Debunking the Numbers Mystery

As Benjamin Franklin wisely once said, “Beware of small expenses; a small leak will sink a great ship.”

Having a successful business is a feeling like no other. But reaching success and financial surplus doesn’t mean we get to take time off and get lax with the details…in fact, to me that means it’s time to work harder! It’s very important to maintain the details no matter the status of your business.

What you will want to do first is consistently review your history and understand how your business flows over time. Historical results can help you understand what has and what hasn’t worked.

Another regular activity you’re going to want to make sure to do is running your P&L statement by month and compare them to the prior year.

-What months are there large shifts in your business?

-What caused the large shifts? Will they continue?

-What changes have you made in the last year to increase or decrease your sales and expenses?

-What costs have increased and decreased?

-Has your net profit increased or decreased?

-What changes have you made to your business?

It’s important to always evaluate and reduce costs where plausible, as the fastest way to increase your profit is to reduce your direct costs. Evaluate your current costs and vendors and see where you can reduce or combine.

Now to go over an important part of business financials – Cost of goods sold, or COGS. This is just an alternative name for direct costs as it refers to the cost of creating your product. Now, let’s think of this as the exact cost you incur to sell one of your products. You either created or bought this product, and the associated costs of producing what you sell are your part of your COGS. This helps you keep an eye on how much it costs your company to deliver your product or service. If COGS are going up, your suppliers may be charging you more, or perhaps certain costs for your vendors are increasing. It’s always good to re-evaluate!

No matter the business, it’s imperative to do Product Analysis throughout your fiscal year to ensure your business is running as strong as possible.

Consider the following questions:

-What products and services have generated the most sales? Why?

-What could cause an increase this year? Will that increase continue next year?

-What products and services aren’t selling? Consider terminating those products or services. -How many new customers?

-How many returning customers?

 Does your business experience seasonality? (A time of the year that sales decrease or large bills arise.) What changes can you make to your operations to help with the trends? (Offer a second product to increase during your low sales months?)

Take action on your analysis. The first step is understanding where you’ve been, what you’ve done, and how you’ve been performing. The second step is to take action on improving one area of your business.”

And last but certainly not least, we want to address Seasonality. If you're not sure what that is, Seasonality is the time of the year that sales decrease or large bills arise. Now, does your business experience seasonality?  If yes, What changes can you make to your operations to help with the trends? It’s great to analyze, but even more imperative to take action on your analysis. The first step is understanding where you’ve been, what you’ve done, and how you’ve been performing. The second step is to take action on improving one area of your business.