Optimise your income part 2: not the same as maximising your income
In the second part of a series of articles, London accountant and business adviser Surekha Aggarwal explains how accountants in business can optimise their income, but they need to understand this is not the same as maximising revenue.
It is said that there are two things you need to get right when running a business successfully:
- Bringing the money in (revenue generation), and
- Looking after the money (managing the finances).
Accountants in business play a critical role in both of these aspects. For example, marketing and sales requires not just the right strategy but the proper allocation of financial resources.
So, what is the benefit of adopting a mindset which seeks to optimise revenue rather than maximise it?
Optimising income or revenue is a more strategic mindset because it actively recognises the importance of non-financial factors in underpinning business success. In a sense, it takes account of how you go about maximising revenue.
1. Quality of earnings
Acquiring new customers is usually much more costly than retaining and servicing existing customers. If sales staff are incentivised with performance-related bonuses, does this result in capturing the right kind of customer?
Identify what data you need to form a judgment about the quality of the revenue stream. Examples include cost of acquisition, churn rate and profitability over customer lifetime.
Does your management information system give you the data you need? If not, consider how you can generate this information, even if it is rudimentary to begin with.
Different growth strategies, and how they are executed, can either strengthen or weaken the fabric of the business. A resilient business can ride out unexpected shocks, as well as capitalise on unexpected opportunities.
Identify what factors influence resilience in your organisation. Each business will be different. Examples include your people, their skills, staff morale, organisational culture, supplier relationships.
Trust reduces the cost of doing business. Identify the reputational risk potential in how your growth strategy is being executed.
A topical example is the potential impact of a customer data breach. Every business is now a digital business because of the penetration of the internet in so many processes. And it is set to grow, so cyber risk is a real issue.
For example, if inadequate investment in IT security results in a breach of customer data in the push for revenue growth, whether organically or through acquisition, the resulting bad publicity could lead to customer loss, remedial costs, and fines from regulators.
4. Realistic time frames
The most obvious example of where maximising revenue can lead to sub-optimal results is where short-term sales growth is achieved but at the expense of profitability. This in turn goes on to undermine future revenue.
Consider whether the time frame you are using to plan and monitor is appropriate. For example, what does maximising revenue over say one year look like versus maximising revenue over two or three years?
Surekha Aggarwal is a chartered accountant. Find out more at www.carnelian.biz