Indicators on How Well Your Business is Doing

Dear M & M:

What are some of the areas or business indicators I should to review to generate a report card to judge how well my business is preforming?

– Tom

Dear Tom:

Comparing historical averages within your industry as well as comparing previous performance measures comparing daily, weekly, monthly, quarterly and annual data to make comparisons of your business activities are important. Remember to compare the same period (this year vs. last year, this week vs. the same week last year etc…).

When using industry averages remember management expertise, differing markets, varying expenses from one location to another can make big differences in comparing one business to another.

Some indicators to use when scoring one’s performance include; Daily Traffic Count (How many people came in?), Average Ticket Sale (How much did they spend?), Accounts Receivables Turnover (How many days does it to collect money owed to you?), Customer Returns in dollar amounts or number of Registered Complaints, Inventory Turnover (How many days does it take to sell your inventory?), Working Capital (How much cash do you have available to operate on a daily basis to pay current bills?), Leverage to Debt Ratio (Indicating whether the company has enough equity?), Profit Margin (What is the percentage of profit for every dollar of sales?).

General questions or comparisons to make include overall sales and expenses as well as comparing categories and various line items in one’s income statement and balance sheet to industry averages. Prior years or other periods of time should be included in any report to gauge the successfulness of one’s business.

If you own a business, you know how much hard work and dedication is required to make it successful. Sometimes a business owner is so focused on the day-today operations that they forget to step back and look at the big picture using financial statements and financial ratios to grade the performance of one’s business.

Understanding the importance of looking back at the financial data can reveal strength and weaknesses of a company and provide an opportunity for improvement. Remember the income statement, balance sheet, and financial ratios can help to provide a clear understanding of any company’s health.

While, working “in” your business is important to step back work “on” your business. If you have an accountant, bookkeeper, or CPA set some time aside to meet with them to develop some financial reports that would be meaningful to your business.

 

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