What you need to know about your business at the end of each month

Having a business is overwhelming, especially in the beginning when, as owners, we do everything: we are ready for anything.

At this stage, we tend to focus on operations, not strategy. We fall into the fallacy of the machine that turns, we think that as long as the company continues to open everything will be fine and we leave aside the analysis, the strategy and how precious time is to think.

However, when this happens, we lose sight of a fundamental business principle:

This is why data and its analysis are so important!

I don’t want to overwhelm you, so let’s start step by step. I’m going to leave you with a small list of things you MUST monitor and analyze every month in your business. These are small steps that will make a big difference and I assure you that you already have some of this data, you just have to sit down and analyze it.

1. Your business income

I’ll start with the obvious and what we all face. From my experience as a consultant, I know that all companies and companies carry this information, it is the most verifiable and the one we always have on hand.

Why is it?

  • To understand the behavior of your sales, if they are related to a certain seasonality, if they increase at certain particular times and if they fall at others. This will help you to be very attentive and that sales ups and downs do not catch you off guard in terms of inventories, production planning, etc.
  • To analyze whether the strategies you apply are working. Measure sales and analyze what we did Who sold the most this month? Or what have we stopped doing to sell less? It will be very useful to replicate the actions that have paid off and the actions that have certainly not generated profits – whether they are advertising actions, product modifications, customer service or processes.
  • If, in addition to revenue tracking, you analyze which categories in your range generate the most revenue, you will be able to know which products or services generate the highest turnover and make decisions.

2. Cost of sales

This is a not so obvious fact. The cost of sales is one of the neglected notions in the financial management of companies. It reflects the cost of what I sold, consumed and delivered to the customer.

Although the cost of sales varies in its calculation depending on the type of business in question, the important thing here is to emphasize that the cost of sales is not what was bought into the business, but the part that has been consumed over a period of time, for example, a month.

It will increase or decrease in direct relation to the sale, it is only consumed when it is sold, if there are no sales there is no cost of sales. From my point of view, it is one of the most valuable data, because a company can sell a lot but if it does not take into account the cost of what it has sold, it will never know its gross margin.

Because it matters?

It allows to know the gross margin of the company. This is, from my point of view and my experience, one of the most important points to know, because a company can sell a lot, but if it does not know how much it cost what it sold, it does not will never know its gross margin.

Second, it also helps us manage our cash flow and not spend money we shouldn’t. For example, if I sell a sandwich for US$5 and it costs me US$3 to produce it, I will know that of the US$5 that I received, US$3 corresponds to the cost of sale and I can separate to buy supplies again, maintain the activity and make sure I don’t spend them on what shouldn’t or doesn’t fit.

3. Gross margin by product or by category

This helps us know which categories or rows generate the most utility. The way to calculate it is very simple: the price of the product or service minus the cost of the product or service. Continuing with the sandwich example, the gross margin would be $2.

Because it matters?

When you visualize the margin of each category, product, or service line in your business, you’ll realize things like: What are those products or services that leave more utility in monetary terms? Which categories generate the highest margin in %? Which categories or lines do not generate margins justifying their maintenance in the company? What categories should we promote in advertising?

4. Operating expenses

The simplest definition of operating expenses is that they are expenses that must be paid whether they are sold or not. Classic examples are wages and salaries – when they are fixed or linked to time and not to production –, rents, basic services, professional services, advertising, consumables, among others.

Because it matters?

This is the category that can – and should – optimize. Knowing them will allow us to know where to start to be more effective.

They are the next step, after the cost of sales, to arrive at the bottom line.
This allows us to analyze what percentage of income goes to expenses and if our business is oversized, that is, if it has too many operating expenses compared to its income, although this depends on each sector.

5. Net income

This is what the company manages to retain from everything it sells. Answer the question: how much did the business earn?

Because it matters?

Profit is the main source of resources for the company, it allows it to pay its debts, to invest to increase its capacity and its income, to return its investment to the shareholders, and above all: It allows us to know if the company justifies all the effort, time, money and resources invested in it.
These are, in most cases, the data that entrepreneurs and businessmen are looking for: did I win or lose? how much did I win or lose?

6. Inventories

These are the assets for sale that the company owns.

Because it matters?

  • This allows us to know the inventory we have, not only in quantity, but above all in money. How much money have we withheld at any given time?
  • Inventory analysis helps us know which are the categories with the highest turnover, how our inventory is made up, i.e. all or 100% of the inventory we have, what percentage is the highest turnover (these will be our priority for purchase) or lower turnover (to keep it in minimum stocks and avoid overstocking in these categories) and also allows us to act before it don’t be too late. For example, when it’s time to leave urgently, even sell at or below cost that stock that is about to expire, is getting obsolete, or is for some reason not turning over and must be converted into cash to place it in another line that spins and generates profits.

7. Cash generated

It shows us the money flowing in and out of the business. It only shows cash transactions.

Because it matters?

    • It tells us if the company is able to pay for its operation – purchases and payment of expenses – with the money generated by its operation – collections from its customers –, and if this is not the case, it tells us where he procures the necessary resources. resources (loans, contributions from associates, stock market, sale of fixed assets).
    • It also allows you to make decisions about the money available, where to direct it, or to establish payment priorities.

And in short, there are many more numbers and indicators that entrepreneurs and business people need to review and analyze, but in this first article, I wanted to start with the basics. Depending on the type and nature of the business, and even the stage it is in, you will need to see more or fewer numbers and they may be different from these.

Do not leave aside the analysis of the figures and the accounts of your company. Experience has shown me that this is the part most entrepreneurs shy away from, but that’s a mistake. It’s important that you dive in, because the only way to gain control of the business is to understand and track your numbers.

*This article was originally on the blog: Silver with Talk.

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