140: How to Easily Manage the Money Goals In Your Design Firm
140: How to Easily Manage the Money Goals In Your Design Firm
with Michele Williams
I am so excited to speak with you today regarding managing the money goals in your business. On our last podcast together, episode 138, we discussed the 5 main money goals that needed to be established in your firm. Now we are going to talk about how and when to manage to them. This time grab your pen, paper and a calendar and let’s get to it.
Topics Mentioned:
Profit and Loss
Calendaring
Measurements
SMART goals
Listen to the Episode
Ok, today we are going to talk about the management strategies for our money goals that will help us accomplish them with ease. It is not enough to set the goals we discussed in episode 138 if we don’t manage to them.
When we think of managing our goals – any goal really, I want you to consider 3 things.
Is the goal clearly defined (SMART goal) with a measurable aspect?
Are the expectations and time realistic?
Is it easy to measure and see results?
We must make the management of our goals as simple as possible if we want to stay on top of them. For me, I love creating a checklist. I have a checklist for things I want to look at weekly, monthly, quarterly, and yearly. Having a checklist is not enough to attain success. I must know what to look at and how to analyze it. In other words, I need to know what I am looking for and how it compares to what I need it to be.
For example, let’s say we set up our financial goals from Episode 138 as follows:
Total Income 100,000
COGS 40,000 40% of Income
Gross Profit 60,000 60% of Income
Expenses 18,000 30% of Gross Profit
Net Profit 42,000 70% of Gross Profit
Each month, my management strategy for these goals would be to look at the reconciled P and L statement to see what my numbers were for the month, and how they compared with the percentages I need them to be. Perhaps my monthly average sales needs to be $8,333. Did I make that amount, more or less? If my COGS needed to be 40%, then I would calculate the percentage and see how my COGS that month compared to the $3,333 COGS goal.
If I was on target, I might keep going. If my percentage of COGS was too high, I would look at why. Maybe it was because the income came in the month prior, and the vendor was paid this month offsetting the income and expenses for the product purchases. Maybe I forgot to mark something up. What matters is that I looked at the percentage for the month and compared that against the percentage that I estimated was necessary for my business financial success and then looked at the decisions that created the outcome.
This is what it means to manage. We must look at the area we are measuring. See how it stacks up against the plan and if there is a difference identify what is happening.
The more often we do this for the most important areas, the quicker we can make small or micro changes that will potentially impact the business in a large way.
One great area to watch like this is billable time. This is true no matter if you are billing by hour or by project. We estimate the hours that it will take to get the job done, and then we are paid for that work by either billing for the hours or using up the retainer on a flat fee project. Knowing how many hours of billable work is required to bring in the income each month allows us to see if we are meeting, exceeding, or lagging behind the goal.
While we cannot manage to each number in our business – it would be overwhelming and a full-time job, we can identify the most important numbers that drive the business. The 5 mentioned earlier are super important in my opinion. These are total income, cogs, gross profit, operating expenses, and net profit.
Another principle of good management is creating a time to do it. For me, I like to manage my numbers within the first week of the new month for the prior month. At that time, I reconcile all of my accounts and do my Profit First allocations which prompts me to check the KPIs (Key Performance Indicators) that matter to me. I also book dedicated time on my calendar to do this.
If I don’t book time on my calendar, then it can often be pushed from day to day while urgent things happen. I have started booking out the first Monday of each month with no client work or meetings. On this day I do my content creation for the month, reconcile all my bank accounts, and manage to any metrics I am focusing on in the areas of finances, marketing, and maybe operations. This gives me a day to research anything that is coming up different than planned and also allows a small bit of time to pivot on any strategy I need or to make a larger plan for further review.
This one day has been a game changer for me. My calendar is booked for this year on the first Monday of each month, and I get excited knowing that the time to focus on managing my company is set aside.
The SMART goals acronym stands for specific, measurable, attainable, relevant and time bound.
Every goal (financial and otherwise) is a goal that I care deeply about. It is set with intention knowing that by creating it, it matters. Every goal I set needs to be managed which means checking the outcome against the metric and timeline to achieve it.
If you find that there is a number or a goal that you thought was important and it no longer is, that is okay. There are times where I want to manage to one area of my business and after I finish that, it no longer is a big concern.
Here is an example: When I first started my podcast, I was managing and measuring how many listeners I had, and how many followers and downloads almost daily. After a while it moved to weekly and monthly and now, I randomly check it. Not because I don’t care, but because the feedback I get is that the right people (you) are listening. I no longer need to do such a detailed check in.
You may find the same thing in your firm.
Everyone needs to start somewhere. And my suggestion is that you start with looking at these five big financial numbers. Each of them tells a story.
Your Total income tells the story of how your billable time translates into income. It also tells the story of how much product you have sold. So just setting a goal, then breaking it down into sub goals is a lot of information that can lead you down the path of managing billable hours and product sales.
COGS is the number that will tell you how much of the sales price is going to be paid out to the vendor and not usable income for your company. By knowing this number and comparing it to gross profit and product income, you will immediately know your profitability by product type and be able to analyze your markups and margins to see which categories are the most profitable for you.
Gross profit is a number that will show you what the company is really worth. And this number will indicate to you if you have enough to run your firm. Managing to this will help you know if you can sleep at night without added stress.
The operating expense number will show you overall how much your company eats up in profits. And like other categories, it can be broken down so that you know the percentage needed for payroll, rent, marketing, and other expense types. Managing to these allows you to create a budget that when managed gives you even more information as well as freedom and stress relief.
Managing the net profit allows you to see how much profit is in the company after expenses are paid. It can also be broken down into areas such as bonus, profit, owner’s distribution, taxes, etc.
These numbers don’t have to be scary. Knowing them and their relationship to each other and the decisions you make are actually empowering. Every day you and your team make decisions that affect these numbers. Instead of being managed by the business, it allows you to manage the business.
If you are looking for the fastest way to begin, do this.
Identify the main numbers that you want to manage and create the metrics and timing.
Put time on your calendar to do this analysis.
Create a checklist to help you know what to look at, how to view it and when.
Do it.
As you progress, you will get faster and identify more areas to manage and inspect. You will establish your own rhythm.
This is a great reminder that we get what we inspect not what we expect. So, inspect what matters to you when it matters most.
In all of my financial courses I have a lesson on metrics and managing to them. This is so important to companies that are working to be sustainable. Head over to www.scarletthreadconsulting.com and look at the Freebies page. Grab the Financial Health Checkup and see which numbers you know and which ones you don’t. Create a plan to support your company by reviewing your numbers. Managing to the numbers can lead to profit – and profit doesn’t happen by accident.
Key Thoughts:
We must make the management of our goals as simple as possible if we want to stay on top of them. Michele (02:03)
This is what it means to manage. We must look at the area we are measuring. Michele (04:41)
Another principle of good management is creating a time to do it. Michele (06:23)
Every goal I set needs to be managed which means checking the outcome against the metric and timeline to achieve it. Michele (08:47)
Gross profit is a number that will show you what the company is really worth. Michele (11:11)
Contact Michele:
Facebook: Scarlet Thread Consulting
Instagram: @ScarletThreadATL
References and Resources:
The Designers' Inner Circle - Become a Member Today
How to Easily Set Reachable Money Goals in Your Design Firm - Ep 138 with Michele Williams