Records reflect successful businesses

January 1, 2004 By    

Based on my experience of examining many businesses in this industry, I believe there is a direct correlation between the quality of a business and its record keeping. The opposite is also true; weak businesses are often linked to inadequate record keeping.

Last month we addressed the merits of solid accounting and how those attributes create value in your business in the eyes of a potential buyer. Now let’s review why you should improve your business through the use of quality and timely records of business activity.

Poor record keeping can be fatal

A recent study on small business produced these statistics as to why small businesses fail:

32.1% – Poor management of financial activities

14.6% – Lack of management competence or experience

12.4% – Outside economic factors

12.3% – Poor books and records

10.7% – Sales and marketing problems

9% – Personnel and staffing issues

8.9% – Other reasons

Note that first on this list is poor management of financial activities, and fourth is failure due to poor books and records. The two are clearly linked. When someone is a poor manager of financial activities, the books and records reflect that. The two add up to failure of 44.5 percent – almost half – of all small businesses!

Good management requires quality and timely data on key operating matters in order to make good decisions. Businesses that I assess often can’t answer in detail questions about matters related to their operations, including:

  • What are my gallon sales by customer type? On a daily or weekly basis?
  • What are my gross profit margins by customer type and on a daily or weekly basis?
  • What are my expenses? Are they too high?
  • What is the status of my accounts receivable? What percent are under 30 days, under 60 and 90 days? What amount is uncollectable?
  • What is my cash situation?
  • What is the status of my payables?

Long-term records are equally pertinent, if not as urgent.

  • What is my true and accurate customer count?
  • What is the number of tanks and cylinders I have in the field?
  • What is the usage of my tanks in the field?
  • What return am I getting on my invested steel in customer tanks?

What about even deeper efficiency measures, including:

  • What is my cost per gallon delivered?
  • What are my gallons delivered per day, per driver, per mile driven?
  • What is my gallon delivered per employee?
  • What is my profit per employee?

In a much broader sense, with good record keeping, you can address:

  • How is my business doing?
  • What strategic areas need the most attention?
  • Am I on the right track?
  • What is my net worth?
  • What is my business worth?Those businesses that can confidently know the answers to the above questions have a very solid practice of record keeping and generally are the most profitable.Record keeping, gross margin

    In the final analysis, one of the single most valuable benefits of good record keeping for an independent retailer is to avert a pending disaster. In the retail propane business, perhaps the most critical weakness I observe is the lack of understanding the significance of daily gross margin analysis.

    Simply, this business is driven by gross margin (and that for the most of us 60 to 70 percent of our gross margin occurs within a handful of key winter months). Successful businesses are in tune daily to what is happening to gross margins during the critical time of year. Successful businesses do not fall into the trap of not knowing before it is too late to make adjustments.

    A truism worth repeating is “you cannot save your way in expenses from April to September for the gross margin you didn’t make from October to March.” Only good recording keeping and daily management data will allow you to make the right decisions in gross margin management and other important matters.

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