If you watch Sharktank, you’ll see presenter after presenter seeking financing for their business in one form or another. Each of them does some sort of product demonstration. Often times that presentation stops at the handing out of samples or passing around of the item amongst the sharks.
What I always find amazing is how many times the presenter, who is usually the company owner, needs to be asked about the “business” itself. It got me to wondering how many business owners are actually out of touch with any of their business metrics. We’re not talking about Ford or General Electric here. These are small businesses that are closely held by the owners. So what could they be including? Let’s try these.
Topline revenue – How much in sales of the product has been done in two recent periods? This shows the relative growth. This is a trailing indicator because it shows only history.
Total bookings – If there are orders outstanding that are not actually revenue yet, how much are they? Bookings is a leading indicator, which means it provides a window into the future revenues of the business.
Gross Margin on the above numbers, as a percentage or a number – That’s the top margin number. Many businesses calculate this number differently. My personal preference is to take invoice totals, minus COG, minus freight, minus cost of warehousing and fulfillment, minus any discounts. The end result is how much money is left to spend on the rest of the business activity.
Store count (accounts or actual doors) – If you don’t know this, there’s trouble.
Inventory in dollars on hand – If you’re selling a consumer product, your future sales are determined by inventory value on hand and gross margin. If gross margin is 50% and there is $40,000 in inventory, then that inventory can only create $80,000 in sales (40,000/50%). Which means there is $40,000 on sales, marketing, product development and running the business.
This information is not all on one report. Some are from the balance sheet. Others are from the P&L. Some software doesn’t even keep track of bookings. No software calculates door count.
At the very simplest level, these 5 pieces of information would impress any prospective investor. Choose from these or find your own and know them, watch them and own them. I’ve always lived by bookings which requires timely processing of orders into an accounting package. These are what determines the financial health of your business.
