Thanks to the Enron affair, I am reminded of the story of the retailer who turned his financial statement over to his consultant for analysis. The only problem was that the statement read “Cash flew, $150,000.
“There seems to be an error,” the consultant said. “That should be cash flow.
“No,” the retailer replied. “Flew is correct. It’s in the Bahamas with my former bookkeeper.”
All jokes aside, as Congress is finding out, employee misbehavior at even the highest levels is more common than most entrepreneurs will admit. Nor are all of the financial follies deliberate. In a majority of the cases, it is the result of poor supervision by the boss.
Bookkeepers can provide a good example of how costly errors can be generated with the best of intentions. I first realized this when a dealer client handed me his financial statement as of Nov. 30, one day in March. He told me that this was his most recent set of figures. In fact, he didn’t realize how out-of-date they were until I pointed it out to him.
“You’ve got to take in over $100,000 in cash this month to meet your accounts payable obligations, and to pay cash expenses such as wages to employees,” I said. I also noted that well-run dealerships get their figures within 10 days after the end of the month, depending upon how long it takes for them to get their bank statements.
Another bookkeeping area where speedy and accurate numbers can make a difference to a retailer can be found in the accounts receivable column. While some firms maintain a daily watch on these, others spot past-due accounts monthly at least. It makes no sense to tell a supplier that the money you owe him has been loaned out to a retail customer for a purchase from your store.
There may be other areas where a review of accurate, up-to-date financial statement figures can make the difference between success and failure of the business. None are more important, however, than keeping an eye on the dollar amount of inventory.
For vast numbers of merchants, this represents the biggest portion of the business investment.
Dividing the average inventory for a period into the cost of goods sold for that same period will give the merchant an idea of his inventory turns, and what terms of sale he should try to get from his or her suppliers.
These clues to more profits may seem like old hat to some in the trade. But it’s about time for all involved to get the message.