This week, we are going to review your fees and gross profit. You will use this process to generate ideas and get you thinking about your forecast for this year. Make notes as you work through – these will be useful in the coming weeks.
Firstly, take a look at your fees. Was this a normal year for you, or did unexpected events affect the level of fees? Think about the level of fees you would be happy with. How far away were you from achieving this? Also, the current capacity within your company. Can your team take on extra work this year or do you need to think about recruitment? Do you want to increase fees this year? This may be a good time to review your day rate.
Now, analyse the fees by type of service. How fabulous is it to have retainer clients on the books? Would you like more of these? Are you actively working towards increasing the number?
Would you like to offer any new services this year? How would this look? What would be achievable this year and what would be the impact on total turnover?
Do you have one or two large clients, or lots of smaller ones? It is very risky for a small company to be working with only a few large clients. It is a good idea to attract some small or medium-sized clients into your business this year.
Now, take a look at your direct costs. These are costs directly attributable to your products or services, for example, materials, freelancers, print costs. Are your freelancers earning their keep? Are you over-using them? When you are target-setting, think long and hard about this as it can eat into your profits if not managed carefully. Do you use the same suppliers time and time again? Perhaps it’s time to review their prices or to request discounts.
If you have a lot of projects, pick out a handful and assess their profitability. Don’t shy away from this exercise – if it’s bad news, then you can move forward from this in a profitable way.
What is working well and you need to do more of? What needs to change? Resolve to stop wasting energy on non-profitable services. Are there any easy wins, where a tweak here or there will improve the profits?
Benchmarking exercises are really useful to measure your performance against that of your competitors, by sector and location. Some accountants have access to a database and can prepare this for you. Alternatively, some creative membership organisations publish annual survey results. Benchmarking will identify your strengths and also highlight where there is room for improvement.
Next week, we’ll be reviewing overheads, before we move onto setting your budgets. If you need any help with reviewing your results, contact me at email@example.com – I will be delighted to help.