Small Business Workshop: Numbers to watch for people who don’t like to “do numbers”
Lots of times in my career I meet people in business that are good at what they do, whether its installing plumbing or operating a restaurant, but they don’t like to “do numbers”. JP Morgan once said that he could sit down at any man’s desk and do his work. You don’t have to be able to do it all, but someone needs to “do numbers”. Here are two suggestions:
First, find someone who is good at numbers to work with you.
Second, find out what the key numbers are that you need to look at, and keep on them.
The best way to look at the financial health of businesses is to look at ratios. This allows comparison of different sizes of businesses. I spent years working in the restaurant business. The important ratios in that business are food cost, and labor cost as a percentage of sales. When looking at the information and in order to be meaningful, there has to be enough sales so that irregularities such as billing and inventory sort themselves out. Weekly is too short; monthly review makes more sense.
Restaurant food and labor costs each run about 30-33 % of sales. A major effect on labor costs is overtime. When you run overtime, not only is it wearing on your employees, but it immediately hikes the labor costs by 50%. Tracking overtime is key. These days worker availability is tight. One way some retail businesses have addressed the overtime/availability issues is to open less days or hours. They close some of the times that are the slowest. In the restaurant business, the weekend is about 70% of sales. Why run into overtime by opening Tuesday when you’re just breaking even on Tuesday anyway?
Being a chef is not just about cooking tasty food. A good chef controls cost by ordering and using ingredients so that waste is minimized. A good chef will compare daily sales from year to year, factoring in weather, when deciding what and how much to order.
You should be able to get your business financial health down to half a dozen monthly key ratios. Addressing the issues that come out of monitoring those ratios is a different matter, as are the thousand and one other details entrepreneurs deal with. But you knew that when you became an entrepreneur!