How to build a food business - #4
The fourth of 4 weekly blogs
Great food is just the start.
What are you good at?
Are you too busy to grow your business?
Making sure you make money!
KNOW YOUR NUMBERS
You work bloody hard to make your food business successful so, your efforts really should be rewarded with good profits.
At The Food Agency we meet too many people who have insufficient control over their numbers and they do not use their trading information to make informed decisions on how to evolve. If you've ever looked at your bank statement and have been surprised, you could be one of them.
Today's access to information in accessible, real time software and apps means that you no longer have an excuse not to keep a close reign on you finances.
FIVE NUMBERS TO HELP DRIVE YOUR BUSINESS
You'd never drive your car with the dashboard covered up. How would you know what speed you were going and how much petrol you have in your tank? So why would you drive your business forward without knowing the critical numbers?
Here's 5 critical numbers:
Cash flow forecast
Being able to project you bank balance forward in real time will help you monitor the cash health of your business.
Gross profit margin as a percentage of sales
You should have a hypothetical gross profit margin (the profit you should be making) and an actual gross profit margin. The difference between the two is your wastage. This is critical to a food business and relates to yields, throw aways and give aways. Why would you bother buying ingredients and packaging just to give them away. You'd be surprised at just how many businesses do!
To get your gross profit margin divide your gross profit amount by your sales. Take that, multiply it by 100, and you will have your gross profit margin as a percentage.
Revenue growth rate
Your business must constantly move forward. Very few businesses can do this by keeping the same revenue and increasing profitability so you need to know how your revenue is growing compared with 'like for like' previous periods.
Moving ingredients and packaging is what we do as food and drink manufacturers. Moving them as quickly as possible means that your money is not tied up in storage but it is in your bank account.
Keeping a close control on your stock movements is critical to success so you need to have an efficient way of calculating;
Opening stock + goods in - goods out / goods sold last period = period stockholding
£ per employee
The sales value of your products per kg will change according to the type of product range and the price you can get from your customers. Setting a generic target labour percentage against turnover for all your products will not help you control you labour spend correctly.
Controlling your labour spend by gauging £ per employee (broken down by department or product range) will give you more appropriate numbers to assess the productivity in your business.
DO SOMETHING WITH THOSE NUMBERS
If your are monitoring your business by collecting the right numbers and you are not
making strategic decisions based on those numbers then you are wasting your time. Make sure that they become intrinsic to all your decision making.
I was sitting opposite a food buyer for a major wholesale distributor who showed me a pile of print outs that her Head Office sent her weekly with incredible detail about the sales and profitability of each of her products.
'Impressive', I said,
'Crap' she said, 'I haven't got enough time in my week to look at them let alone act on them!'.
So, here's the 'take home' - Get a dashboard of the fewest amount of critical numbers you need to drive your business forward (there are free dashboard templates for excel). Make sure those numbers are easy to assimilate and then monitor them religiously on a regular basis to inform your decisions for a more focussed, more profitable business.
THE FOOD AGENCY - Not just consultants but your partners for growth and success.