How To Read Your Small Business Condition

by Tom Egelhoff

When you see a health professional, they usually order a series of tests to evaluate your health condition.

They use these test results to either give you a clean bill of health or to alert you to any conditions that may require treatment or medication.

There are also tests that you can do which will also tell you the health or sickness of your business.


What Numbers Are We Talking About?

You might think I would want to see your financial statements. Profit and Loss, Income Statement, Cash Flow or Tax Returns.

I'll admit that the above will tell me what's going on with the financial condition of the company but there are other numbers you need to be aware of that will greatly effect the above forms if they're ignored.

Below are some additional numbers you should be looking at. .

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Start With Gross Numbers

Every business has peaks and valleys of good and bad business. When I worked with Circuit City Stores®, 75% their weekly business was done between Thursday and Sunday.

I have a friend who sells custom made Christmas Santas. Eighty to ninety percent of her business is done from October to December.

How much business do you do per day, week, month? Keep track of these totals.

They're indicators of marketing and advertising success or failure. Which brings us to the next numbers.

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Advertising: How Much Business Do You Want To Do?

There are many articles on this site that explore the pros and cons of advertising.

For this article we're interested in the answer to one question.

Do you know the average cost of marketing and advertising in your industry?

If you're spending more than the industry average, that suggests that you have few loyal customers.

If you have to spend more to bring customers in they aren't loyal to your business.

On the other hand, if you spend less than average on advertising that might suggest that you do have very loyal customers.

The next advertising question is, where do you want your business to go?

If you want to grow the business then a reevaluation of your advertising goals are in order.

Advertising with the right message in the right place produces customers. Advertising is an investment not an expense.

If your advertising is paying for itself, and producing paying customers, an increase should produce more customers and higher profits.

To increase your business by $50,000 per year with three employees working 22 days each month, each employee would only have to generate $63.00 more each day than they are producing now.

Which brings us to my next point:

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Are Your Employees Trained To Produce?

So, you increase your advertising, bring in more customers to a sales staff that can't handle the increased traffic.

You end up alienating new customers instead of making loyal friends. Well trained sales people CAN produce that extra $63.00 that advertising brings in.

Your customers can purchase products or services just like yours at your competitors business.

They buy where they feel that knowledgeable people can help them.

They also buy where they're comfortable with the image that business projects. Which brings us to:

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How Do You Look To Your Customers?

As mentioned above, customers buy where they feel comfortable. If you're an attorney, do you have new furniture styles in your waiting room?

Are the carpets clean? Are there scratches in the woodwork? What impression are you giving to the customer?

Success and prosperity or penny-pinching and cheap? Provide the best looking business you can afford and the bottom line will reflect the effort.

Your customers appreciate a pleasant purchasing environment...so do your employees.

Remember the $63.00 per day discussed earlier?

Employees will produce more with positive working conditions. Are your employees proud of where they work?

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What Do You Know About Your Customers?

If you've ever received a credit card bill, it probably contained an offer for a product. Do you think everyone who gets a bill gets the same offer for the same product?

No, they don't. The offer you receive is based on your income, past purchases, geographic area and other demographic information collected by the credit card company.

What kind of information are you keeping on your customers? Could you easily pull out a specific group of customers and send a mailing just to them?

What do you really know about your customers buying habits? If you're like most small business owners...not much.

Start compiling all the information you can about your customers, any way you can. Surveys. Focus groups. Seminars.

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The Last Word On Your Business Condition

Finding information about customers is not an easy task.

Have you ever visited someone's house who had ugly carpets that didn't match their ugly furniture and wanted your opinion?

Were you brutally honest with them, or did you tell them how much you admired their taste?

Business owners tell me day after day, "I know my customers, they tell me what they don't like."

My question is, "Did they also tell you they didn't like your carpets and furniture?"

Customers may not always be honest with you in face-to-face interviews.

Find other non-threatening ways to get information from them.

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