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15760 Ventura Blvd, Suite 610 Encino, CA 91436
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10 Critical Things You Should Be Counting in Your Small Business

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Count some things daily, some weekly, some monthly. Yearly is too late!

David (his name and business has been changed) owns a reasonably successful printing business. Like many small businesses he has seasonal variations, business cycles, and changes in revenue due to weather, competition, and the economy.

Sometimes David has money in the bank, pays his suppliers on time taking all discounts, and even gives himself a bonus when possible. Then there are months or even years when he’s behind with suppliers, bouncing checks, and has to borrow money just to keep going. In other words, David has a pretty typical small business.

Here is another way that David is typical. He has no idea how to keep his cash flow positive, and no plan for dealing with difficult periods, assuming he knew they were coming. You see, David doesn’t keep track of any financial metrics in his business. If you think David is unusual, you would be incorrect.

Many small business owners rarely look at their financial statements. Some don’t even prepare them monthly, but only pay any attention at tax time. This is a fundamental error in business that would be akin to taking your eye off the ball in sports. And to stretch the analogy, the process of preparing, reviewing, analyzing, and taking action based on current financial statements is as easy as keeping your eye on the ball. It just takes discipline, not brains or skill.

What should you be counting? Here are ten things, not all of which are on the profit and loss statement:

  1. Traffic – Daily counts on actual customers that walk through the door, call on the phone, and or reach out through email or other methods. By keeping track of traffic you can gauge whether sales are changing due to customer count or slips in total dollars per transaction.
  2. Sales – Daily tallies on total sales made or shipped, and/or cash/credit card income received. When you divide total sales by transactions and traffic, you get two metrics: dollars per sale and dollars per unit of traffic.
  3. Source of New Traffic – Ask and tally where all new customers found you. This helps you to determine what advertising, promotion, and other traffic building methods are working.
  4. Sales by month – When you bookkeeper provides you with your profit and loss statement no later than the 15th of the month following the end of the month, check total sales versus forecast. You may also want to check this against your daily tally to make sure the daily number is accurate.
  5. Gross profit and margins – Sales can be on target, but if margins have slipped or your sales mix is not as expected, your gross profit might be far from your expectations. Sometimes you will see unusual activity here that may be due to inventory issues. This is a wake up call to check your POS system to make sure inventory is being correctly taken in, valued correctly, and removed when sold.
  6. Net profit – sometimes sales and gross profit are doing well, but the net profit is not as expected. This may be due to increases in labor costs, special one-time costs, or other variables. Catching and resolving issues regarding margins and costs each month may keep you from getting a huge annual surprise!!
  7. Cash – Turning to the balance sheet provided to you by your bookkeeper at the same time as your profit and loss, you will want to review your cash and cash equivalents such as accounts receivable, notes receivable, etc. Are you below the threshold you prefer, such as keeping a net cash balance of $10,000 at all times?
  8. Payables – Review your total accounts payable. Are these as projected? Did you or one of your employees make unusual purchases that have invoices coming due? Increasing payables can be normal or even good, but if sales are flat or down, this could be evidence of losses or unneeded inventory gains.
  9. Receivables – If you sell on terms, failure to collect receivables is a company killer. Evaluate total receivables against total sales. Check dating to see if some are getting old, and need attention.
  10. Inventory – Unless you are running a museum, inventory should be kept to the minimum necessary to create great customer service. Set clear goals for inventory and check the real numbers against those goals monthly.

All of the critical accounting issues in 4-10 are very inexpensive to capture. A good bookkeeper will help you set up systems for generating accurate information, then provide you with an earnings report and balance sheet once each month.

If you would like to speak with someone about setting up such a system, or if your current bookkeeper is not providing you with timely or useful results, give Maya Konviser a call to discuss your needs. Call now (818) 436-2775 ext 103.