Tracking critical financials of your retail business is an essential part of reaching your goals and succeeding. It is important to track these numbers at least on a monthly basis and reference your financial checklist so you can adjust your priorities, strategies and plans accordingly.
Taking control of your business will guide you towards the success you want. This financial control can reduce stress because it provides you with knowledge and knowledge is powerful. With this knowledge you will have the power to make sound business decisions.
You cannot improve what you do not measure and you cannot hit a target that has not been set. Every market has its challenges and you can be successful in your market by setting clearly defined targets, making plans to hit those targets and taking daily meaningful actions towards your targets. However, without measuring critical financials how will you know if you are on the right track?
This critical financials checklist is basic, yet many small-scale retailers do not track them regularly or at all. Waiting until the end of your fiscal year to look at these might prove to be too long and could mean you missed out on the opportunity to reach your goals or worse to suffer profit losses.
Another issue in not tracking these numbers is that you might change something that was actually helping. The expression measure twice, cut once applies here. How can you know what to cut or what to add if you do not know where you are strong and where you are weak?
Build a spreadsheet and track these numbers on a monthly basis.
- Gross margin (also called Gross Profit): Income minus direct costs. Indicator of profit or loss trend.
- Net Income (also called Net Profit): Revenue minus all expenses and taxes. Indicates whether you are profitable or not.
- Overhead to Sales Ratio: Overhead costs as a percentage of your income. An upward trend could mean you are headed for trouble. If you just moved or invested in a new building it will be high at first but should trend back down.
- Wages to Sales Ratio: Total wages as a percentage of your income. Hiring seasonal staff will make this go up temporarily but should trend back down if you hired the right team to increase sales.
- Quick Cash Ratio: Cash plus accounts receivable divided by accounts payable. Very dangerous if it trends down. A 1:1 ratio mean every penny earned goes out to pay bills. No savings. 0:1 ratio means you have no money to pay bills.
- On Hand Inventory: Count inventory once a month. Indicates if you have product that is not selling at all and which product turns over quickly. Adjust product mix accordingly.
- Store Traffic: The number of customers who enter your store daily, regardless of purchase. Can indicate which advertisements are working or not. Knowing when your peak traffic is, allows you to adjust hours of operation, how you staff the store and how many of these turn into actual leads.
- Average Sale Per Customer: Total sales divided by number of sales for each department and for the entire business. Increasing this number by using the add-on selling technique can add quite a bit of money to your bottom line at the end of the year.
- Closing Ratio: Number of leads divided by number of sales. A lead is a customer who talks to a salesperson about a specific product. Star salespeople should know their closing ratio and improve on it. A downward trend needs to be addressed.
While there are other financials you should keep an eye on, the things on this financial checklist must be tracked monthly to identify good and bad trends. They will help you take corrective actions instead of shooting from the hip. Knowledge is power and is the only way to know for certain where you are headed. Don’t be afraid of financials; take control of your business so you can reach the success you so desire.