Regardless of the type of business you’re running – whether it’s selling electronics, teaching cartwheels or making furniture – monitoring a few key financial indicators is often all that’s needed to keep your company growing and prosperous. On the other hand, neglecting a firm’s vital signs can lead to management by crisis and corrective action that’s too little, too late.

A prudent business owner won’t wait until the end of the year (or even the end of the quarter) to learn that revenues are declining, inventories are shrinking, or payroll expenses are spiraling out of control. Although annual financial statements provide historical perspective and a wealth of data for long-term planning, correcting current problems is a matter of timely insight and informed analysis. You want to know whether your business is losing money or growing – now, not later.

A company’s key financial indicators often fall into one or more of the following categories:

• New Clients & cancellations. Are you bringing more students in to your facility month over month? To find out, look at your sales figures by units (or students). Tracking revenues alone may present a false picture. After all, revenues may be growing because prices have increased. But if number of students is declining, you might be losing market share. Are customers taking free classes and not returning? Are complaints increasing? If so, it may be time to look beyond the revenue and in to the class.
• Breakeven point. If you need more cash this month to cover fixed and variable costs, are you generating enough revenue to break even? If you’re dipping into reserves to cover revenue shortfalls, adjustments may be required. Expenses may need to be slashed, a new advertising campaign launched, or a new and cheaper supplier procured.
• Liquidity. Knowing the availability of cash is vital to every business. That’s why reconciling the firm’s bank statements shouldn’t be an afterthought. Every month your accountant or bookkeeper should ensure that your general ledger agrees with the bank’s records of deposits and withdrawals. If a company is “bleeding cash,” the bank statements should tell the story.
• Inventory. Controlling the stuff that’s weighing down your retail shelves or accumulating in your warehouse is often a key to profitability. Buying too many items may lead to excessive storage costs; buying too little may lead to burgeoning backorders and lost sales. With small gym & dance schools, inventory purchasing is not usually going to break the bank, but be certain that what’s on the shelves is saleable and constantly changing to meet the needs of your clients.
• Payroll. Payroll is the one area that most small businesses need to focus.  Staff size NEEDS to be commensurate with revenues and number of students. Medium-sized studio’s/schools, especially, may find that labor expenses grow too rapidly. Constantly monitor these ratio’s and expenses as a percentage of revenue to see if changes in staffing need to be made swiftly.

By carefully analyzing your firm’s operations, you’ll be able to identify the indicators that provide the clearest view of your company’s ongoing profitability.

Over time your business’s key numbers may change. The secret is to know your company, identify changing conditions, and adapt. A brief but timely report that presents the numbers that really matter will help to keep your firm on the right track.

(Photo Credit: Some rights reserved by StudioTempura)