"Know your numbers" = exactly which numbers should I know for my business?

[SumpinSpecial]

I keep seeing this phrase on the great business-fixer tv shows and I want to know more. I know the three basics: P&L, balance sheet, cash flow. I've heard too-quick mentions of others like value of inventory being stored and others. Quickbooks doesn't seem to have reports like that, at least in my subscription level. I might be able to produce them in Excel, if I knew exactly which numbers I should know.

My business is online-only retail sales of high end pet supply products. Toys, beds, collars, that sort of thing, no food or treats. Aside from the basic three financial reports, what are other numbers that I should be tracking on a regular basis?

(I'm weird in that I get high off doing financial reports. This is part of the business that I really super enjoy!)

[Fulcrum]

Which numbers? All of them. If you can track it, track it. If you can track multiple variables of the same data set track that as well (you'd be surprised at the inefficiencies this can show out).

I know I haven't explained much, but I hope it gives you a starting point.

[SumpinSpecial]

Not really helpful, sorry. Maybe I should add that I'm still so small that I have the smallest Quickbooks Online subscription plan with the really shitty, limited reporting capability. I'm wondering what I'm missing that I should not be missing. That kind of thing. In brick and mortar retail one might measure sales per square foot of the store - what's the equivalent for online if there is one?

Also, coming back to the tv show, if Marcus Lemoni walked up to me tomorrow with an invitation to finance my growth, what are some numbers he would expect me to know?

[turboguy]

I would say the things that would be most important to Marcus would be:

1. Multi year sales so he could see if they were going up or down.
2. Profits, also over a few years so he could see the trend.
3. Cash on Hand, so he could see if you were able to pay your bills.
4. Accounts receivable and payable so he can see how well you manage your finances.
5. Inventory and how it is changing over time. This would be to see how many times you are turning over your inventory and how your inventory relates to sales.
6. Profits, also over a period of time so he can see if they are trending up or down and so he can work out return on sales and return on investment.
7 Profit margins, over the range of products or services so he could see which products are making you money and which are losing money.
8. Expenses, looking to see if they are inline and if everything is reasonable.

In a few minutes I will make another post and talk about what I track in my business.

[SumpinSpecial]

Cool, this is great so far! Looking forward to seeing what you (and anyone else who would like to volunteer their metrics) track.

Of the list so far, the one I have the least ability to track is inventory. Both my shop platform and Quickbooks contain inventory tracking capabilities. I opted to use the shop platform inventory control because it's more closely tied to shipping/fulfillment, but it has NO inventory reports. It's possible I should start managing my inventory in Quickbooks instead, but I'm not very impressed with the reporting capability there, either. I think I'd have to upgrade to a more expensive subscription which I can't afford yet. But my inventory is small enough that I can track it Excel for a while. I'll see what I can set up on that.

[turboguy]

Before I go into what I track in my business let me say that the frequency with which I check some things may change if I see things that are troubling. If everything is running smoothly then the following is what I check and when I check it.

1. The first thing I check which I do every few days is unit sales. That may not apply to many others but the machines we sell range from $ 1200.00 to $ 30,000.00 and I track unit sales each month and compare that to the 4 previous years. I keep a close tab on this but rarely make any adjustments based on what I see. I keep these on an excel spreadsheet.

2. Every 10 days or so I look at our cash in the bank, Accounts Payable and Accounts receivable. I also look at the individual A/R to see if anyone is past due and needs either a phone call or to send the mafia hit man.

3. At the end of each month I look at our accounting program and pull out sales and profits for the month and year to date and enter them in an Excel spreadsheet where I track this back to 2012 and can see trends.

4. At year end is when I really dig into the numbers. I do a separate Excel sheet where I compare important totals to the previous years. I will have sales, cost of materials, wages expense, advertising expense, profits. I calculate return on sales, inventory turnover, return on equity, return on capital and anything else I might consider important.

5. I also have another Excel sheet where I list everything major that we sell and have the selling price, cost this year, projected cost next year and gross margin. I look for anything where I need to raise the price and things I think I can raise the price on without effecting sales. I have a target margin which happens to be 50% of the selling price. There are some items where it just can't be done and some where I can make more but I try to make sure that as many things as possible have that margin and that the overall sales will be at least at that margin. I also look to make sure there are no items that we might be better off not selling.

I may be forgetting something but that is what is coming to my mind.

[SumpinSpecial]

That's super helpful! (BTW, when this discussion peters out, I'll save it off as a pdf file to refer back to easily.)

Just in case there are any lurkers here who might be in the same boat as me, I should add some of the numbers I am currently tracking. Here's one that I think might be silly, and it shows how small my business currently is, but I really value it. I built an Excel spreadsheet to do after-the-fact cost accounting for each online sale I make. (I omit the in-person sales because they are higher volume.) For each sale, I list:

Money In
selling price
shipping to customer
sales tax paid by the customer

Money Out
product cost
shipping from distributor to me
platform/paypal transaction fees
sales tax liability (always the same as above even though my state gives me a teensy percentage discount)
discount amount (if they redeemed a coupon code)

Net loss/profit
Margin %

It's been a good exercise because I really had no clue to start with whether my pricing was profitable or not. The first few sales showed me a net loss, so I adjusted the prices and for the last half of the year every sale has been profitable. I figure that since I don't have urgent pressure to succeed asap (see my into thread for details), I can treat the first year or two as educational. So I can teach myself how to calculate product margins by seeing how each product actually performs. I suspect that after a while I'll get a gut feel for it and can set this spreadsheet aside.

[tallen]

Our businesses are very different from what is being talked about here -- we are not selling physical products but providing services that are in turn tied to physical assets. Without inventory, we are accounting on a cash basis. We are very seasonal although most of our sales occur via advance reservations.

So the main thing we track are bookings, and projected revenue for the year (Year To Date recorded revenue + A/R) both overall and by individual asset, compared to previous years (YTD). The most common report we run is the P&L with previous year comparison (YTD). So we are also tracking expenses, and looking for any big deviance from the previous year.

The other big thing we pay attention to is our cash and cash flow (particularly from the advance bookings) -- are we accumulating enough cash to get us through the negative cash flow part of the year (remember we are strongly seasonal), or perhaps are we pulling in enough in advance payments to maintain a neutral cash flow during the off season, thus allowing us to reinvest accumulated cash in improvements to the business. Understanding our expenses and their cycle is of course important here, too.

We are also tracking our customers -- how much of our business if from returning customers vs. new customers; through what "channels" are our customers coming, etc...

A couple of months before the end of our fiscal year, we start trying to project our expenses through the end of the year (reviewing previous years) so that we can run "pro-forma' P&L statements to get an idea of what the year-end net might be and start planning accordingly (with our tax situations in mind). These of course get refined as we get closer to the end of the year. As part of this, we are also reviewing our depreciation calculations as well as our overall balance sheet.

We think about which of our assets generated the most revenue and which did not, and why, and contemplate what improvements we can make to the lower performing assets (and/or to our marketing of them!), in an attempt to bring them up on par with our higher performing assets. edited to add: related to this is of course price optimization. Also, this is not so different from tracking your inventory to determine which products are selling and which are not. Of course you want to understand why, and what opportunities there might be to enhance the sales of under-performing products, or whether you should drop them. (In our businesses, we don't have the option to drop our under-performing assets -- so we have to try to improve them).

[Freelancier]

Above all else: cash on hand and making sure receivables are being paid on time.

When you run out of money, the game's over. So you have to do everything in your power to keep the game going, which means paying attention to the cash on hand and the cash you expect to come in. And add to that the cash going out soon, since that is a demand against your cash on hand and the cash coming in.

What I'm describing is cash flow and how to figure out if you're getting into trouble.

[SumpinSpecial]

Absolutely hear you about tracking your cash very carefully. I'm operating on a cash-only basis, no receivables. I set up my business checking account as one with a 2K minimum balance to avoid fees, which I treat like overdraft protection. In my case, it really means that I never go below 2K balance in the bank. That was something I started with my personal money handling when I was a poor college student, and it's served me well. I've never bounced a check. I came within 10$ of my minimum balance last month which freaked me out a little. I definitely keep a close eye on that!

On my list of "cost accounting per sale" above, I forgot to list also on the money-out side: overhead and dropshipping fee.

I checked the inventory management in Quickbooks and it's not up to what I want to do. It allows you to enter how much the item cost is (along with the price), but it doesn't allow you to itemize the costs. So I'm going to manage my inventory in Excel... until it gets too big to manage.