It’s Time to Take Inventory… of Your Company’s Progress!

If you are a small business owner, you are very familiar with the term “inventory”.  Once a year someone counts the parts and equipment the company has on hand for tax purposes.  Taking a physical inventory often reveals a lot about the company.  Are the parts and equipment that were thought to be on hand there?  Is anything missing that needs to be replaced?  In terms of planning, should the company increase or decrease the amount of inventory kept in stock?  Also, damaged items can be noted and/or replaced, and overstocked items be returned to the supplier.  Taking a physical inventory can tell management a lot about how things are going.

The end of the year is also a good time to reflect or “inventory” how things have gone over the past year in preparation for the new year.  Below is a quick checklist of items a company might want to consider reviewing as the year draws to a close.

• Maintenance Agreements – How many total M/A customers does the company have now versus last year? How many were lost and how many new M/A customers did the company gain?  What needs to change in terms of marketing the agreements?

•  Status of Mobile Equipment – Review maintenance records. Which vehicles are constantly in need of repairs? Should the company consider replacing a vehicle or should they continue repairing it?

•  How Much Debt Does the Company Have? – If the company is not doing it already be sure to create a detailed list of every debt owed (vehicle loans, Line of Credit, credit card debt, past due accounts with suppliers, etc.). Once totaled, update the list every six months.  Is company debt increasing or decreasing?  Debt is a hidden killer; it needs to be tracked.

•  Receivables – This is another area that can get out of hand quickly. Receivables should be tracked monthly but certainly reviewed at least once a year versus the previous year.  Pay attention to trends.  Are they increasing or decreasing and why?

•  Review Customer Complaints – Does the company track complaints? Are they increasing and if so, why?  A system needs to be in place with a specific plan for how customer complaints are handled.

•  Review P/L Statement – Although the P/L statement needs to be reviewed monthly at the end of the year it’s time for a deep dive into the details. Did the company make money?  How much? Were expectations met?  What expenses have changed or will change in the coming year?

•  Update the Company Policy Manual – Hopefully the company has a Company Policy Manual that details how employees are expected to be treated, vacations, tardiness, drug testing, etc. What has changed over the past months therefore what needs to be updated?  An annual review of the company’s policies should be routine.   

•  Set Project Goals for the Coming Year – Reviewing the past 12 months can be very insightful. The next question is what needs to be on the list regarding projects for the coming year.  Here are a few areas you might want to think about.

•  Budget – Create a formal detailed budget for the coming year. As revised expenses are recorded and sales are projected a clear picture will arise in terms of expected profitability.

•  Revisit Labor Rates – As the cost of business changes (as noted in the coming year’s budget) hourly rates charged to the customer will in turn need to be reviewed. If costs go up, rates must be increased as well.  When the new budget is set, update labor pricing.

•  Create a Formal Collections Policy – It’s amazing how few companies have a formal collections policy. No wonder receivables grow!  If the company doesn’t have a formal written policy it’s time to create one.  By the way, once it’s created…follow it!

•  Inspect What You Expect – Set specific goals for field labor and measure productivity against those goals. Be sure to not only measure progress but reward it as well.  Create technician incentive systems for outstanding performance.

•  Measure and Track Debt – Increasing amounts of debt is a silent killer.   Debt repayment DOES NOT show up in the P/L statement!  The interest portion is considered an expense, but principal payments do not.  That is why the P/L can say you made money but there’s nothing left in the checkbook.  Make it a habit to list all indebtedness and keep a running total.  Get out of debt as soon as possible.  Tracking total debt will keep the owner/manager aware of where the company stands.

Reviewing the company’s situation from year to year can be an eye-opener.  You can’t change what you are not aware of.  Likewise, set some specific goals in terms of plans and procedures for the coming years.  Assign tasks and follow up.  A little accountability goes a long way!