6 Very Scary Numbers Lurking In Your Financial Statements
(This post originally appeared on Inc.)
Halloween? Bah! That’s kid’s stuff. Sure, you can dress up in your scary costumes and hand out treats and decorate your house with cobwebs and ghostly figures. You can play spooky music, spread fake blood on the sidewalk, get sick on all that candy corn and carve out an evil looking Jack-O-Lantern that looks like Donald Trump. But no, that’s not scary (except for the Trump Jack-O-Lantern). You want to really get scared this Halloween? Really, really scared? Take a look at these seven, terrifying numbers that are lurking in your financial statements.
Warning: this column contains material unsuitable for children and should not be read by women in the later stages of pregnancy or those that suffer from heart related illnesses.
The sun has disappeared and it’s become a dark and cloudy night, filled with the sounds of crows and vultures and voicemail boxes with your unreturned calls. How many days outstanding are your accounts receivable compared to last year? What percentage of your accounts receivables are over 90 days? Over 60 days? Got that creeping feeling? That’s because someone owes you money. And you may need a medium to summon his spirit, because he’s no longer around. Take your cash and investments and receivables and divide it by your current payables. Please tell me it’s more than 1:1. It really should be 2:1 or even 3:1. This means that if things get rough, you’ve got cash on hand to help you navigate. If you’re really on top of your game you’ll have a good six months to see you through. Just one or two bad receivables can wreak more damage than Jason at an overnight camp-out. Always, always make sure your older receivables are at a manageable level and can be written off without inflicting serious bloodletting to your company.
Interest and debt service.
Want to see a terrifyingly real-life blood-sucking vampire? That’s easy. Just come up short on a few loan payments and wait for your banker to arrive at the door. Be careful, my friend. Terror lurks ahead. What happens when interest rates start to go up next year? How will this affect your monthly debt service? Isn’t that balloon payment coming due soon? How come your banker only seems to call you…at night? Most of us have debts that we’ve used to finance capital expenditures and working capital. But is our debt manageable if circumstances change? Could next year’s payments rise to unsustainable levels? Is it there already? If that’s your predicament, you’re going to need more than a wooden stake and a piece of garlic, believe me.
It’s happening more and more. You fall asleep and this terrible, freakishly ghoulish man with claws for hands is chasing you, chasing you, chasing you–if you sleep again, he may kill you! Thankfully, you wake up. But this is no dream! This is your health insurance agent, demanding higher premiums. And after looking at your last bill, maybe going back to sleep isn’t such a bad option after all. How much will premiums go up next year? How affordable are your current plans? Some states will be seeing premium increases of more than 30% – now that’s scary! Have you met with your benefits expert to discuss healthcare options in the future? Should employees be contributing more? Do you offer Health Savings Accounts? Should you consider high deductible plans? Health insurance costs can turn your business into the Amityville Horror if left unchecked.
Have you been making estimated payments? Have you planned out your income for the rest of the year? Are there any things you should be doing to minimize your taxes? Any potential ghosts in your closet? This is the time of year to meet with your accountant. Only he can save you from the IRS zombies that wait to eat your flesh. He is your Rick, your Daryl, your Morgan (and not Glenn, because Glenn got eaten in the last episode….or did he? Hmm…). Seriously, taxes are perhaps the expense that scares a business owner the most, so grit your teeth, show some moxie and meet those fears head on.
Sales revenue by customer.
Want to get scared this Halloween? Watch the Sixth Sense. Want to get really scared? Run a report of sales by customers and then ask yourself what would happen if you lost your top customer. Horrors! Trust me, once this realization hits, you’ll also start to see dead people…except that’s actually you in the mirror. We all love the profits and fortune that our biggest customers bring to our business. But are we prepared for the worst? What’s your backup plan for dealing with a significant loss like this? Bruce Willis ain’t gonna save you from this one.
Salaries and headcount.
Halloween is a great time of year to consider ways to reduce the number of employees in your business. And no…decapitation, hanging, slitting their throats and driving wooden stakes through their hearts are not among your options. Just how many people do you now employ? And how has this gone up in the past year? Are you feeling the pressure to raise wages? Are you prepared for new overtime rules? Do you offer paid time off? New rules from Washington are spurring a frightening trend of added employer costs in 2016 from rising minimum wages to increased exemption levels for salaried overtime. Many companies are revisiting their paid time off rules and even more are raising wages to keep up with the competition. All that, plus healthcare costs, makes for a pretty horrific employment picture. You love your people. You want to keep them happy. But are you prepared to pay? Should your headcount be lower. Should you be outsourcing more? Is decapitation really not an option? Really?
So how are your numbers? Scarier than you thought, right? Well, what else is Halloween good for?