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Two Easy Ways to Measure Profits… July 3, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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Measuring Profits...Do you wonder what tools are most useful for operating your business?  Do you wonder why you spend a small fortune on preparing your financial statements? 

Any good entrepreneur is very busy working on their business and at times finds it difficult to spend a few minutes doing simple calculations to assist them in reading their statements.   These simple calculations will help you make better operational decisions over the next 120 days.  Two of the easiest and most beneficial calculations are the sales per employee and profit per employee. 

Easy to figure sales per employee….

Sales/Number of Employees (Total Number of Employees)

Easy to figure profit per employee….

Net Profit/Number of Employees (Total Number of Employees)

 For a small marketing company (sales under 1 million) industry standards for sales per employee for the last twelve months is $78,162.  In 2007 the sales per employee checked in at $298,642. 

Sticking with my example of a small marketing company I see that my profit per employee over the last twelve months is $6,104 per industry standards.  In 2007, proft per employee was $34,187.

As you measure profits per employee and sales per employee, you can improve your overall profitability perhaps by sharpening sales skills or encouraging your team members to advertise more services for existing clients.

Looking at my marketing company for some positive data, the marketing industry has done a marvelous job manging their receivables.  In 2007,  it took 19.50 days to collect their receivables and in the last twelve months, industry standards state that the industry is taking 11.09 days to collect their receivables.

I would love to hear from you!  I am planning on doing webinars for all kinds of different industries to help small business owners really use their financial statements to make better operational decisions.  I would like to show other easy to calculate ratios.  And then compare those results to see where your business fits into the industry as a whole.  Let me know your thoughts on this and what industries you would like for me focus on.  I look forward to hearing from you.

For more information on running a successful small business, please visit us on the web at www.UniversityForBusiness.com.

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