Improve Your Financial Reporting Instantly!

Nothing irks me more than to receive a set of financial statements, no matter how detailed or well organized, and yet discover they are lacking the most critical element of all - the key ratios or percent of sales column over on the right hand side.

If you are using Quickbooks, this is all you have to do to produce a much more informative set of financial statements with these ratios automatically calculated.

When producing a profit & loss report, but before printing, look up towards the upper left on the toolbar and click "Modify." This will bring you to a new screen that allows for all types of special formatting.

Look towards the bottom and click the "percent of sales" box, and then hit Ok. Voila! You now have a profit and loss statement with key ratios such as paper costs, payroll, overhead expenses, etc..... all the key ratios one needs to have readily at hand to analyze your business!

This same type of formatting is available in virtually every accounting package on the market. You just have to search for it. Once you've found it, make sure it is memorized and from that point on every time you produce your reports the ratios will be calculated.

Keeping Your Ratios in the Green

A couple of blogs ago, I discussed the "Six Pack" of instruments used by pilots. Monitor and scan those instruments frequently, and a pilot is likely to have a safe flight. The same is true for our "Six Pack" of key ratios in the small format printing and digital copying arena.

Pilots often are told to make sure their instruments are reading in the green, and the same should be true for the instruments we use to run our printing and copying businesses. Below are are the specific numbers you will need to look for to keep your instruments in the green. How do your numbers compare?

1. Profit & Loss Statements - To remain in the green, you must receive financial statements on a monthly basis. Nothing else will do. Even more important is that you must take 15-20 minutes studying these statements and comparing them to previous statements, taking note as to what trends (good or bad) are developing.

2. Payroll Costs as a Percent of Sales - You must keep total payroll costs at or below 29% to remain in the green. As soon as you see this ratio rise to 30% or above you need to carefully examine possible trends that may be developing in your company. You are clearly entering the yellow or orange zone (if not the red zone) if your payroll costs rise to 31-34% or higher.

3. Paper Costs - Paper Costs as a percent of sales should rarely if ever exceed 11-12% if you want to remain in the green zone. Let this ratio climb by even one percent and it is an early sign of trouble ahead. Companies reporting a signficant percent of their sales coming from digital copying often report total paper costs in the 9-10% range.

4. Sales Per Employee - In order to remain in the green, I believe you must maintain or acheive an SPE of at least $125,000. That isn't a great number and certainly doesn't represent the best that can be achieved, but it should be enough to keep you out of trouble.

5. The Current Ratio - Too many printers ignore their Balance Sheet because it sometimes doesn't make a lot of sense. The current ratio rarely appears on you balance sheet but it can be calculated quickly by dividing your total "Current Assets" by total "Current Liabilities." Make sure the entries for both these categories are properly recorded. To remain in the green, nothing less than 1.7:1 should be permitted. Even that is a bit weak, but it would still be in the green. Below that number, and you are drifting into the yellow, orange or red zones - zones you definitely want to avoid.

6. Owner's Compensation - An owner's compensation of 13% will barely keep you in the green, but you won't have the safety margin you need to move forward and grow your business. Ideally, you need to be striving for an owner's comp of 17-20%, which is a level that 25-35% of our industry achieves each year.

P.S. You can subscribe to this blog and read new entries as they are posted by using I Power Blogger, or clicking on this link: http://www.quickconsultant.com/blog/atom.xml