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5 Numbers to Check in Your Financial Statements

As you wrap up the year and make plans for 2019, it’s a good time to review your accounting records. Was 2018 a year of growth? Or have market challenges been pulling your operation down? More than likely, the first numbers you’ll be looking at include profit margin, total operating expense and sales per square feet to see how well you’re doing. But here are five other numbers found on your financial statements that can help you meet your business meet its full potential.

  • Sales per Customer

Also known as the transaction size, this gives an indication of how many items a customer purchases on an average shopping trip. According to the 2018 Cost of Doing Business Study by the North American Retail Hardware Association (NRHA), the typical hardware store had an average transaction size of $22. There are several concrete steps you can take to improve this number. Improving your impulse merchandising will increase sales. One of the most important ways to boost this number is though employee training. Train on general selling skills so employees are more attentive to customers. Training on selling skills can also increase employees’ product knowledge, allowing them to suggest appropriate add-on sales, so employees can sell the whole project, not just bits and pieces.

  • Operating Expenses

If you’re struggling to put black on the bottom line, take a look at your operating expenses to see if there is an area where you could be saving money. Once in a while, it’s a good idea to audit your expenses to see if you are overpaying for some of the basic services you need to run a business, such as trash pickup, utilities or credit card fees. The potential savings could free up some cash flow. For some money saving tips, read this article on easy ways to cut your expenses.

  • Average Collection Period

There are many numbers that can easily go unnoticed on your balance sheet. The average collection period is one of those figures, but it can quickly ruin your finances if left unchecked. The less time your money is sitting on an invoice means more time it could be invested in inventory or other parts of the store. Many retailers have simply stopped offering house accounts to most customers, encouraging them to switch to credit cards. If you’re struggling getting customers to pay, read this article on handling collections from the Hardware Retailing archives.

  • Debt to Equity

Most balance sheets have a mix of equity and debt. Too much debt is bad for business, but too little debt can also be problematic. If you are using your equity wisely, you can use financing to make improvements that will earn you more money in the long run. Debt to Equity is a ratio calculated by taking your total liabilities divided by your net worth. A number below 1 indicates more equity than liability. A number above 1 means you likely have too much debt. It feels great to be out of debt, but realize that you also need to continue to invest in your business, whether it’s through expanding the size of your operation, remodeling your current building or investing in a new product niche.

  • Sales-to-Inventory Ratio

Found on your balance sheet, this number measures inventory turns, showing how much merchandise you have on hand relative to the amount of sales volume it generates. It will tell you if you have good inventory management and strong sales. Find the number by dividing your net sales by your inventory at cost. According to the 2018 Cost of Doing Business Study, that number was 4.1 for the typical hardware store. If your sales-to-inventory ratio is not where you want it to be, you might need to make your inventory more efficient. Two great ways to start are to clear out slow moving items and doing regular cycle counts.

About Jesse Carleton

Jesse Carleton has visited independent hardware retailers, conducted original research on the industry and written extensively about the business of hardware retailing. Jesse has written for more than a dozen of NHPA’s contract publishing titles, all related to the hardware retailing industry. He also was instrumental in developing the Basic Training in Hardware Retailing courses now used by thousands of retailers across the country.

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