If you have ever watched the show The Shark Tank, you know that those who make a pitch, and don’t know the numbers of their business, are turned down hard and fast. Season 1 has the most pitches that fall into this category. They are brutal and painful to watch.
Every small business owner and entrepreneur must know their numbers. Yet, many are so focused on running the business, generating top line sales, and watching to make sure they have enough money in their accounts to make payroll and pay the bills, doing a deep dive on individual line items and what seems like a sea of metrics is often pushed aside. Running the business and working IN the business takes priority, but it is important to be aware of which numbers are most important to your business’ success. It can be daunting to determine what is most important; there is a lot of data to review. Here are some tips that will make it easier to get your arms around your numbers.
Professional Help. Choosing a CPA who specializes in tax strategy is one of the first outside resources to hire. The more money a business makes, the more tax liability it will incur. The US Tax Code includes over 60,000 pages. Hiring a highly competent CPA is incredibly important to any business. Most business owners are not well informed, nor competent in positioning their business finances to have the smallest tax liability. Talk to other business owners about which CPA they use and why. Word of mouth and online reviews are good ways to sift through the sea of CPAs in your local community.
Depending on the complexities of your business, engaging the services of a bookkeeper may be a smart choice. Most small business owners do not enjoy the tedious tasks of reconciling accounts, keeping track of receipts, categorizing expenses, and calculating payroll. Not only do they not enjoy these tasks, most are not very good at doing these tasks. The best way to identify if a task should be delegated is to ask yourself: “Do I enjoy doing this?” and “Am I good at doing this?” If the answer to both questions is “no”, this is a task that you should strongly consider delegating.
KPIs. Key Performance Indicators are the benchmarks of the health of your business. There are many performance indicators. Choosing the right ones for your business can be challenging. Everything seems important. You want to track it all! Not every number is worthy of your daily/weekly/monthly attention. The most important thing to figure out is what behaviors drive your desired outcomes. Whatever key performance indicators your select, make sure they match the results you want with the behaviors it takes to occur. We had a case study of a retailer who developed an incentive program to reward store managers who showed improvement in Sales Per Labor Hour (SPLH), year-over-year. Store Managers’ hours worked was not included in the calculation of SPLH. Some store managers figured out that if they scheduled themselves as the only person in the store for several hours of the day, they were able to show significant improvement in this metric. They may have benefited from doing this by earning a bonus, but customer satisfaction dipped, as well as top line sales. Be cautious when selecting your KPIs!
Competition. Knowing who your competitors are and what they charge is a very important part of every business plan. You don’t need to match the prices of your competitors, but you must understand the components of what is included in their offers and how your services/products/programs measure up. When reviewing your competitors, approach the analysis by looking at what they do well. What do your competitors do better than you? This can be helpful in identifying areas where you may need to improve.
Prospects. How many potential prospects do you need to talk to/engage with to get the number of customers/clients you need each month? A large part of business is a numbers game. If 100 people walk into a store, 20 will buy something, no matter what you and your staff does, another 20 will not buy something, no matter what you and your staff does, and that leaves 60 who can be influenced to buy, or not to buy, based on what you and your staff does. Figuring out what behaviors, interactions, and details of the environment contribute to, or deter, a potential customer from buying, are critical points of information. These are all part of “knowing your numbers”.
Profitability. Back to The Shark Tank. Would you be able to rattle off how much it costs you to produce whatever you sell, how much you sell it for, and how much profit you make from it? Would you be able to rattle off how much you sold in the past 12 months and how much profit you generated? If you are in a service business, do you know off the top of your head how many clients you can serve in a month, and how much revenue that brings in? Do you know your monthly expenses and how much revenue you need to cover that, and what your monthly and annual profitability is? Whew! That is a lot of information to know. But as a business owner, you need to know it!
There is no doubt, it is important to know your numbers. Figure out which ones are important to track and pay attention to those every day.
Retail Level Up provides coaching, training, and consulting services to individuals and teams. Visit www.retaillevelup.com to learn more and to schedule a free consultation.