Do You Know Your Small Business Vitals?
Going in for my yearly physical last month, the first thing the nurse did was take my vitals: temperature, blood pressure, pulse rate, height and weight. These basic measurements are the first place doctors look to see if something is wrong with our health. Businesses have similar vital signs- do you know yours?
When I first started working in land development, I was amazed at how quickly the veteran management team could break down a potential project into a few simple numbers. These folks had been in business a while and knew the “vitals” for their industry. Here are some common ones for a small or new business; the trick is to determine which ones are applicable to your business:
- Checking account, A/R, A/P, and Line of Credit balance(s)
- Gross Profit %
- Revenue for the month and year-to-date
- Sales by customer, more importantly, profit by customer.
As time goes on and your business grows, you may want to add some of the following:
- Revenue for the month and year-to-date compared to last year
- Net income for the month and year-to-date compared to last year
- Day Sales Outstanding (how long it takes to collect A/R)
- Profit by service or product line in a pie chart
- Days to break even (monthly)
Two examples of how good business owners use this information:
- An owner of a gun store knows that 2/3 of his sales are from firearms but only results in 50% of his profit. Services, accessories and other products generate 33% of sales volume and create the other 50% of his profits.
- A specialized general contractor can make 10-12% on jobs where he subs out the work. This requires his staff to do proposals, invoice, track insurance, and pay the subs bills. Or the same GC can refer the work to a few trusted subcontractors and collect a 6% referral fee. This requires almost no administrative work other than a trip to the bank!
These are just a handful of the many options there are when it comes to measuring the results of your business, and it would be difficult for us to list all of them here. The point is to decide proactively what needs to be tracked on a monthly basis. Then we can set up the process it takes to get those numbers delivered in the format you, the client, prefer.
It’s great to glance at the numbers periodically, but there can be a lot of data to wade through. Exceptional business owners make financial review meetings a part of their monthly routine, and it’s something Lucrum insists on with our clients. We have seen time and time again that only one hour per month, one hour, gives almost every business owner a huge advantage in how well they understand the current health of their business and where it’s headed. Now that’s exceptional.
A Clean Bill of Health
By determining the vitals we want to watch for your business and putting a process in place to monitor that information, we can ensure your business stays healthy. If we can help, please reach out and let us know. Doctor Lucrum is IN.
Oh, and be sure to schedule that yearly physical if you haven’t had one in a while.