General Business Practices
Part 2 of a 3 part series
Warning Signs: PROFITABLITY/EXPENSE CONTROL
- Falling profits (before owner’s compensation).
- Rising expenses.
- Cost of goods sold.
- Operating expenses.
- Decreased gross margin
- Significant adverse deviations from budget.
- Significant increase in a particular line item’s cost.
Steps to Improve: MONITORING YOUR BUSINESS / BUSINESS STATISTICS
- Determine the heartbeat of your business and what daily statistics to gather about it.
- Develop regular financial “flash reports.”
- Develop and monitor key ratios for your business.
- Determine what are the key assets and events for your business’ success. Devise easy to gather daily and weekly “flash reports” that summarize these business heartbeat statistics, then collect and use them.
- Computerize your business.
- Once computerized, computerize general ledger and budget.
- Computer monitor your company’s performance.
- Things that drive computerization: word processing; spread sheet analysis; database management; trade receivables at $25,000 due over 30 days; other functions.
- Prepare realistic, conservative projections: underestimate income, over estimate expenses; use them to monitor the business and build confidence with your banker.
- Produce timely monthly financial statements; then compare to projections/budget.
- Have quantitative productivity objectives for units, departments and managers.
- Have individual performance standards for all managers and staff.