clear overview of who in your team is suitable for a certain role, and make the allocation accordingly. Furthermore, you need to clarify how you intend to cover the key areas in your business, such as production, sales, marketing, finance, and administration. Lastly, you need to maintain your management information systems in good condition. This includes the management accounts, sales, stock control, and quality control. How committed are you? Businesses often further develop and prosper thanks to partnerships and investors. So, if your goal is to attract banks or potential investors, as a […]

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Knowing Your Costs – The Key To Any Business

Mahmood Reza — Mon, 25 Sep 2023 10:46:37 +0000

Running a business means setting clear goals that you would like to achieve as a business owner. Whether that is to provide services or manufacture products, you must have a defined target and strive to reach it. Certainly, one of your goals should be making money i.e making a profit, since there is no future in a business that is repetitively not profitable. Focusing merely on the sales you are generating won’t give you the full picture. Hence, the way to success and money is through knowing your costs. In this blog, I am going to explain the different types of costs and how they behave in different circumstances. The importance of knowing your costs The sales that you make are not your profit in the business precisely because of the costs you have. Once the end customer has paid you for the product or service that you offer, the money you receive needs to cover the expenses that you encountered in the process of production. Now, these expenses are what I call costs. By knowing your costs, you will know what you are left with from the sales. In other words, you will know how much of your […]

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Why Profitable Businesses Fail

Mahmood Reza — Mon, 21 Aug 2023 10:34:13 +0000

A successful business is one that is profitable and sustainable but profitability alone is no guarantee of success. There are many stories of seemingly successful and profitable companies going out of business, but what causes profitable businesses to fail? Your business is profitable if there’s money left over from your sales revenue after you’ve paid all your expenses. However, there are several reasons why a business might not be sustainable, despite being profitable. This blog uncovers some of the common reasons why profitable businesses can fail. Poor Financial Management Many of the fundamental issues that cause businesses to fail, even when they are profitable, stem from poor financial management. Over-reliance on short-term profits at the expense of long-term sustainability If you’re always chasing short-term gains, you may not fully consider the longer-term impact of social, economic and environmental factors affecting your company. When you focus efforts on short-term profitability, it gives you a big boost in turnover quickly. However, this can lead to decisions that aren’t well-thought-through. The negative consequences could be reduced customer and employee satisfaction, issues with compliance and governance and lack of investment in the business. Mismanagement of cash flow and failure to plan for economic downturns […]

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The Difference Between Budget & Budgeting – A Beginner’s Guide

Mahmood Reza — Fri, 19 May 2023 09:16:58 +0000

We’re all on a budget, and I bet we’ve all done budgeting in one way or another. But, before we go into comparing the two, we need to clarify what a budget is. What is a budget? It’s really a plan for spending the money you have or the money you expect to have over a certain period. When it comes to businesses, it’s usually an annual one. When we say that something is in our budget, we actually mean that we have the necessary funds and we can spend them on whatever it is we’ve planned for our business. On the other hand, if it is over it, it means that we’ve not planned for such an expense, and we can’t afford to make a certain purchase. Types of spending plans They can be personal or corporate. This means that both households and companies use them. Hence, the very first sentence of this blog. Personal When you know how much money you have and what portion of it you spend on all your monthly expenses, it will be much easier to stay on top of your finances. These calculations are usually done on a monthly basis. Following a […]

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Business Numbers – Friend Or Foe?

Mahmood Reza — Fri, 19 May 2023 09:15:33 +0000

Do you see your business numbers as a friend or foe? If you are in business, what is your attitude towards your numbers? Do you like them, dislike them, or is it somewhere in between? That is what we are going to cover in this blog. If you think that money is an icky subject, your business will remain a hobby instead of further developing and improving. Many business owners are good at what they do. They may have great skill and craftsmanship, they may excel in providing service to the customers, but they are not necessarily aware of the financial impact that affects their business. Numbers are your best friend Have you ever thought about who your best friend in business is? Spoiler alert, it is your business numbers. They are your best friend meaning they will not lie to you, nor let you down. Your numbers help you navigate your business through turbulent times as well as in times of prosperity. Sometimes, a poke in the eye may seem better than dealing with your business numbers. For some people, the flashbacks of Maths classes with Mr Calculate and Miss Take Away are far from being pleasant. Consequently, […]

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Your Business Cash Story Is A Big Deal

Mahmood Reza — Fri, 19 May 2023 09:10:23 +0000

Your business cash story is a big deal. It contributes to business continuity, survival, and growth. Profits are what it all comes down to ultimately, but cash plays its own part in this narrative. Cash is what we see appearing and disappearing from our bank accounts. Sales are vanity, profits are sanity, cash is reality. This blog shows you how to navigate those financial waters, in times of choppiness as well as prosperity. In other words, whatever size and shape your business is, whether it’s in the private or not-for-profit sector, it’s all about the cash. So, if you can handle your cash flow, you have got the key to success. Firstly, we will look at the benefits of managing your cash flow and paying attention to cash flow forecasting. And secondly, I will share the ABC framework which will help you build and use your cash story. So, CASH is the name of this pivotal game. As business people, we have to learn the rules of the game to be able to play it well. Benefits of a business cash story Your business story is merely your business plan. It’s unique to your circumstances, your path, your journey. […]

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What Is Operating Profit?

Mahmood Reza — Fri, 28 Apr 2023 10:13:25 +0000

Business is all about making a profit, isn’t it? But in accounting, there are several terms used to express different kinds of profit. Ultimately, what should interest you is your operating profit. There are multiple names for operating profit. You might hear people refer to it as EBIT which is the acronym for earnings before interest and tax. It can also be called PBIT which stands for profit before interest and tax. Another name for it is net profit. Definition Operating profit is the profit you make after you’ve deducted your costs for making the goods you sell and also the costs for running your business. Furthermore, it’s your total revenue minus costs of sales along with operating costs. How to calculate operating profit The easiest way to show you how to calculate your operating profit is to use an example. That way you can translate it to your business and make your own calculations. Let’s take an artist as our example. Say you’re an independent artist who sells their art and you’ve got your own company. The moment you sell a piece, you’ve made revenue. As per our definition of operating profit, you now need to deduct the costs for creating that artwork. […]

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Profit In Business

Mahmood Reza — Mon, 17 Apr 2023 07:31:00 +0000

What is profit? We can define profit as “a financial gain, the difference between the amount earned and the amount spent”. Making a profit is essential for any business. There are several important elements that make up your business story – some more important than others. However, I think it would be safe to say that ‘profit’ is one of, if not, the most important element. Without profit where is your business going? Nowhere. Making a profit enables you to invest in growth. But, it also allows you to be resilient as a business when unforeseen circumstances occur. Profit can also act as a motivating factor or incentive. Finally, it can be a source of finance for your day-to-day operations within your business. When all is said and done understanding profit and how to calculate it is what you want and what you need to keep on top of your business story. How to calculate it The standard equation is: PROFIT = TOTAL SALES – TOTAL COSTS Once your total sales exceed that of the total cost then you are in profit. Firstly, you have to consider the various choices on your hands. You may decide to withdraw the profit […]

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Decision Making Under Uncertainty

Mahmood Reza — Fri, 14 Apr 2023 09:10:10 +0000

Decision making when things are calm is not the same as decision making under uncertainty. Because when it’s business as usual, you pretty much just follow the strategy laid out in your business plan, and take action that you’ve planned out beforehand. But let’s face it, although every business goes through periods when things are running like clockwork, there will certainly be times that will be challenging. This, by the way, is part an parcel of running a business. And the challenges will come in different shapes and sizes. For example, not knowing if we’re going to keep certain clients, changes in costs due to prices going up, etc. It is those things that will take unpredictability or uncertainty a notch higher. As a result, we will feel the anxiety kicking in. However, regardless of the situation, in business it’s essential to make decisions quickly and efficiently. In this video, I go through the steps you need to take to make rational decisions when everything is going crazy around you. Here’s a summary of them: Stay calm, or become calmer Going back to the anxiety I mentioned above, it is vital to try to stay as calm as possible. […]

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What Is Break Even In Business?

Mahmood Reza — Fri, 14 Apr 2023 09:07:45 +0000

To understand break even, you first need to know the components involved with business activity. But how do you find out what your business requires to break even? What is break even in business? Your business breaks even when your sales cover all your costs – when neither a profit nor a loss is made. To be able to work this out in more detail, there are numbers that you can analyse. These include ‘sales revenue’, ‘fixed and variable costs’, and the ‘contribution margin’. Break even is the point where the total revenue generated equals the total cost incurred. To put it simply, this is achieved when all the money spent on production, marketing, distribution and administration is covered by the sales of the product. It is not uncommon for businesses to spend more than they earn, so knowing how much you need to sell to cover your expenses is crucial. Why break even is important Knowing and understanding your break-even point gives you better insight into your business, accountability and enables you to make important business decisions that will improve your profit margins and company success. You can pat yourself on the back when reaching that financial milestone! […]

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