The right tool for tracking, measuring and reporting productivity and efficiency

Were you satisfied with your bottom line report at year's end? Did the bottom line report meet your expectations? An unacceptable bottom line is usually the result of poor judgment and making decisions with stale, erroneous and/or limited information-in some cases with no information at all. Are you aware that there is a direct correlation between your business performance and the lack of quality information reported by your accounting system?

Perhaps you are attempting to manage your business, in this highly competitive environment, without a point-of-sale accounting system and related reports. If you are, your destiny is to struggle with an inadequate bottom line. If you own or manage a business, you must have certain critical information on a timely basis.

It begins with an end-of-day report

I'm asking you to take a few minutes to look at your accounting department, and more specifically, the software used to track business activity. Business performance cannot outperform the software used to accurately track and report cash flow activity.

Here's what I mean by cash flow activity. The first priority in any business is to generate income. After the cash register rings up the sale and the money is deposited in the bank, your next priority is to manage cash for positive flow. Positive flow means profit left after paying all bills at the end of the year.

I believe a point-of-sale accounting system, operated in conjunction with an industry-specific software package that tracks inventory movement and service department efficiency, is one of the best technological assets a business can own. It is the best way to manage cash in any business, and it begins at the cash register when the sale is completed. The computer will print the customer invoice, assist with the payment transaction, relieve and update the inventory, and store the information for retrieval when the end-of-day sales report is requested. If your system cannot track the detail it cannot report it.

Let's identify five Profit Principles and ask some questions. Whether annual business income is $100,000 or $100 million, there are five profit principles that must be considered when measuring productivity and efficiency. Remember, cash flows two ways. And we're discussing a point-of-sale accounting system and its ability to track and report critical information necessary to managing and earning better profits.

Profit Principle No. 1: Income

Cash flows into the business through the process of sales. If I ask you to run a report at the end of the day, what information is available on that end-of-day report? Some software may have another name for the report. Here's the information you are looking for:

* What is total dollars for today's sales, month-to-date and year-to-date?

* How much equipment by brand was sold?

* What are the best-selling models?

* How much did each line item cost? No cost is assigned to service labor income.

* How much profit was earned?

* What is the ratio of profit to sales dollars?

* How much service labor income was sold?

An example of an end-of-day report is on the following page.

The major purpose of the end-of-day report is to be able to review your progress. Ask yourself these questions: Are my total sales dollars on forecast? Are my gross profit dollars as planned and does the gross profit ratio/percent correlate? Look for errors. The most frequent error is the wrong cost of goods, or goods without any cost applied.

When you find an error, make changes immediately. Do not allow mistakes and errors to accumulate. It can lead to financial disaster. End-of-month and end-of-year reports are nothing more than accumulative totals carried forward.

Profit Principle No. 2: Cost of Goods

Your available cash suffers when the cost of goods is too high relative to the selling price. After making the sales and the money is in the bank, there are but two cost centers that impact the bottom line: 1) inventory and 2) cost of doing business. Are you paying too much, or have too much invested in your inventory? To determine the answer you'll need an inventory stock status report, plus how much was spent purchasing inventory from the general ledger.

When reviewing your end-of-month/year report, look for excess, wrong mix, obsolete accumulations, shrinkage, failure to file warranty claims, and the list goes on. Excess inventory is a major cause for failure.

Profit Principle No. 3: Gross Profit Dollars

At the end of the year, after subtracting the cost of goods/inventory from net sales dollars, what's left is gross profit dollars. This is your discretionary income.

Profit Principle No. 4: Operating Expenses

You must be vigilant to prevent the cost of doing business from costing too much. From gross profit dollars all expenses associated with operating the business must be paid. Money left over after paying for operating expenses is pretax net profit, or the bottom line. If you want a respectable bottom line, from your general ledger side of accountability, take control of your spending habits by using a budget. Budgets work every time they are used. General ledger accounting software for tracking deposits and writing checks is a must-have technology asset. I seldom leave my office without knowing my balance, expected receivables and what bills must be paid. Excessive operating cost is a major cause for failure.

Profit Principle No. 5: Pretax Net Profit

This is the money left over after paying for operating expenses. From these dollars you must pay income tax, debt burden, saving for rainy-day account, provide for business growth and personal return on business equity.

If you are in the habit of borrowing money at the end of the year to pay operating expenses, you can change this by investing at least 30 to 45 minutes each day studying the critical numbers, understanding what they mean and then use them to increase profits.

As a business coach and consultant, we have assisted many dealers across North America with changing the profitability and growth of their business. If you are not satisfied with your bottom line, give us a call. We specialize in strategic business planning for outdoor power equipment retailers.