Financial Planning | Numbers Knowhow

Customer Lifetime Value: How To Calculate It?

Mahmood Reza — Fri, 09 Feb 2024 08:32:30 +0000

Why Is Customer Lifetime Value Important? As a business owner, you need to cater to your customers. Having satisfied and loyal customers is extremely vital to the growth of all businesses since, at the end of the day, the gains, and the profit one makes are due to the customers. However, not all of your customers can be put in the same basket. Each has a different impact on your business i.e. has a different worth. In the business world, we refer to that as customer lifetime value. But, what exactly is customer lifetime value and how do you calculate it? Further on in this blog, you can find the fundamental details relating to this topic: what is customer lifetime value (or CLV) and how to calculate it. What is the customer lifetime value? Customer lifetime value is a metric that presents to you how the profitability of your business depends on your customers. It shows you how much income you can expect from your customers. Certainly, making a profit is the goal of any business, so knowing your customers, knowing their value can be rather beneficial for you. It can help you make better decisions about when and how […]

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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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Pricing For Profit: 5 Key Numbers

Mahmood Reza — Mon, 23 Oct 2023 10:47:16 +0000

Wondering how to price your products or services so you can make a profit? It’s not as simple as it seems because it involves several things to consider. That’s why figuring out the right price is one of the biggest challenges business owners face. There are two main financial outcomes of pricing and it’s so important to understand them. And to know how to calculate them. Once you know what those two outcomes are, the next step is to consider five key factors that will help you set a price for your product or service that meets your business objectives. And finally, I’ll show you a FREE online pricing calculator that makes it easy to do all this math for yourself. Watch this video now and learn how to price your products or services for success! How to price your products or services so you can make a profit You need to make sure you’re covering your costs and making a profit. In this video, I’ll explain the two main financial outcomes you need to meet: Time availability, and Quantity of time. These two are essential to take into consideration because nobody can devote all of their time to […]

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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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Using Target Costing For Pricing

Mahmood Reza — Mon, 31 Jul 2023 10:29:30 +0000

Do you want to reduce your costs by 25% to 30%? If so, then target costing is the right choice for you. Therefore pricing using target costing can help you cut costs without sacrificing quality. Traditional and target costing – differences The two methods share things in common but also have differences. You choose the method most appropriate for your target customers and product mix. Traditional costing (or cost-plus costing) is the most used method for pricing goods and services. It’s based on adding an average overhead rate to the costs of manufacturing products. The focus of target costing is reducing waste from the start of production. Don’t wait until products are made. Moreover, this means that every step of the process is designed with cost-cutting in mind. You gain better prices and margins for your business. Target costing was developed by Toyota Motor Corporation to reduce costs while increasing the quality of its products. It’s now widely used throughout many industries from automotive to consumer electronics. Target costing has been around for many decades, much longer than cost-plus costing. Listen now to find out more about how target costing works! Conclusion If you’re interested in dealing with pricing and […]

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Financial Statements Explained

Mahmood Reza — Sat, 22 Jul 2023 10:26:39 +0000

Financial statements explained is the topic of this blog (and vlog). And it will serve as a guide to you so that you can better understand them. Why do you need to know about financial statements? Because the financial statements form the bedrock of any company. Therefore, understanding them and how they work gives you insight and clarity. In this video, I’ll walk you through: What each statement is, The content of those statements, Why it’s important to understand these documents. Financial statements explained There are 3 types of financial statements, and they are: 1. The cash statement It summarises where the cash in your business comes from, and where it goes. 2. The profit statement Also called the P&L, or profit/loss statement. It shows you your company’s profit and loss over a given period of time. 3. The balance sheet It’s a financial statement of the assets and liabilities of a business at one particular point in time. Benefits Undoubtedly, these documents give you, as a business owner, the numbers of the company and show you: how your business is performing financially, and where you stand in terms of your cash flow. Certainly, this can be overwhelming for […]

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Gross Profit & Net Profit: What Is The Difference?

Mahmood Reza — Fri, 19 May 2023 09:33:22 +0000

Making as many sales as possible is the goal of every business. Whichever service you offer to your customers, that is going to be what you’re aiming for. However, what really lies behind a successful business story is the profit generated from these sales. In this week’s blog, we will go one step further and look at two types of profit you would typically encounter, gross profit and net profit. What exactly does gross and net profit mean? What’s that all about? Gross profit Gross profit in business terms is the profit made once you deduce the costs the business has incurred for manufacturing the goods and/or providing the services. An easy way to grasp the meaning of it is through examples. For example, Maggie sells homemade biscuits outside her house at 50 pence a biscuit. Now, if she sells a hundred of those, then she ends up with £50. Those £50 are her sales, but it’s not her profit. Maggie needs to spend £10 first for flour, eggs, and sugar. She reckons this will be enough to make a hundred biscuits all in all. This means that she gets a £40 profit. Those £40 are her gross profit. Here […]

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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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Why Planning Is Good For Business

Mahmood Reza — Mon, 17 Apr 2023 08:05:10 +0000

Planning is an essential process for any business, regardless of its size or industry. It involves setting objectives, developing strategies, and laying out the actions needed to achieve them. Remember if you want your business to be successful, you need to get to grips with it. Don’t think “Oh no!” and glaze your eyes over. You really do need to plan, so read on. Why plan for business? Planning relieves anxiety. In other words, it relieves all that not knowing what’s gonna happen the next day. You’ve got anticipation about the way your business is going to move forward and you do need to move forward. Because if you don’t plan, your business will be going backwards. Stress relief, making money, having the business that you deserve and want… These are the reasons why you should be thinking about planning. It’s not boring, it’s essential. Above all, it shows how you can turn your business into a reality. Write your business plan or it may be hard for you to survive and prosper. So, if you want your business to make money then start putting one together. Planning enables clear direction It provides a clear direction and it helps […]

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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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Cashflow Forecast Guide

Mahmood Reza — Tue, 11 Apr 2023 10:46:34 +0000

Building your cashflow forecast might seem unnecessary to some – at a first glance, that is. That’s why, this cashflow forecast guide aims to explain why you need one and how to build it. Because, you might be thinking, “I don’t need one of those. I’m not going out of business!” But if you’re like most people, your business is constantly changing and growing. And when it does change or grow, that’s the perfect time for a new forecast! It doesn’t matter what kind of business you have – retail store, restaurant, consulting firm – forecasts are important because they help keep your finances in order and on track. Why you need a cashflow forecast This cashflow forecast guide undoubtedly needs to start with the reasons why a cashflow forecast is your greatest ally. Firstly, it will help you make sure that everything is running smoothly with your money. If something happens unexpectedly (like an unexpected expense), then at least you’ll know about it ahead of time so that you can plan accordingly. Forecasts also give businesses a chance to see where their money is coming from and where it’s going; this helps them figure out ways to make […]

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Cashflow Forecast DIY (with Microsoft Excel)

Mahmood Reza — Tue, 11 Apr 2023 10:38:06 +0000

A DIY cashflow forecast in Microsoft Excel. Sound interesting? Then read on: Perhaps not because you aren’t as comfortable dealing with numbers. But, this blog (and vlog) is here to show you that it isn’t scary at all. Especially when someone guides you every step of the way. So, if you want to learn how to create one such document containing your cashflow forecast, you’ve come to the right place. Let me start by saying that making your own cashflow forecast is easy with Microsoft Excel. You can use it for any business, big or small. And feel more at ease because you’ll be able to see where your business is heading. If you’re using Google Sheets or anything equivalent, then don’t worry! The principles, approaches and formulae will apply as equally with those other packages. I’ll show you how to build a budget from scratch by using the building block approach. We’ll also deal with sales taxes, loans and credit. What’s more, you’ll save time in the process! It’s a common problem for small businesses not to know how much money they’re going to make i.e. not have a cashflow forecast. This can be stressful, and it might […]

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