There are only a few types of small businesses where the owner is a financial whiz. Maybe a CPA firm or a financial planner. The rest of the small business world is great at what your business does as a service or product, yet, you still have to manage the financial side of your business.
I post tips routinely on Facebook and Google + for our followers, but wanted to give you a quick list of some key financial indicators you should get familiar with in your business:
- Cash – do you have money in your accounts? I see many clients rack up overdraft fees just because they weren’t watching their accounts. At $35.00 a pop they add up.
- Collections – are you collecting the money that customers owe to you in a timely manner? If you use Quickbooks, or most other financial software, you can print a report called an accounts receivable aging. You want to watch this report weekly and make sure that any invoices that are past due are followed up on timely. The older they become the harder they are to collect. And you have already done the work. You should look at this weekly.
- Sales by Customer – Look at your sales by customer. You know who your biggest customers are but you will be surprised to see that those consistent customers who may be a little lower in sales each month will add up. You need to know who is helping you grow your business. Thank them. Make sure they are getting service from every area of their company.
- Break-even point – how much sales do you need each month to cover your fixed expenses? Fixed expenses are any expenses that don’t go away even if you don’t have any sales i.e. rent, utilities, etc.
- Gross Profit margins – Sales – Cost of Goods Sold = Gross Profit. This is important to track as a percentage of sales. If your gross profit margins are going down, you may be getting pressure to reduce prices. Or it could be that one of the components of your costs went up and you may need to find a way to adjust prices. A change in margins of a few % could significantly effect your profitability.
- Proper Coding – are you consistently coding expenses to the same account each month? It is difficult to understand and monitor expenses if they always hit in a different place each month. You can’t see trends or tell if something changed dramatically.
- Budgeting – do you have a budget for your business? The easiest way to catch issues and errors in you finances is to have a budget to compare your sales and expenses to. A significant budget variance will flag an area that needs to be investigated. Plus, if you are not achiev