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.

Don’t leave without downloading my free ebook “Do you own your business – or does it own YOU!”  Great insights to revive the dream.

What can a wholesaler can do to improve his situation? After all, it isn’t easy being a wholesaler? 

Here are some critical facts a wholesaler needs to consider every day:

• Knowing what goods to buy is the most critical thing.
• Managing profitable inventory is the next most important thing, leaving administration (licenses, sales taxes, regulating costs & overhead) as the remaining important area.
• Buying, managing/merchandising, and administration are three areas that can make you or break your business.

What is the best indicator of buying the right goods to inventory? Some wholesalers would say profit (or buying profitable goods), which is certainly important but I believe the correct answer is INVENTORY DAYS. Often items with low mark-up, if they turn fast enough, can turn a profit.
The least number of days you hold an item usually means the more profitable that item is. Certainly mark up (gross profit) is extremely important. Examples are all around us:

• low priced coffee
• doughnuts
• used cars
• pens
• bottles of water
• flavored ices
• copper tubing

all the above are examples of items that sell (turn) quickly.

Warehousing costs the company not only in rent (and heat and lighting) but also ties up funds available to purchase more profitable faster turning items. It also may take up warehouse space. And yet so few wholesalers look at inventory turns and inventory days.

How does a wholesaler manage inventory so that it is profitable? Certainly jewelers know the first rule of inventory, which is safeguard it (safeguard all assets). I remember a business that rebuilt and fixed (returned radios and other electronics) from Sears and the like in New Jersey. It didn’t take them much time to put up steel gates and security guards to protect the inventory from the employees who fixed, shipped and warehoused the newly fixed (refurbished) radios and devices.

Don’t just safeguard inventory from theft or acts of god, but measure the time you hold it and keep it free from being damaged. Some perishable foods and milk have such short shelf lives that inventory turns are the lowest and accounts receivable almost non-existent. We can all learn something from those industries about moving merchandise.

Administration often bogs down the small operator of merchandise. Discount stores, wholesalers of plumbing supplies, auto parts, jewelry, even coat hangers and airplane parts are sensitive to government regulations, registration, sales tax and other reporting. Here is an area where your CPA can help develop or improve your systems for recording sales, internal controls, compliance and reporting. In most businesses, cutting a cost usually results in bottom line profit. It’s the absolute best way to have your accountant pay for himself/herself. Even a $3,000 or $5,000 investment in streamlining the sales process through collection can save a company tens of thousands of dollars every year.

Harlan Kahn CPA

Don’t leave without downloading my free ebook here “Do you own your business – or does it own YOU!”
Great insights to revive the dream.

If you are ready to get more from your business – apply for a free business strategy session here.

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I really enjoy working with entrepreneurs – their passion is contagious. Typically their business model needs work.

A famous financial planner from Long Island, Alexander J. Mitchell, once said to me years ago, people will learn to develop a second or even a third career path.

More people in their 50’s are coming into our office ready to start a new career than ever before; many want to be entrepreneurs. It seems with large layoffs and a feeling of lack of job security have spurred many towards self-employment.

Self-employment is not easy, however, it should be simple and fun.  As a profitability consultant & a CPA it’s important to me that I have compassion for the clients our firm supports.

Self-employment should be simple.  By simple I mean a simple profit model.  Complicated profit models don’t usually work.  The simplest professional profit model is trading services for dollars.  It really doesn’t make a difference if you are filling a tooth,  drafting documents, or fixing a leaky faucet, you are indeed trading your skilled craft/service for dollars.  The hard part of self-employment is developing the craft or service and then marketing it.  The actual profit model is easy.

If you are not having fun, we should stop right here and find out why.  Most of my clients have fun every day at work.  Some clients ‘used to have fun’ at least in the beginning.  Often the jobs of administering a business become drudgery for some.  But I truly believe in my heart, if you want to be successful you have to love what you do.  If you love it, finding ways to have fun at it are easy.

So where do so many professional firms go wrong? 

It usually starts with the first thoughts.  I believe all professional businesses should make money from day one.  Most people intern or work for another professional at the start of their career.  When you got the job you started making money the first day (in the form of a paycheck).  This money idea should carry over to self-employment.  Start with the tools you have and start performing your services immediately.  Remain at your job until you can find a path to leave to your own practice.  Start in your spare time.  Never should you be ashamed of your motivation to make more, do more and be more.

Most firms (law firms, cpa firms, architectural firms, developers) like people who can bring in business.  In your own business you have to be the rain maker.  Start at it early.  Practice and learn the tools of attracting clients to you.  One has to develop an attracting personality and lose a little of the repelling habits to be successful.

Differentiating yourself in the market place (standing out from the others in your field) are the new tools of professional success.  Ever go to a website where the firm touts how great they are, how many years they are in business and the years of knowledge accumulated?  Great, but shouldn’t you be talking to the client instead of the mirror?  Learn to listen to the customer.  What does the customer want and need?  How do my services and skills fit into the customer’s desires and goals?

Most self-employed people love their job when they are making a lot of money.  They don’t care for their job when it creates pressures and loses money.

I look at my job as correcting their business model and improving my client’s quality of life.  It takes hard work and maturity.  It’s not for everyone.  For those that we match with, it’s just about everything they wanted in business life.

All the best. Harlan

This blog article was written to help professionals including (but not limited to) chiropractors, doctors and dentists, engineers, architects, opticians, physical therapists, veterinarians, plumbers,  pharmacists, developers, and the new and established self-employed entrepreneur.

Related materials

If you an entrepreneur and want to get more out of your business – I recommend you invest in a free no-hassle consultation. I can quickly identify how I can help you improve your business. Call our office or schedule a phone consult here.

Don’t leave without downloading my free ebook “Do you own your business – or does it own YOU!”  Great insights to revive the dream.