May 1, 2011
Donald Paris, CPA
When was the last time you looked at your business or work statistics? Believe it or not, they can tell you a lot about how you are doing, what your customers are asking for, and give you direction. Sure, they can be boring, and take some time out of your day. But, if you set them up on autopilot, you spend the time once and then review them as needed.
The most famous of all business statistics is "the bottom line", also known as the ratio of your net income to your sales. Most of us review it in 2 fashions, i.e. how we did last month, and how we are doing year to date. Unfortunately, those 2 numbers only tell part of the picture. Take that information and input it into a spreadsheet that compares the numbers each month of the year, and you immediately know how well (or not) you do each month. Is there a trend that you have missed seeing? Do you do well each March, and do poorly each 3rd quarter? Is this year going to be better than the last one?
Another statistic people forget to look at is just how well you collect on your accounts receivable. Instead, they look at the checkbook balance and see if the cupboard is full or empty. What that spreadsheet we just talked about also could have told us is that, though the cupboard is currently empty, you traditionally are heading into your best months for collections and that it is reasonable for you to expect that this next month or quarter will bring you to the balances you need. What if the spreadsheet instead told you that your average days receivable for a type of client was slipping. You did not notice it because the slippage was so slowly that it escaped you. This is important information that could make or break your business.
Another statistic that people overlook deals with your business debt. If you compare your total debt to your equity, you can see if you are overleveraging your business against your income. Another one is called the current ratio. It is the ratio of your current assets to your current liabilities. This ratio tells us whether we have the cash and accounts receivable and inventory to cover the accounts and current notes payable. The higher the number, the better we are doing. When the number is lower than 1, we may have overleveraged the business.
These are just a few of the business statistics we should all be looking at regularly. As I said, set them up in an excel spreadsheet and then once per month, add the current months information to the spreadsheet. Then sit back and take a look at the results. Once the spreadsheet is set up, the whole process of reviewing the numbers will take but a few minutes. But, the beauty is that the information could be invaluable.