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Increase Your Profits Tip 5 – Six Numbers You Need to Run Any Business

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How would you like to run your company from anywhere in the world where you can get dependable Internet access?

If you have a business that is a “going concern,” and if your specific labor is not required in order for the product or service to be generated, you should be able to run that company by simply reviewing certain numbers each day. The numbers are a bit different for each company, but they come down to the same thing.

First, what is a going concern? That is a business that has sufficient revenues and profits to pay the overhead, and enough cash flow to maintain the lines of products are services that sales depend upon.

Once your company has reached that point, you should be able to hire folks to handle all the daily needs, including a CEO and CFO depending on the size of the company. For a small company, you might need a talented and honest general manager, and a solid outside bookkeeper like ATPP.

Now you need the bookkeeper or CFO to send you six numbers each day/week/month. From those numbers you will be able to determine if you are staying the course or improving, rather than losing momentum or hitting bumps in the road that could do damage.

  1. Obvious right? You will be amazed at the number of business owners who don’t track sales. Sales should be tracked daily, compared to same period last year, and even back many years. The sales number should be net of any discounts, returns, and/or credit card costs. The first number I want to see is sales by day, month-to-date, year-to-date, and compared to prior years and the current plan.
  2. Gross profit margin. After all costs are computed that are required to produce the above sales, the remaining money is the gross profit. I want to see this number as a percent of the first number. Included in this number is cost of goods, freight in, shrink, and labor related to the production of the goods or service (not overhead). This number should also be reported daily, month-to-date, year-to-date, compared to prior years and the current plan.
  3. For almost all businesses, this is everything else. All costs related to the day-to-day operation of the business. Salaries, rents, commission, utilities, etc. Generally this isn’t a number that needs to be updated daily, and would require a lot of extra work to do so. For daily and weekly purposed, compute a daily overhead amount based on either the prior month or the budget for the current month.
  4. If you only want 5 numbers per day, you can eliminate this one. This number is implied by the combination of the first three.
  5. Most good computer systems today should be able to keep track of inventory by the minute. Any thing sold is immediately subtracted. Any new product being purchased is immediately added when checked in by receiving. I want to see this number as a percentage of sales or better yet, converted into turns. With sales today and today’s inventory, how many times per year am I turning my inventory. I want to know this by day and year-to-date. There should be a budgeted number that you are trying to meet or exceed.
  6. Cash Flow. There are many ways to create a cash flow analysis. I suggest that you determine an amount that you want to have in the bank; say $20,000. You take today’s bank balance, add all outstanding cash requirements for the next 30 days, subtract estimated cash income for the next 30 days, and determine if you bank account will remain above $20,000. If this number is generated daily, it will not be necessary to set up a more complicated approach.
  7. An alternative to #6 would be using an open-to-buy system. Purchases of product related to cost-of-goods would need to be the same or less than cost-of-goods sold for any period. The number you would want would merely be that ratio above or below even (e.g. +10% or -22%).

In order for this system to work really well, your team should create budgets for all of these numbers, and sub budgets for some of them. If good budgets are in place, It would be possible for you to merely receive a report with a single word or number representing the daily, weekly, or month-to-date comparison of the budget to reality. You would only dig into the numbers if the budget was off significantly.

Another preparatory number that should be in place is the break even analysis by day and by month. If you divide the overhead by the gross margin %, you will get sales necessary to break even. In other words, if you gross margin is 45% and your overhead is $25,000 per month, you monthly breakeven is $55,555. If you are open every day, divide by 30, and you need $1852 per day to break even. After that comes profit.

Another trick is to build you desired profit into the break even analysis. In the above example you could add $4000 as your desired profit. Now your daily goal is $2148 as long as the other numbers stay in budget.

All of these numbers are easily computed and can be updated in real time if you have a good computer system and use a quality bookkeeping service like aTPP to prepare the formulas, spread sheets, and reporting methods. Call now to get a quote at