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4 min 26 sec
0:00
Raise rates or hire?
0:22
Profit margin
0:43
Utilisation
1:07
Debtor days
1:33
Cash
1:57
The decision
2:47
The numbers in Beeswax
3:20
Recap and farewell
Accounting 101
·
Reading the numbers
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Episode 26
Reading the Numbers
(The final episode. Bring biscuits.)
Should Maya raise her rates or hire a second designer? Margin, utilisation, debtor days and cash turn a gut feeling into a decision.
profit margin
utilisation
debtor days
cash runway
Transcript
0:00
One year in. Northlight made thirty thousand profit. And Maya has a question that keeps her up at night, slightly more than the cat does. Should she raise her rates, or hire a second designer?
0:13
Today, the final episode: reading the numbers. Four of them. Then we'll help Maya decide.
0:22
Number one: profit margin. Profit, divided by income. Thirty thousand, out of ninety-seven thousand two hundred. About thirty-one percent. For a small service business, that's healthy.
0:36
But margin only tells you how much of each sale you keep. It doesn't tell you how hard you had to work for it.
0:43
Number two: utilisation. Billable hours, divided by hours worked. Maya and Priya logged about two thousand hours this year. Eight hundred of them were billable.
0:54
That's forty percent. Many studios aim for sixty to seventy for designers, and a bit less for the owner, who has a business to run. So Northlight is busy. Just not busy on things it can bill.
1:07
Number three: debtor days. How long, on average, clients take to pay. Trade debtors, divided by income, times three hundred and sixty-five.
1:18
Sixty-four hundred, over ninety-seven thousand two hundred, times three sixty-five. About twenty-four days. Her terms are fourteen. So clients are a little slow. Nothing a polite reminder won't fix.
1:33
Number four: cash. The bank holds eleven thousand seven hundred. The business spends about fifty-six hundred a month. That's roughly two months of breathing room.
1:44
Profitable, but not flush. Most of that thirty thousand went to Maya, or is still sitting with clients. It's the classic busy but broke. Profit is an opinion. Cash is a fact.
1:57
So. Raise rates, or hire? A second designer would cost around fifty-seven thousand a year, with contributions and a laptop. At a hundred and twenty an hour, they'd need nearly five hundred billable hours just to pay for themselves.
2:13
But with utilisation at forty percent, Northlight isn't short of people. It's short of billable hours. A ten percent rate rise, on the same eight hundred hours, adds ninety-six hundred, almost all of it profit. She could lose one client in eleven, and still come out ahead.
2:31
The verdict? Raise the rates. Bill every hour she does. Chase the slow payers. And look at hiring again when utilisation passes seventy percent. The numbers don't make the decision. But they make it a lot less of a guess.
2:47
In Beeswax, the numbers are already there. The profit and loss, for your margin. Who Owes Me, for what's outstanding, and what's overdue. And your bank balance, from the bank feed.
3:00
For utilisation, open time entries and flip the billable switch, then compare billable hours with everything you logged. And each project's profit and loss shows which work is actually worth it.
3:13
It won't make the decision for you. But it'll make sure you're deciding with real numbers, not a feeling you had in the shower.
3:20
So. Margin tells you how much you keep. Utilisation tells you how much of your time earns. Debtor days tell you how fast the money arrives. And cash tells you how long you can keep going. Read all four, together.
3:36
Final quick one. Income, a hundred and twenty thousand. Profit, eighteen thousand. Fifteen hundred billable hours, out of twenty-five hundred worked. What's the margin? And what's the utilisation?
3:50
Have a think.
3:54
Margin, fifteen percent. Utilisation, sixty percent. The time is healthy, but the margin is thin. That one probably needs a price rise, too.
4:05
And that's the series. From one little equation in the corner, to a full set of books, and a real decision. Maya raised her rates. Nobody left. The cat remains unconvinced. About everything.
4:19
Thanks for watching Accounting one oh one. Now go and reconcile something. You'll feel better. Probably.