OK, so the one number you know already is the one that tells you aren’t (yet) where you want to be for the year; but do you have the answer as to why, or are you still struggling with putting in more hours and wondering when ‘the economy is going to turn’ and things will get back to ‘normal’?
The truth is many – and I mean the vast majority – of the small business owners that have approached me or attended one of my workshops over the past several years have not developed an understanding of (or an interest in) their financial reports; thus, they’re not applying this valuable business report card to the key decisions they are making on a regular basis. In addition, once decisions are made and implemented, very few owners follow up with timely testing and measuring tools to determine the effectiveness of the effort. Most wait until the short-term effects create long-term trends before re-evaluating the results or available options.
Your business financials – Profit-Loss Statement (P&L), Balance Sheet, and Cash Flow (Income) Report – should be easily created by your supporting software or personnel and, if properly trained, you should be able to review them in less than 15 minutes per week (cash flow only); plus an additional 20 minutes monthly (all three). Is this too much time to invest in truly understanding where your business currently stands and/or what questions need to be addressed to continue on the path you envisioned? Is this something that should be delegated (or abdicated) to someone else; someone who doesn’t have the authority to lead the necessary changes or the vested interest in the ultimate value of the enterprise? Successful entrepreneurs uniformly say “No”.
So, let’s review a few items and see if you’re up to speed on the state of your business, or if it’s time for you to consider a refresher on (or responsibility for) the financial fitness of your enterprise. First, I’m going to assume you know what your revenues are YTD; but do you know what your overall gross margin percentage is – and those of each of your major product or service areas? How does your margin compare to industry norms? How do your labor costs and other COGS compare with similar businesses? What’s your current breakeven (B/E) number? This is the revenue level that allows you to ‘turn on the lights’ (cover fixed expenses) each month. When in the month are you achieving this income: the 12th….or the 27th? Are you netting a profit each month – after paying yourself – or are you still funding the operation through a reduced lifestyle?
Now on to expenditures: are you treating every expenditure as an investment in your business and expecting a return (ROI) on that investment? What level of net return have you realized on your most recent advertising / promotion expenditures? Have you actually tested different methods and messages and measured their individual effectiveness?
If you can answer positively to each of these questions, you’re obviously in control of your financial fitness. Congratulations! If not, or if you’re not even sure how some of the questions relate to your business, perhaps it’s time to further invest in being the owner you want to be. In abundance…