A BAD ASS BOSS LADIES GUEST POST BY: Christyne Gray
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Knowing your numbers is to have a complete understanding of the numbers that drive your business.
I firmly believe that knowing your numbers is the only way to grow your business, meet your goals, and keep your vision alive.
Knowing Your Numbers Might Sound Scary But...
First, let me just say that it will take a mindset switch to commit to knowing your numbers. Yes, it is more fun to focus on all of the pretty things in this industry, yet, by doing so, you are getting yourself stuck.
This might scare you a bit, but I am going to say it anyway. Every aspect of your business can be and probably should be measured.
You Have To Start Somewhere
So, since we have to start somewhere, and we cannot measure everything immediately, we will start this conversation with the most important numbers to know, measure, set goals against, and work towards achieving those goals.
To get you started down the right path, I will go through the most basic and entry-level numbers you should begin to measure. But please know that I would like for you to broaden out this list very shortly.
Alright, let’s get started with the 8 entry level numbers I would like you to begin to measure today:
The 8 Numbers Every Business Owner Should Know
# 1 Revenue
You need to be clear on how much revenue you are currently generating, how you are generating this revenue, and in what increments.
Meaning, you should understand your revenue cycles … annually, quarterly, monthly, weekly, daily, by event, and by season.
If you need help understanding your boutiques' finances check out my free financial coaching videos to get you started!
# 2 Expenses
Start by writing down these 5 expense categories:
- Selling Overhead
- Administrative Overhead
- Operating Overhead
- Occupancy Overhead
- Compensation Overhead
Now work out how much are you spending in each of your expenses categories. Are you OVER-spending where you should be focused on being lean? Or, are you UNDER-spending, where you should be focused on investing in your business?
You should know exactly what percentage of your revenue you are spending on each of these categories each month, each quarter, and each year.
# 3 Profit Margins
You should know your average cost of goods sold and profit margin on revenue. Are you selling within a healthy profit margin for the retail boutique industry?
Your profit margin is also an indicator of the health of many other measurables in your business. Such as IMU, MMU, and Inventory Buying Strategy.
# 4 Inventory Asset
Each week, you should know how much actual inventory you have on hand.
You should also know if the amount of inventory on hand is too little to meet your revenue goals, or, do you have too much inventory, thus tying up your cash flow. And, you should know the aging buckets of that inventory.
# 5 Working Capital
You need to fully understand how much money it will take (for inventory and expenses) to get you into the next high season and to hold you over during the slow seasons. You will want to measure your cash flow projections.
# 6 Debt Balances + Cost of Debt
How much debt are you carrying, and what is the cost of that debt?
This means how much interest are you paying each month, or at the front of the capital loan? What is the opportunity cost of that money?
Let me give you an example: If you are paying $500 in interest each month, and usually sell your inventory at 60% profit, the lost opportunity cost of that money is $1250 in sales with a $500 cost of goods sold. That’s $750 in lost profitability because instead of investing the $500 into inventory, you paid interest expense.
# 7 Owners Pay
Exactly how much are you paying yourself? Many of you will say zero.
When measuring owners' pay, we have to consider two factors.
- How much is your business paying you to support your household?
- What expenses is your business paying on your behalf, so that it can take the tax write-off?
# 8 Profit
What is your true profit? This is gross sales, less all of your fees and expenses, less the cost of your inventory that was sold.
I coach my clients to accept no less than 10% profitability in their business. You may have to baby step to get there initially, but once you achieve the 10%, you should be able to year-after-year and likely even increase this amount!
Another factor to measure is your profit enough to cover the added investment into inventory needed to grow your revenue?
Anyone Can Get To Know Their Numbers
The good news is that you can come to know and understand your numbers. It just takes time, an accurate and industry-specific bookkeeping system, and possibly some professional guidance and support.
So let’s touch on what I mean by “accurate and industry-specific bookkeeping system”.
Having A System In Place Is Key
Having a bookkeeping system in place that is designed to measure your business, specific to your industry, is extremely important in knowing your numbers.
Setting up your bookkeeping system with an industry-specific chart of accounts allows you to report and measure your business, in a format that is meaningful to your day-to-day operations.
Also, recording the transactions within your bookkeeping system, in a manner that accurately reports the exact flow of your money into your business and back out, will help you connect the dots between the story your financial statements are telling you, and how those numbers relate to the workflow of your business and it’s operational effectiveness.
When you have achieved an industry-specific bookkeeping system that reports the operational effectiveness of your business, you are on the right track to knowing your numbers, identifying profitability leaks, knowing where you are missing opportunities and when to pivot and adjust.
Do Your Numbers Add Up?
Give this some thought. Does your bookkeeping system provide you with the 8 entry level numbers I have asked you to measure, to begin to “know your numbers” and find money clarity?
I want you to think about each of the numbers I just defined and commit to knowing the number from the past, what it is now, and what your goal is for the future. I call this money clarity.