In the previous post we mentioned that as a small business owner you should know the key numbers of your business by heart. These key numbers provide valuable insight in your business and act as early warning indicators. Without them you may not realize if the business is heading for trouble and by the time you do it may be too late.
We also advise you to spare some time from daily operations and spend 15 minutes daily and several hours weekly and monthly to go over the reports that show how your business is performing. In this post we will provide more details about these reports and what you should look for in them.
The reports should include key data along three components of your business – sales, expense and customers. By taking care of key parameters within these three components your business should be able to perform well in good times and bad.
When analyzing these reports, look for trends in the key parameters rather than looking at them in a vacuum. Typically, the trends should show comparison to the same reporting period from previous year (called Year over Year comparison) as well as comparison to the previous reporting period from the same year (called Sequential comparison). These two types of comparisons give you enough information to uncover positives as well negatives in your business and take appropriate actions.
In our view you should look at the reports for these periods – daily, weekly, monthly, annual. Below we have highlighted the key parameters you should look for in each of these periods.
- Daily – The key parameters you should look at every day are sales, customer count and average order. The quick glance at these parameters and comparison to prior periods will help you know if this was just a typical day or anything unusual happened that day. If the sales went down dramatically for a particular day you should find out the reason. If the downtrend continues for few days, you should be making inquiries with employees, customers and colleagues to find out what’s going on.
- Weekly – The weekly reports should focus on the key parameters in the daily reports as well as labor cost. Typically you should look at labor cost as % of sales. If the labor cost percent goes up for a particular week it could be because of scheduling issues or the sales may have dropped for that week even though the labor schedule remained the same. In either case you should prepare to take actions if the labor cost continues to trend upwards for few weeks.
- Monthly – This report should look at these additional parameters besides those included in the weekly report – Total Cost of Goods, Total Operating Cost, Gross Profit, Operating Profit, Top 10 Customers. As you can see the monthly report should show you overall profit and loss picture for your business. By looking at monthly P&L you will be able to take necessary actions to improve performance in the following months. At the end of every month you should also look at year-to-date performance and analyze if you are on target to meet the year-end goals for sales and profit.
- Annual – Annual report should include comprehensive study of your business by working with your accountant and other key people within your company – CFO, Marketing Chief, Board of Directors, etc. You should study and discuss in great details overall P&L, Balance Sheet and Cash Flow to see how your business performed in the past year and how it compares to other companies in your industry. You should also plan for the coming year based on the performance of the current year.
What other information would you like to see in these reports? Let us know in the comments.