A friend asks, “How’s business?” and you respond, “Great!”
And hey, why not? Your store remodeling is finished and your vignettes look terrific. You have the most professional team you’ve ever assembled and sales are way up over last year. You finally have enough flat-panel inventory to sell, and all of your installation crews are busy.
Funny thing, though. A week later, you find yourself scrambling to make your payroll.
How can that be? What went wrong? Why are you still struggling to pay the bills?
Your problem may not be with what you know, but instead with what you don’t know.
In other words, it’s time you looked at the numbers.
Much as your pulse, heart rate and blood pressure tell you about your personal health, your balance sheet, income statement and statement of cash flow provide clues to your company’s well-being.
The thing is, your bookkeeper or accountant can generate all of the great financial statements they can, but their efforts are worthless if you don’t take the time to completely review them. You must use the information they provide and act on it.
Savvy business owners have learned to carefully analyze their financial statements every month. They look for trends and for opportunities for improvement. They know that even small variances in key financial ratios can signal either big hurdles or big payoffs ahead. They know how to respond and what actions to take.
In short, they manage their businesses by the numbers, not by the seats of their pants.
Most dealers, however, go right to the bottom line. If their revenues exceeded their expenses and they showed a profit, they assume all is well. Unfortunately, it’s not that simple.
In this new column, I’ll give you the financial tools you’ll need to determine what products, people and locations generate your largest returns. I’ll give you some ideas about what to do with the numbers your accounting folks give you.