With tax season behind us, it is time to move forward and begin planning for next year! A lot of shop owners don’t look over their financials as often as they should. As a result, they are unable to create long-term plans because they are constantly reacting to short-term issues. It is crucial as an owner of any business to know where you stand financially at all times throughout the year. Looking at your financials regularly will help keep margins consistent and allow you to scale efficiently.
We recommend shop owners review their financials at least monthly, but in order to have a truly great understanding to better your business, you need to be looking at numbers daily.
Your POS software is one of the richest sources of financial information for your business. It’s the best reference point for a daily overview since it includes all your real-time numbers. (Make sure it matches your numbers in QuickBooks, of course!) However, take the time to really dig into these numbers each week. Make sure you are getting the margins you want to have.
Start by taking the time to correct the POS Cost of Labor to reflect your true cost. The best way to do this is by taking the last 4 months of cost (found in QB with Benefits and Payroll Taxes) and dividing it by hours sold. This will give you the most accurate cost per hour. You can then compare this to what your costs are in your POS and make the needed adjustments. Once you have the correct costs in your POS, then you can look at your true Gross Profit. Gross Profit pays your expenses and puts dollars in your pocket. Set goals for your Gross Profit Percentage that your team must maintain to get the desired profit. If you are not hitting this number, you can then determine what needs corrected.
You can also establish your effective labor rate from your POS system. If your effective labor rate is lower than your “street rate,” you need to find out why and resolve this. You only have so many hours available – the more that are productive, the more money on your bottom line.
Once a month, take a look at your P or L statement. Compare it to the goals that you have set and see where you can improve. The P or L should be a verification of whether you’re making the margins and controlling the expenses to give you the desired profit. Like the POS, you should review the percentages on the P or L. Despite an increase or decrease in sales, the percentages should remain consistent. (Click here to see a sample P or L with goal % ranges.) By comparing these numbers to the same month in the previous year, you’ll have a better sense of the direction in which the business is going.
Getting to know these numbers will make you a better business owner. If they seem like a foreign language to you, work with your accountant to help you understand them better. They are a large key to taking your business to the next level.