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 © 2008, Business Influence, All Rights Reservedwww.businessinfluence.com.au 
Do You Know the Smart Numbers in Your Business?
By Darren Bourke – Director of Business Influence Pty Ltd 
Getting the Basics Right 
First things first. It is critical that you have monthly financial statements preparedon a timely and accurate basis. Ideally you should have prior month's financialstatements prepared by Day 15 of the following month. If you don't have aninternal Accountant/Bookkeeper there are many contract bookkeeping servicesavailable to do this for you at reasonable rates.I recommend as a minimum you have the following reports prepared for yourreview on a monthly basis:- Profit & Loss Statement- Balance Sheet- Aged Debtors Report- Aged Creditors ReportThese should be reviewed in a monthly owners meeting where you analyse thesein conjunction with other business issues using a standard meeting agenda.In addition, I recommend full financial year budgets are prepared to set up thetargets you wish to achieve. The actual performance on a periodic basis is thencompared to the budget targets you set at the start of the year. This disciplineensures you are regularly monitoring whether you are on track.
Analysis beyond the Basics 
 
The Profit & LossRevenue.
Ensure that you have different revenue categories for each differentincome stream. Calculate the percentage of total revenue you earn from each of these streams. Consider how to increase these and add new revenue streamsthrough other product/service offerings. What marketing activities and customerbased activities can you devise and implement to increase these numbers?
Direct Expenses.
Direct expenses are expenses such as material purchases andwages for direct labour that vary with your level of turnover. Capture theseseparately to your general overhead expenses and calculate what percentage of total revenue these represent. How much do these direct expenses vary withturnover and how can you reduce these as a percentage of revenue? Examplesinclude changing material suppliers through importing off-shore, negotiating fixedtransport costs or changing your direct labour mix between permanent staff andsubcontractors.
 
 
 © 2008, Business Influence, All Rights Reservedwww.businessinfluence.com.au 
Gross Profit.
Gross Profit is your profit after deducting direct expenses butbefore general overhead. What is your Gross Profit Margin expressed as apercentage of total revenue? How can this be maintained or increased?
Overhead Expenses.
Overhead Expenses are also referred to as IndirectExpenses and are expenses that don't tend to vary with sales turnover. Theseinclude rent, administration staff and professional fees. Look at expenses that youcan reduce such as getting a fixed fee from your Accountant, negotiating a rentfree period on an extended lease on your premises or changing your telephoneprovider and plan.
Net Profit.
Net Profit is the most important number to look at expressed both indollars and as a percentage of total revenue. Consider how this compares to otherbusinesses within your industry and whether it is high enough to keep yourbusiness sustainable.
Balance Sheet
The Balance Sheet is an often overlooked financial report which I try and getbusiness owners to look at holistically rather than in detail. The Balance Sheetshows a snapshot of your Assets minus your Liabilities which results in your netassets or equity.
Cash Reserves.
If your business has cash at bank, consider how many monthsof wages or overhead you have covered if the business hit a bad patch. Have yougot cash in reserve for a Christmas shutdown or other seasonal decline inrevenue. Are you earning a decent rate of interest on these cash reserves or canthese funds be used for investment purposes? If you are in overdraft, whatamount of undrawn funds do you currently have available?
Liquid Assets.
Liquid Assets are your Current Assets less Current Liabilities andshows your current liquidity. This should be a positive number. I also look atCurrent Debtors less Current Creditors to analyse trade liquidity.
Debtors.
The Aged Debtors summary shows the breakdown of what yourcustomers owe you into current, 30 days +, 60 days + and 90 days + overduecategories. You can also calculate the average Debtors Days which tells you howlong on average your customers are taking to pay you.
Creditors.
The Aged Creditors summary shows the same breakdown as debtorsin terms of who you owe money to and how long it's been outstanding.
Net Assets.
Net Assets is simply total assets minus total liabilities. It tells youwhat your net position is and how much equity you have in the business. This isoften a valuable number to build if you want to borrow against the business asthe banks look at this within your business as well as debt serviceability fromyour Profit & Loss.
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ehulavwp

Very nice PDF on Smart Numbers that we may use for our Daily Huddle.

reply12 / 01 / 2009
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