Who is My Customer?

When I look at some businesses I sometimes think they have never considered the basic question, “who is my customer?”

My Customer is Everybody!

Some businesses think everybody is their customer, but the truth is not even Walmart can say that. Some people simply will not shop there. But, let’s get back to your small business. You are Read the rest of this entry »


Understanding the Operating Cash Flow to Sales Ratio

In my last posting I defined what operating cash flow is and how to calculate it. Now I want to see it in relation to sales.

Why in Relation to Sales

Since selling is the primary activity of a company for producing cash flow, the relationship of operating cash flow to sales is a meaningful one.

Operating Cash Flow to Sales Ratio Defined

To calculate the operating cash flow to sales ratio, which is expressed as a percentage, the following formula is used (where OCF stands for operating cash flow):

Operating Cash Flow to Sales Ratio = OCF / Sales Read the rest of this entry »


The Cash Conversion Cycle

If you read my postings on a regular basis I may sound like a broken record with how much I focus on cash. But again, as I’ve said before, “Profit is nothing until it is converted to cash.” See Cash Flow – The Bottom Line. Now I want to delve into how efficiently we convert financial activity to cash.

Cash Conversion Cycle Formula

First we need to identify some abbreviations and definitions: Read the rest of this entry »


Importance of Net Profit and Net Margin

Net profit and net margin are two of the most important business metrics. It is essential that they be clearly understood and interpreted.

Net Profit & Net Margin Defined

Net Profit is the bottom line after deducting all expenses of the company. The formula to calculate net profit is:

Net Profit = Sales–(COGS + Operating Expenses + Other Income & Expenses + Taxes)

In the formula above COGS is the abbreviation for for Cost of Goods Sold. For clarification, revenue is sometimes used instead of the term sales, and in the formula above other income & expenses includes Read the rest of this entry »


Two Measures of Financial Return

Recently I’ve been focusing on financial ratios and how they can help you measure performance. You’ve probably heard the old advice on a personal level, “If you’re not using something, maybe you need to get rid of it.” Another way to look at this is whether the benefits you derive outweigh the cost of ownership or produce a positive result. An example would be Read the rest of this entry »


Two Sales Measurements

Sales, sales, sales! We need more sales is the common cry. But stop and ask if you are getting those sales efficiently. Here are a couple of financial measurements.

Advertising Results

There are numerous measures of advertising results, but here I want to focus on advertising to sales. Advertising to sales in calculated as:

Advertising to Sales = Advertising Expense / Sales

This is expressed as a percentage. Sounds simple enough, doesn’t it? But what is this telling you? Basically this is Read the rest of this entry »


Employees and Sales Efficiency

Do you wonder if there is a way to measure if your sales justify your employee head count and payroll expense? Here are two ways and some refinements.

Payroll to Sales

Payroll to sales is a percentage calculated as:

Payroll to Sales Percentage = (Payroll Expenses / Sales) * 100

The lower this percentage, the more it appears you are getting a good return in sales for what you spend on payroll. Of course there are some other things to consider, such as: Read the rest of this entry »


Some Key Financial Indicators

If you are attempting to manage a business you must have timely and meaningful financial indicators. Many companies do this with some sort of financial dashboard, but whatever your method, here are a few things to be on top of.

Some Balance Sheet Data

Keep up with some key balance sheet data. This should be done at a minimum monthly, but preferably weekly or even daily, depending on the particular piece of information. Here are some of the key financial indicators to track: Read the rest of this entry »


Ineffective Communication

You have probably had the experience of dealing with a company that is trying too hard. This can impact more than just customers and is done in a number of ways.

Looking for Information

I love learning new things. One way I do this is to subscribe to several email lists from companies that appear to provide useful information in my areas of interest. It always takes a while to fully assess if a new service I have registered for will be meaningful. There are, however, several things that will make me quickly unsubscribe from email notifications. Read the rest of this entry »


Integrity | A Business Essential

I’m amazed at the number of companies I hear about who have caused customers, employees, and suppliers immense financial pain because of a lack of integrity. Think about the housing bubble and the financial fiasco creating with the collapse of the sub-prime housing market and the bundled loans. What about the Madoff Ponzi scheme? How many people were hurt there?

Trustworthy and Dependability

In the posting Talk to Your Vendors we looked briefly at Read the rest of this entry »


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