Know Your Numbers Know Your Business

Action Point 1

Identify the numbers you should be tracking.

This requires you to examine your business and look at what’s important to you and your current situation.
Unfortunately, without knowing your exact circumstances it is impossible to tell you what numbers you should be tracking.
However, as a guide, I have put together the ten numbers I started to measure in my business.

1. Obviously, the first number that everyone should know about their business is profit.

Yes Profit. I even it said it out loud. But it’s almost like we are embarrassed as business owners to talk about profit, but profit is not a dirty word. Profit is what enables us to stay in business.
Profit is split into two numbers
Gross profit, and Net profit.
They’re both important.
They are separate figures, yet they come under the headline profit.
You need to know whether your business is profitable.
The first number you must measure is profit.
Research into the average profit for businesses in the UK has proved difficult, but in America, the average small business or micro-business with less than nine staff & a turnover of less than half a million dollars a year has on average a net profit of between $1,000 and $7,000. Which is not much at all.
In future training, we will cover is what is a good gross and net profit margin based on your turnover.

2. The next number that I identified as being important in my business, was income or turnover.

Or the amount of money that comes into the business in a given period, typically a year.
This is something you need to measure to work out your profit so it stands to reason you must know your turnover/income.

3. Because your turnover comes from your sales, your sales numbers are also important.
What are your sales numbers?
1. The number of sales
2. The average sales value
Before you start to improve, you need to know where you are in the first place.

4. If you know your turnover, and you know your sales numbers that generate that turnover, to work out your profit, you must know your expenses.
Expenses, or the cost of doing business.
Is easy to work out using your accounting software.
However, most businesses don’t include all of the expenses incurred in the profit and loss statement, so you need to be careful if you rely on your accounting software for this number.

5. The fifth number you should consider measuring is cashflow.
We have already done a training topic on cashflow and cashflow forecasting.
So we understand the importance of cashflow and how businesses fail because of cashflow problems.
Cashflow is the money that flows in and out of the business in a given period.
Typically, most people measure cashflow over a month.
Just because a business is profitable doesn’t mean you do not need to know your cashflow. A profitable business can still fail because of poor cashflow.
We want to know what our cashflow is, and how long it takes for money to come back into the business once it is spent on other things.

The first five numbers you need to track are all linked to the most important one, which is profit.

6. Every business is slightly different. But once you know the big five, the next thing you need to track is debt.
Often when looking at financial reports and how finances are reported for tax purposes, the debt isn’t included, or it is reported elsewhere. Alongside debt, you should also consider how credit worthy the business is in case you need to raise finance.

7. The first number I tracked that wasn’t financial was the overall business efficiency. What I call business efficiency and there is a training topic on this, but to put it briefly it’s how many hours you currently sell divided by the number of hours you could sell.
That’s not with your current staffing levels but if you had a fully staffed business. Using the number of bays/number of ramps, and if there was a technician employed for each one.
The business efficiency is aspirational measurement especially if you have more bays than you have technicians, but it’s a good thing to measure because it gives you an idea of how much better the business could be doing.

8. The next one is the parts margin.
How much are you making on your parts? This is the subject of another training topic. Margin and mark up because people often get these confused.
This is another important metric, because you’ll be surprised to find you’re not making as much on your parts as maybe you think you are, or as much as you should.

9. The nineth metric is linked to the previous one, and it is your labour to Parts ratio.
Or the measure of how much of your sales value is labour and how much of it is parts.
This ratio can provide data about the type of work you are currently doing and you can compare it to the industry norms.

10. The tenth and final number we tracked was the cost of customer acquisition.
How much does it cost us as a business to win a customer?
Once you know this number it gives you an idea of how much you can spend to win a customer. Especially if you know the lifetime value of a customer, you start looking at how much it costs to bring that customer to you. If you can keep that customer, how much of the initial profit and of the % of the lifetime value are you willing to spend to win a customer?

Those were the 10 numbers I identified for my business.