Most business owners are looking to maximize profits and minimize costs. The basic concept of buy low and sell high seems to permeate all wholesalers and retailers. The question then is, “What are the Key Performance Indicators? What information do I need to look at to enhance my profits and decrease my expenses?”
There are many performance indicators. The importance is in picking the right indicators that keep you in touch with growing your business.
For example: Gross profit percentage (your profit divided over your gross sales) and Inventory Days (the number of days your inventory sits) are two of my favorite indicators. These indicators tell me if your profit structure is good and if you are moving your goods at a rate similar or better to those in your industry.
Another tool I use, is to look at expenses spread over the year and comparing to prior year’s expenses. Monthly expenses displayed over a year sheds light on specific costs and how to anticipate them. Knowing this gives the owner knowledge to decide about equipment investment/replacement or to continue with upcoming expenses.
Of course all key performance indicators are best when used as the backdrop of a master plan. Indicators are the GPS of your course telling you if your business is growing and just how much. Relative to your budget and projections, GPS produces measurable results in real time. If you don’t have a plan (or you have a plan like “we’ll just need more sales”) then what you need is to develop and plan. Next is to work your developed plan and measure its results regularly. Plans should be both global and tactical to achieve results timely. Developing a good plan often requires someone with experience at designing plans and measuring results, like a CPA who is also a profitability consultant.
Perhaps the most overlooked performance indicators are with employees. Employees should be your best asset. They are the ones that move the merchandise from your possession to the customer’s time and time again. The cost of training staff, losing staff or having staff that turn off customers are businesses biggest profit leaks.
A colleague of mine from Texas developed indicators such as LABOR COST PER EMPLOYEE, REVENUE PER EMPLOYEE and RETURN ON TOTAL LABOR COST. These are good indicators of how you are doing with regard to your employees. Employees are the back bone of most operations.
Ask yourself these questions about your employees:
- What would it cost you to lose your best employees?
- What systems do you have for retaining the good employees?
- Do you have a reward system in place for contributing?
- Are there consequences for unwanted behaviors?
To take the next step, I invite you to take our Entrepreneur’s Business Survey to identify other areas that are causing profit leaks. If working less and making more is something that interests you, I suggest you test your entrepreneurial excellence with our brief 10 question Entrepreneurs’ Business Survey here:https://www.surveymonkey.com/r/P83V75C
Thank you for your participation! Best wishes for a great year ahead.
Harlan Kahn CPA, and profitability consultant
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If you are a business owner in the greater NYC/LI area and want to get more out of your business – I recommend you invest in a free 20 minute no-hassle business strategy session. I can quickly identify profit leaks and how I can help you improve your business. Call our office at 718-281-0200 or click here to schedule a free business strategy consult.
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