Running Your Business By the Numbers

Payroll as a percent of sales per month, year to date, with comparison to last year. Include all payroll costs including benefits paid by the company, workers compensation, commissions, payroll taxes paid by the company, etc. Include a fair compensation for the owners if they work in the business. The number one reason why profits go up or down is the payroll costs. This is the most controllable cost a company has in the short term. Fixed costs cannot usually be trimmed quickly and cost of goods sold (COGS) is usually consistent as a percent of sales.

What is the ideal percentage? It depends on your business philosophy and what type of equipment you have. If you want to produce almost everything in-house, then it will be higher (with, hopefully, a lower COGS). If you have large presses (20” and up) or high-volume copiers (like Digimasters, DocuTechs, or iGens) then your percentage should be lower, as an employee can produce much more. My experience shows this usually ranges from 30% to 40% for shops with less than $10 million in sales.

Sales per Employee. This is a very popular measurement in industry studies for quick printers. I would caution you to use payroll as percent of sales as a better guide, but I would also use this number to help guide you in figuring out the best number of people to have employed. Part-time employees should be counted based on the how many hours they work (e.g.: 10 hours per week = 0.25 of an employee). Profit leaders in the industry have sales per employee over $125,000. Again, this number can be dangerous to use if you send out a high proportion of your work or you have very large production equipment because, in either case, your sales per employee should be very high compared to the industry average.

Cash Flow

Current ratio. Banks favor this ratio as a measure of your ability to pay your bills. It should be used by all print owners to monitor their cash flow. The ratio is simply calculated by dividing your current liabilities (accounts payable, amount of loans payable in the next 12 months, accrued expenses, etc.) into your current assets (cash in the bank, accounts receivable, inventory, work in process completed, etc.). This number should be more than 1.5. Anything over 2.0 is very healthy. If the number is over 3.0, you may want to look to find ways to take money out of the business or invest in more equipment or space.

Accounts receivable aging. Monthly, you should track your accounts receivables aging by current (under 30 days), 31-60 days, 61-90 days, and over 90 days. Note the percent of the total for each category. A healthy aging should show 90% of your A/R less than 60 days. Of course, there may be reasons in any given month for it to be different, but over time if you allow your over 60 days to be more than 10-20% of the total, you could be headed for danger, especially if sales dip for a few months.

Accounts receivable days outstanding. This number is tracked by many printers as it tells them how many sales days are your total receivables. It is based on average sales per day; e.g.: if sales are $1.1 million per year, that equates to $3,000 per day. If, for example, the A/R is $150,000, then you have 50 days outstanding. The larger this number is the better, but only if you have a small portion over 60 days outstanding. By tracking this number monthly, it will help predict cash flow for the coming month. If you do a lot of cash and carry business, this number should be low and probably will not be as useful as a measurement tool. Most printers, though, have their larger customers charge their jobs, therefore this number can be a great tool to measure cash flow.

Production

Work in process. Record your total work in process at the start of the month. Compare this number to your sales goal for the month. Since we turn over most jobs within 30 days, the beginning work in process will help predict whether you will make sales goal for the month.

Value added. Value added is measured by adding your direct COGS and your production payroll and subtracting that number from your total sales. Then take that number and divide it into the sales to get the percent of sales value added represents. Direct COGS includes paper, inks, toners, copier click charges, plates, buyouts of jobs, etc. Production payroll costs should include the related payroll costs such as insurance, benefits, taxes paid, etc. Ideally, this number is more than 50%. The value added shows not only your production efficiency, but also has a profound effect on your bottom line.