Wednesday, September 30, 2009

"Six Pack" Instruments for Printing

Mention the phrase "six pack" to pilots and they automatically know you aren't referring to a six pack of Coors or Budweiser but rather to six specific instruments we all rely on when it comes to flying airplanes.

My November column of the Quick Consultant deals with these six indicators and suggests that you need to scan them all, rather than fixate on just one or two. Although the artwork is not as clean as I would like, I believe you can still read the titles of each instrument. You can also click on the artwork to see a much cleaner version of the panel.

Unlike pilots who rely on all six instruments when flying in bad weather, printers all too often tend to ignore the instruments (or key indicators) that can keep them flying straight and level - even when they can't see anything outside of the cockpit.

Here's my "six pack" of key instruments for printers: (for approximate ranges, click on the artwork above and you will be able to read the scales clearly.)

  1. Profit & Loss Statements and how frequently they are received and studied are critical; The more frequently you receive them and study them closely, the less likely you are to find yourself inadvertently flying in bad weather.
  2. Payroll Costs as a Percent of Sales; Although it is the most important indicator on a printer's P&L, it is often one of the hardest to calculate thanks to misunderstandings of accountants and CPA's as to what we are looking for.
  3. Paper Costs, while smaller in comparison than payroll costs, can also reveal a great deal about the health of a company;
  4. Sales Per Employee - we talk about this ratio all the time, but many printers continue to ignore this early warning sign, and just figure it will improve next month!
  5. The Current Ratio, which can be calculated using balance sheet data, can be used to predict liquidity and your ability the weather some bad storms ahead;
  6. Owner's Compensation, if not calculated correctly, can be misleading, especially if you make the mistake of including a spouse or partner's compensation into this ratio.

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