Know Your Numbers

by Bill Collier

The most basic purpose of any business is to generate profit and cash. So it’s critical to have systems in place to track results on a timely basis.

Knowing the checkbook balance is good. But that knowledge by itself won’t keep your ship afloat, much less pointed in the right direction. A few of the most important items to be monitored on at least a monthly basis include:

INCOME STATEMENT

• What are our sales?
• Are sales up or down compared with the same month last year?
• Are sales above or below our target?
• Is our gross profit trending up, down or sideways?
• Are expenses within targets?
• Is net profit on target?
• Is net profit trending up, down or sideways?

 BALANCE SHEET

• How much cash do we have on hand?
• How much cash is tied up in accounts receivable?
• Are receivable days getting longer or shorter?
• Do we have sufficient current assets to satisfy current liabilities?
Most of the above items represent data. To turn them into information, you might start by asking this question for each:
“Why?”

The number on a report is just a symptom of what’s going on in your operation. Dig deeper to get to the root cause, good or bad.

And your basic reports may not give you certain important ratios. If you track revenue per employee, inventory turns and other key ratios, you may well have to calculate these manually.

My recommendations:
• Determine what numbers, ratios and other key performance indicators are important enough to track monthly.
• Set an acceptable range – maybe even specific high and low “red flag” limits – for these indicators.
• Create a routine for this work. Set aside some time, and use the same format each month. You might do your calculations in the margins of your computer-generated reports, you may use a blank sheet of paper, or you might design a fill-in-the-blanks form. It doesn’t matter so much how you do it. Just do it.
• Working from your computer reports, find the numbers you’ll need and do your calculations. Do it religiously each month.

If everything is within acceptable range, terrific. Celebrate with your team and maybe even give out some sort of reward for a job well done.

When you find numbers that are out of whack, spring into action and do something about it.

Using this simple approach, you’ll quickly develop a “feel” for your numbers and will stay on top of problems while they are still small and manageable.

Of course, timely data entry and monthly reports are key to making this work. If you’re getting your reports weeks after the month closes, that is a problem that needs to be tackled.

In fact, once accounting software is in place, the only thing required for real-time financial reporting is real-time data entry.
Regardless of the size or age of your business, running it by the numbers can be the difference between success and failure.

Bill Collier is the St. Louis-area head coach for The Great Game of Business. He works with organizations that want to improve financial results, engage their employees and create a winning culture. Bill can be reached at 314-221-8558, GreatGame.com/stl, GGOBSTL.com or bcollier@ggob.com.