As a business consultant with the University of Georgia SBDC, I meet with many entrepreneurs looking to open a business of their own. They often are overwhelmed by all the details of getting their business up and running. I completely understand how they feel, because by night, early mornings, and weekends, I am also a small business owner. My wife and I own two Supercuts Salons.
Recently, a quote by John L. McCaffrey, past President of International Harvester Company, has been in the forefront of my thoughts. What he said is “The mechanics of running a business are really not very complicated when you get down to essentials. You have to make some stuff and sell it to somebody for more than it cost you. That’s about all there is to it, except a few million details.” I reflected back to when we first started our salons. McCaffrey was right, there were a million little things that as small business owners we needed to address. I remembered when we first got started how overwhelmed I felt thinking of all the details that needed to be addressed every day. “Trial and error” taught us that on a daily basis we needed to pay attention to only four things:
#1. Daily Sales
Compare service sales, product sales, and customer counts to the same day of the week versus the prior week and the prior year. For example, compare the first Monday of February 2015 to the first Monday of February 2016 to understand the sales and customer-count trends. This is important for marketing as well as for customer retention. In the salon business, sales tend to be greater on weekends, thus comparing the same day of the week provides the most accurate picture. You don’t want to avoid bad news, so the sooner a trend is noticed, the sooner you can take a corrective action.
#2. Daily Labor
In most organizations, including both small businesses and large Fortune 500 organizations, total human capital costs, also known as total cost of workforce, average nearly 70 percent of operating expenses. While an organization’s total cost of workforce percentage may vary, with few exceptions, these costs remain the single biggest organizational expense. We have found this to be true in our salons as well, and knowing where we stand on a daily basis allows us to adjust schedules in a timely manner.
#3. Verifying Cash and Credit Card Deposits
Verify that credit card and cash deposits made it to the bank in the appropriate time frame and that the totals the bank shows matches your daily sales report. Addressing discrepancies early on allows you to make corrections while memories of those involved are fresh in your mind. If theft or embezzlement issues arise, timely information allows you to minimize the losses. My philosophy is “your team will respect what you inspect.”
#4. Cash Flow Sheet
What is most important is that you are updating your projections every time something happens in your business that affects your cash flow. For example, no sales for a day or two because you closed due to weather. Establishing a format that makes it convenient for you to quickly update your cash flow sheet is more important than adhering to some predetermined schedule. The cash flow statement is the most important financial tool.
As a small business owner, your success or failure will be determined by your ability to be productive – “you have to make some stuff and sell it to somebody for more than what it cost you.” As I tell my clients, if you monitor these four critical areas daily, you will have a pulse on your business that allows you to make timely decisions that will help you to prosper.
(Source: Michael Myers, Business Consultant, UGA SBDC in Athens)