My oldest child is at Scarowinds tonight, arguably the scariest haunted attraction in all of Charlotte. I’m actually surprised he wanted to go; this is a child who is frequently frightened by his own shadow. But a group of his friends were going and it appears peer pressure got the better of him. He couldn’t wait for tonight, and went eagerly. I keep glancing at my phone as I write this, however. Certainly “the call” will come in any minute now. “Dad, I wanna go home.” I can hear his voice already.
Shortly before he left, I warned him that there’d literally be hundreds of characters on staff tonight to scare the pants off him. “Don’t tell me,” he said. “I don’t want to know.” He said this as he practically danced out the door. He was just so excited. Granted, this is kids play, this haunted park stuff, but I couldn’t help but think of the thousands of business owners who operate the same way. When working with small businesses, I ask about their metrics -- what they use to measure their progress -- as we begin the business planning process. Without fail, they proudly proclaim their steady cash flow and sales/billing revenue. “That’s good, but what about other key indicators?” I’ll ask. “What about marketing costs, health insurance, taxes, debt…” “Ugh,” they’ll reply. “I’m not really sure. Someone else handles all that stuff. In all honesty, I don’t want to know.” Sound familiar?
Business owners are a funny bunch. They’ve taken the incredibly scary step of operating alone, but they’re often paralyzed with fear over the numbers that actually make them run. I’m not sure why that is, but I can think of no better occasion than Halloween to face the demons lurking in your financial statements. In no particular order, here are the ghouls you need to get comfortable with:
- Accounts Receivable
Cash, investments, and receivables must exceed payables. We all know this. Ideally the ratio will be 2:1 (or even 3:1) so that, if things get tough, you have cash on hand to help you get you through. A good long term goal is to maintain six months cash reserve.
How many days outstanding are your accounts receivable compared to last year? What percentage of your accounts receivables are over 30, 60, 90 days? Just one or two bad receivables can wreak serious damage, so make sure your older receivables are at a manageable level and can be written off without wounding your company.
- Debt
Debt has the ability to inflict terror on an organization. Most of us have debts that we've used to finance capital expenditures, but the question is, is our debt manageable if circumstances change?
Could next year's payments rise to unsustainable levels? If interest rates start to go up next year, how will this affect your monthly debt service? Do you have a balloon payment coming due soon? Is the bank already calling you to collect? If those questions sound familiar and make you sweat, we have an issue.
- Health insurance
We have covered the changing healthcare laws multiple times, and understand that keeping up with the ACA is difficult. But you must do it. Health insurance costs can turn your business into a horror show if left unchecked.
Your premiums will very likely rise next year. Are your current plans affordable? Do employees need to contribute more? Are high deductible plans a better option? Get with your health insurance agent now to answer these questions.
- Revenue by customer
This boils down to being prepared for the worst: the loss of your top customer. Run a report without that revenue. Is it awful? If so, you need a backup plan.
We all love the profits and fortune that our biggest customers bring to our business, but we can’t count on them forever. Know how to operate without them.
- Salaries
This is a significant portion of your total expenditures, so facing this frightful number is essential.
How many people do you now employ? Has this gone up in the past year? Are you feeling the pressure to raise wages? Or increase benefits? Are you prepared for new overtime rules? If you need more help, are you prepared to pay for it? Is outsourcing an option? These are all questions you need to address.
I could go on (taxes, advertising…). The point is that the little numbers in business, while seemingly scary, are not monsters you need to run from. Stop saying “I don’t want to know.” Face those frightful numbers, and realize your best year. Remember, we’re always here to help. I’ll keep checking my phone for your call, too.
