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Look Beyond Your Bottom Line to Improve Your Operations

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A business with industry-leading sales can lose money. Growing profits may mask declining efficiency. To truly understand the health of your business, you need to look beyond the bottom line. Consider the following metrics.

Sales by Day or Hour

If you operate a storefront or have live customer support, how did you determine the operating hours? If you just picked typical business hours or what you thought would be best, you could be missing out on sales or needlessly staffing extra hours.

Break down your financial reports to find out when sales are actually happening. Weak weekend sales could mean there's no need to be open. Strong Friday or Monday sales when you're closed on the weekend might indicate customers would shop on Saturday if they could.

Take the same approach with your hours of operation. If you see strong or weak sales near opening or closing, consider extending or reducing your hours. When in doubt, test the waters for a period of time (but maybe hold off on changing your business cards until you know for sure). 

Inventory Turnover Ratio

Slow moving or wasted inventory can substantially reduce your profit margins. You should know how quickly each of your products moves.

Some products naturally have slower turnover. For example, high-end goods take longer to sell than inexpensive commodity items.

Look at each of your products to see if there are ways to move it faster, and compare your turnover ratios to industry averages. If you are scratching your head over the simple idea of inventory management, call outsourced bookkeeping services, who can help you navigate the waters of setting up and tracking inventory management systems.

Sales by Product Class

In addition to analyzing total sales and sales by product, look at different classes of products. One key metric is whether your sales come from new items, recurring purchases or one-time sales.

If you see high sales for new products, keep investing in research and development, but also look for ways to promote your older products.

If you have strong recurring sales, look for cross-selling opportunities with your existing customers, as well as ways to find new recurring customers.

If you have strong one-time sales, look at whether you have a customer retention problem or if single purchases should be expected. If your focus is on single purchases, pay close attention to your customer acquisition costs.

Age of Accounts Receivable

How long does it take you to collect invoices? Generally, the longer it takes, the greater risk you have of not being paid.

As with other metrics, you want to see both the big picture and a more detailed breakdown. Your overall age of accounts receivable tells you if your general collection practices are sound.

Also, look at individual customers. Are the ones who take longer to pay big, stable companies that just have slow accounting departments, or are they small companies that are struggling to meet their bills? The former you may be able to absorb or adjust for but the latter may signify great risk to your cash flow management.

Breakdowns by product or service can also be useful. If a particular item is only attracting high-risk customers, consider cutting it or charging a higher margin than usual.

Historical Sales by Month or Week

When sales rise or fall, you need to know why. Did sales increase because of the new product launch or because they always go up in the month of the launch? Are there particular weeks, such as school breaks or holidays, where you see a spike in sales?

Getting this type of detailed information from your outsourced bookkeeping services provider can help you to better predict your staffing needs and provide a stronger understanding of how your products are performing. Don't have a service to assist you? We can help you figure out whether outsourced bookkeeping services would suit your needs.

Find Out Whether Accounting Services Are For You

 
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