Dothenumbers is a tool accountants can use very quickly on a quarterly basis to show a client the trends in their business and true profit.
Below is a very simple example using Dothenumbers with a small client. There are far more complicated businesses Dothenumbers can handle such as Manufactures, Builders, Health etc.
I had a new client come in recently who runs a small café in a country town and they only open Friday to Sundays. The owner used to be a chef in a restaurant in the city and moved to a country town for a sea change and try his hand at running a business. Before our first meeting I asked him to invite me into his XERO file and asked if he was drawing a wage for himself. He wasn’t, he was currently living off savings.
I didn’t worry about kpi’s or his Balance Sheet. I entered 8 quarters of only P&L figures into Dothenumbers from his XERO P&L (took about 20 minutes) which gave me 4 full rolling 12 month figures (see what the reports look like at www.dothenumbers.au). For the September 23 quarter rolling 12 month figures were Revenue $302k, GP $137k, Wages $77k, Owners Wages $24k, Fixed Costs $78k and Net profit -42K. Note that as he wasn’t drawing a wage I have estimated $6k per quarter in wages for the owner as a bartender part-time.
By putting in an estimated owners wage the loss looked worse than XERO showed but gave him a true indication of where his business is at.
I went through the Rolling 12 month trend charts on a big screen in our meeting room with him, showing Revenue improving (good) as it’s a fairly new business in town, Gross Profit % stable (good), Revenue slightly outpacing Fixed costs (good), Net Profit turning around (good), wages as a % of Revenue rising fast (bad) and as Total Fixed costs including Wages rising he needs more turnover to Breakeven (could be good or bad) and that his business had no value (bad)
However, the main point is that he is unprofitable. He understood the opportunity cost of not working elsewhere for an income and if he couldn’t turn the business around in say 6 months he should sell his stock and fittings and close down. Fortunately he only has a periodical lease. He thought next years’ Revenue would be about $360k so I suggested we aim for a Net profit figure of $40k after his wage of $24k pa.
His Fixed costs were going to stay much the same as he thought he could handle the extra Revenue with his existing staff costs so his P&L was going to look this:
If current Revenue is $360k and he needs $440k, this is close to a 20% price rise. He wasn’t contemplating rising prices anywhere near this but it was made clear there is no point flogging a dead horse, either take the chance or close. He agreed and has gone through his menu, mostly pizzas and beer/wine. He was quite positive when he left the meeting because he knew what he had to do.
We’ll know in a few months if he has lost any customers because of the price rise but on a 50% margin you can lose 17% of your customers and still make the same profit you were making. However, less customers and you reduce wages. This is his only option otherwise he will have to close the business anyway.
We agreed to catch up in January to see if the trends in Dothenumbers are improving.
Epilogue – 6 months later
The December and March quarters were profitable after owners wages and he is on track to reach the profit target set. He only lost two regular customers. We update his quarterly figures on Dothenumbers and review the trends.
If you want to look at Dothenumbers or see more real life examples contact me at www.dothenumbers.au
Greg Sheridan |Dothenumbers
