Few business owners will argue with the contention that we are facing critical times as business owners. Customers are more likely to question prices and hardly a day goes by that we don't read another article about some new financial challenge in the business sector. It's also quite obvious that the mailing industry is not immune from these challenges.
So what can you do to measure and possibly improve the health of your own business? I've dozens of suggestions I could make, but only room for two suggestions in this column. If you follow and implement them today you can vastly improve the odds that you will be better prepared to survive and prosper in the months and years ahead.
Boosting Profitability
In the past 25 years or so I've consulted with more than 500 small businesses. Many of the businesses I've visited were doing quite well and simply wanted to improve. Others, however, were in serious financial difficulty. One of the most common problems I've uncovered among the latter group has been the failure of these companies to obtain regular monthly financial statements - a profit and loss statement and a balance sheet.
The more troubled the company, the more likely it is that they are not obtaining regular statements, or if they are they are filing them away in a drawer, ignoring some of the warnings these statements contain.
Are statements issued every quarter or every six months sufficient? Absolutely not. You need to be receiving statements every single month and you need to set aside 30 minutes every month to study these statements.
An ideal profit and loss needs to have at least three elements:
First, each profit and loss statement needs to provide two columns - a current month breakout and a year-to-date (YTD) summary column.
Second, even more important, these statements need to depict the percent (ratio) of your expenses to sales in a column immediately adjacent to the two columns mentioned above. If your financial statements do not currently provide these ratio columns then you need to fire your bookkeeper or accountant. It is inexcusable. Without available ratios, even an expert would have difficulty determining what is wrong with your business.
Third, your profit and loss statements should breakout, at the very least, total payroll expenses (wages, salaries, medical insurance, employer FICA, Workman's Comp, unemployment insurance, etc.) excluding those associated with a single owner. Total payroll should be detailed under a separate and distinct expense category similar to where you will find cost of goods and overhead expenses.
In the mailing industry, like in many similar industries, labor costs represents the single largest expense of the business and if you cannot measure or learn to control this expense you are indeed facing an uphill battle.
Measuring your Company's SPE
Sales per employee, is a key ratio for measuring productivity. To calculate it, simply divide your annual sales by the total number of full-time equivalent employees used to produce these sales. You should also include yourself in this total. Recognizing that many mailing companies rely on part time employees, it is important to convert the hours worked by each employee into equivalent full time employees.
An employee who worked 1040 hours last year would equate to 20 hours per week (1040/52 = 20 hours per week, or one-half employee. Total up your equivalent full time employees, divide it into your annual gross sales (excluding all postage income) and you will have your SPE.
So what should it be? Well the average SPE in this industry is approximately $116,000. If you find you are about average don't pat yourself on the back. Work to improve this number.
Some of the best and most profitable companies in the mailing industry achieve SPEs of $140,000 and higher. Some go as high as $160-180,000. Unfortunately at the other end of the spectrum we can find companies struggling with SPEs in the $60,000 to $100,000 range. If your SPE is in the latter range this is a danger sign but one that can be fixed with better management.
Next month I will offer more suggestions you can follow to boost your company's profitability and productivity.
John C. Stewart, president of Q.P. Consulting, Inc., Melbourne, FL, has been conducting industry research studies in the mailing, printing and reprographics industries for more than 25 years. His research studies, dealing with pricing practices, operating ratios and wages and benefit practices, have been praised by participants and buyers as vital tools for managing their businesses and helping to boost profitability. His most recent study, the 2008-2009 Mailing Services Pricing Study is a best-seller in the mailing industry and is available directly through this publication. Stewart can be reached at Johnstewart@quickconsultant.com or by visiting his web page at www.quickconsultant.com.
So what can you do to measure and possibly improve the health of your own business? I've dozens of suggestions I could make, but only room for two suggestions in this column. If you follow and implement them today you can vastly improve the odds that you will be better prepared to survive and prosper in the months and years ahead.
Boosting Profitability
In the past 25 years or so I've consulted with more than 500 small businesses. Many of the businesses I've visited were doing quite well and simply wanted to improve. Others, however, were in serious financial difficulty. One of the most common problems I've uncovered among the latter group has been the failure of these companies to obtain regular monthly financial statements - a profit and loss statement and a balance sheet.
The more troubled the company, the more likely it is that they are not obtaining regular statements, or if they are they are filing them away in a drawer, ignoring some of the warnings these statements contain.
Are statements issued every quarter or every six months sufficient? Absolutely not. You need to be receiving statements every single month and you need to set aside 30 minutes every month to study these statements.
An ideal profit and loss needs to have at least three elements:
First, each profit and loss statement needs to provide two columns - a current month breakout and a year-to-date (YTD) summary column.
Second, even more important, these statements need to depict the percent (ratio) of your expenses to sales in a column immediately adjacent to the two columns mentioned above. If your financial statements do not currently provide these ratio columns then you need to fire your bookkeeper or accountant. It is inexcusable. Without available ratios, even an expert would have difficulty determining what is wrong with your business.
Third, your profit and loss statements should breakout, at the very least, total payroll expenses (wages, salaries, medical insurance, employer FICA, Workman's Comp, unemployment insurance, etc.) excluding those associated with a single owner. Total payroll should be detailed under a separate and distinct expense category similar to where you will find cost of goods and overhead expenses.
In the mailing industry, like in many similar industries, labor costs represents the single largest expense of the business and if you cannot measure or learn to control this expense you are indeed facing an uphill battle.
Measuring your Company's SPE
Sales per employee, is a key ratio for measuring productivity. To calculate it, simply divide your annual sales by the total number of full-time equivalent employees used to produce these sales. You should also include yourself in this total. Recognizing that many mailing companies rely on part time employees, it is important to convert the hours worked by each employee into equivalent full time employees.
An employee who worked 1040 hours last year would equate to 20 hours per week (1040/52 = 20 hours per week, or one-half employee. Total up your equivalent full time employees, divide it into your annual gross sales (excluding all postage income) and you will have your SPE.
So what should it be? Well the average SPE in this industry is approximately $116,000. If you find you are about average don't pat yourself on the back. Work to improve this number.
Some of the best and most profitable companies in the mailing industry achieve SPEs of $140,000 and higher. Some go as high as $160-180,000. Unfortunately at the other end of the spectrum we can find companies struggling with SPEs in the $60,000 to $100,000 range. If your SPE is in the latter range this is a danger sign but one that can be fixed with better management.
Next month I will offer more suggestions you can follow to boost your company's profitability and productivity.
John C. Stewart, president of Q.P. Consulting, Inc., Melbourne, FL, has been conducting industry research studies in the mailing, printing and reprographics industries for more than 25 years. His research studies, dealing with pricing practices, operating ratios and wages and benefit practices, have been praised by participants and buyers as vital tools for managing their businesses and helping to boost profitability. His most recent study, the 2008-2009 Mailing Services Pricing Study is a best-seller in the mailing industry and is available directly through this publication. Stewart can be reached at Johnstewart@quickconsultant.com or by visiting his web page at www.quickconsultant.com.
