ECONOMICS ANALYTICS BI BUSINESS COAH

50% of romanian businesses die in the first 42 months of operation.

If they manage to pass this threshold and exceed the start-up status, they start to grow organically at the pace imposed by market and management conditions.

Turnover thus becomes a first indicator pursued by management, and its growth becomes an objective of the entire structure. Based on it, the prizes for the obtained results are divided, the market shares are calculated and the plans for the future growth are made. However, the turnover is an indicator that, viewed in its singularity, only creates an incomplete and often inflated image on the business we observe.

In fact, we can never talk about Turnover without talking about its profitability, both in percentage and in absolute value. In other words, it is wonderful that we generate a turnover with a staggering trend of growth, but we are on the road to stability only when the relationship between Profitability and Turnover is a directly proportional one.

TIP no.1 – “Always Analyze Turnover with Profitability Indicator”

The graph of a cumulative turnover (Month1 + Month2 + Month3), will always look like a vector with a nice growth trend, simply because no matter how little we sold in M2, the cumulative value of M1 and M2 is greater than the one in M1. Thus, this kind of visual verification and monitoring of the results can only determine the growth rate from one month to another and compliance with a growth target.

The graph of a Turnover analyzed comparatively month by month will respond much more clearly to the comparative evolution of the periods, and the visual impact will be a clear and simple one.

TIP no.2 – “Analyze the Turnover for different periods not as a cumulative value”

The increase in Turnover is an indicator of an increase in the overall volume of the business and therefore there is a need to link its growth to the increase in internal capacity. The scalability of a business is exactly the ability to control growth to allow its structures, processes, technologies, and know-how to adapt to the new dimensions of the business.

About the scalability of a business, full books are written on this subject, but the basic principle is very simple. You cannot build new floors of a house without consolidating the foundation and without having a resistive ceiling.

Using an aphorism, when the income from your business is 50,000 euros and you fall from the top of a building, you regroup and take it over. From the top of a construction of 25 million euros you do not fall, but you collapse. The possibility of having “floors” in your business, prevents a possible fall or even diminishes it, from 25 Million euros to x Million euros, from where the regrouping becomes possible again.

TIP no.3 – “Increase Turnover in floors and levels”

The graph of growth in levels is our example of sustainable growth that we hope all entrepreneurs achieve

Lots of financial health!

 

I often hear words such as: Strategy, Planning, Process and Added value.

Somehow over-verbalized, always reinterpreted to “get something out” of any situation, the concepts lose their content and become abstract, inaccessible to the common man.

I have always believed in the simple things, I believe that the true finesse of a professional is not proven by, complicated flows and rigid rules, in the number of stamps applied or signatures on forms but in things that go together, simple and almost unseen. I like economists that do their job so well that you feel like they didn’t do anything.

My approach to planning is extremely simple. You can use absolutely any tool you want, from pencil to SAP or Excel, the important thing is to know 2 key things: Profit and Cash flow.

The first step in understanding planning is exactly this: Profit and Cash Flow always go together, and the first choice to make is how you track them both. My advice would be to plan on income and expense flows (ie profit) and then apply a profit-to-cash transition formula.

There are many arguments for which I recommend this route, largely related to data comparability and how they are evaluated and used by state institutions. At this point it is assumed that we already know what our business mission is and what the difference is between a payment and an expense. If not, I recommend clarifying these concepts before moving on.

Once we have established that we begin the planning by profit, that is to say income and expenses, a logical thread of the work is required, as simple as possible.

I will describe it very briefly and promise that I will link 4 more articles to it to describe in more detail the concepts:

• The first budget of a company is the sales budget.(Turnover, most common economic indicator). It matters how much you can produce and under what conditions, but in the end, the income will be described not by production capacity but by the ability to sell those services or products. In writing this budget, various factors are taken into account, where the fineness of the planning as well as the objective decisions comes into play. Variations will always have concrete arguments, effective measures that can be turned into goals to be pursued.

The cost area describes the marketing budgets. In other words, all growth and maintenance sale plans translate into marketing initiatives and their costs. Attached to the sale is the sales budget, i.e. all costs incurred in the actual sale and/or transport of the goods sold.

• The second budget is the production or operational budget. When planning the operation budget, we see what human and material resources we need in order to “produce” the goods or services we have planned in the turnover. In this stage, the staff is dimensioned according to the planned sales evolution. Depending on the structures you use, you can do it under budgets: e.g. materials.
  
• Next comes the investment budget, it completes the requirements for the expected production capacity. Each investment is analyzed from the perspective of the duration of use and the way to cover it from the profits generated. (Return of investments and derivatives).
• The last budget is the general one, of the structural costs. In it we include the indirect personnel (the support functions of the company) but also the general administrative expenses: from the salary of the general manager to the costs of the license for the legal software used. This cost speaks about labor productivity as much as the production budget. The logical thread here is that we cannot produce a lot of our product of “service” and keep production costs as low as possible, if in fact we are not profitable enough to make the effort worthwhile. A structure cost that exceeds 20% of the total costs can hide a non-performing driving device, while a very small structure cost, up to 10%, can hide a series of unfulfilled responsibilities. (Example: if you did not meet the conditions of the labor code regarding the evaluation of the personnel surely the HR costs are lower now, but they are actually hiding unfulfilled legal conditions, possible future fines and litigation, etc.)

After you have taken these steps, you should already have a view of the future profit but also a list of measures to perform (marketing, HR, etc.) to get there.

As important as it is to know where we are and where we are going, it is just as important that there is a pursuit of these objectives. Only by following the implementation of the plan can we say that we have a strategic management of the firm.

What remains to be done is to adapt to everything we do and follow market opportunities in the context we are in.

 

In the autumn we start counting tree buds in entrepreneurship, writing budgets, making balance sheets and preparing for a new year. We hope it will be a better year for all, full of lessons from the past.

At the same time, it is a time when the annual profit is beginning to emerge and, we say, we should also think about what we are giving back to the company.

In Romania 1 out of 5 companies choose to redirect income/profit tax. With a rate of only 20% of national redirection capacity, NGOs survive as they can while taking on very important roles for civil society.

We want to contribute by increasing this percentage and therefore we remind you of the conditions of deductible sponsorship (i.e. sponsoring at no cost to the company):

CASE 1: If the company has more than 1 mil. EUR turnover, it can direct 20% of the company tax but not more than 5 per thousand of turnover.

Practically, these 2 indicators are calculated and we can donate the lowest value obtained as a result

These amounts may be donated to any legally registered NGO.

CASE 2: If the company has less than 1 million euros In Turnover, it can direct 20% of the micro tax to an NGO with at least one accredited social service.

It is important both to redirect and to select the right NGO we want to support. We chose to support SCUT Association that has been reintegrating young people that have been in placement centers back into society for the past 20 years. Beyond the social purpose of SCUT, we see the need to integrate these young people into the labor force and we think (including on the economic level) how important the costs of society are if the mission is not achieved.

By the way, did you know that in Romania there is no state service to replace this role?

Further on, we intend to support you in the donation process and that is why we offer you PRO BONO a discussion with one of our specialists to give you the technical details you need to know for redirection.

Do not hesitate to use this opportunity and write to us at: contact@greenbooks.ro