If you don’t know – You can’t grow

Author: Larry Chester, President

Business owners make decisions daily, either by using Intuition or Knowledge. In the initial stages of their business, entrepreneurs use Intuition in making those start-up decisions. Then, the practical pieces of running a business come from Knowledge.

To learn as quickly as possible, magazines are thumbed through, books are scanned, emails may be largely ignored. As a result, decisions are made from the gut. How many business owners give their financial reports that same indifferent stare?

Your business is built on data. Are you making use of your available tools to make the right decisions? You need to know in detail how your company runs.

Your financial statements are packed with information. Are you only looking at Sales, Gross Margin and Net Income? You need to know more to make the decisions to grow your business.

1. Examine your sales numbers.
   1. Does a trend in sales over the past few years indicate a market change?
   2. Examine sales by product.
   3. Is there seasonality?
   4. Does a sales downturn foretell obsolescence?
2. Look at inventory details
   1. What are your inventory turns?
   2. Does one class of product turn faster than others?
3. Analyze your payroll detail.
   1. What is payroll as a percentage of sales?
   2. What are your sales per employee?
   3. Calculate your warehouse or production payroll against orders shipped, or value of goods produced.
   4. Calculate your administrative payroll against total sales.
4. Examine customer based reports.
   1. Are customers paying invoices slowly?
   2. Are customers changing their product mix?
   3. Is your customer concentration changing?
5. Review detailed vendor reports.
   1. What vendors are responsible for most of your costs? Can you negotiate a lower price?
   2. Do you choose local vendors to reduce shipping costs?
   3. Are you paying your vendors too fast? Beware of cash flow impact.
6. Explore your operating cost detail.
   1. What is the cost of operating your warehouse/office?
   2. Can you reduce your insurance expense?
   3. How has technology impacted your business? Have you kept pace?
   4. Can you negotiate a larger discount with your freight company?

All this information is in your financial reports. If it’s not, it should be. Information is the key to securing stable growth for any business. If these numbers aren’t available for you, a skilled CFO can help you get the information you need to grow your business.