Numbers show up all over the place, in many professions. The magician says, “Pick a number, any number.” The carpenter says, “Measure twice, cut once.” The quarterback says, “I threw it right between the numbers.” I’m curious to know what you have to say about numbers. Specifically about monitoring and managing the numbers in your business.
When we encounter a new client, I often ask about their numbers. They almost always can report their gross sales or billing number. And most of the time there’s no other number in their head. Now that’s certainly an important number, but top-line revenue tells a limited and sometimes distorted story.
“What gets measured gets managed” is the time-honored truism of management. My concern is that so few small business owners are measuring anything! Call them business metrics, key performance indicators, or dashboard dials, but these critical business measurements are often missing in action. That means the small business owner must manage his/her business by hunch and instinct. We’re talking the proverbial “go with my gut and fly by the seat of my pants.”
I often tell clients that the biggest benefit of understanding their numbers is learning what’s normal for their business. When business results are quantified with numbers and examined over a time, patterns emerge. You can use these patterns to perceive normal and abnormal performance in your business.
It’s early January. In the spirit of trying on new behaviors in the new year, I offer you a list of numbers you might consider paying attention to in your business. We measure, monitor, and report on these numbers all the time with our clients. If you find any of them mysterious, intimidating or puzzling, call me. I can help you quickly find these numbers in QuickBooks.
- Cash in & cash out – How much money gets deposited at the bank each month. And how much leaves the bank account each month. Pretty basic. Essential to know.
- Change in cash – The first cousin of the previous two numbers. Is your change in cash positive or negative? A sustainable business requires positive cash flow.
- Current ratio – The ratio between your cash and receivables compared with your payables. If your business is trying to beat down the debt monster, this is a critical number.
- Utilization – How much of the time spent by staff was actually billable time? If you run a service business and are not looking at utilization, you’ll have a hard time growing profitably.
- Margin and gross profit – When you subtract all the direct costs from your sales, you’re left with gross profit. If your QuickBooks file lacks a Cost of Goods Sold section, please call me. It’s a simple fix and without it you have no visibility into this critical number.
- Owners comp – Every business owner should know the ratio between their compensation (which might be W2 wages and Owner’s Draw) and the business’ top line revenue. This is why you built your business. Are you compensated adequately for your hard work?
I could continue with suggestions. If you’d like more, please reach out to me. In the meantime, I hope you will begin measuring the numbers in your business to help you better manage it.
Wishing you lots of positive cash flow.