Batting practice for the AV Professional
and primer for the novice
10 Page 3
AV Business & Marketing
Give your plan ample
time to perform,
the street with your business & marketing
plan. Produce your product/service. Launch
And keep the following cycle in
Promotion generates > Leads
generate > Presentations
generate > A
Close generates > Sales
Then ask, Is the plan working?
The answer lies in
a 'macro' and
'micro' audit of
your business data.
The macro audit
Assessment begins with the macro numbers of the Profit
& Loss Statement and the Balance Sheet.
The P&L assesses profitability.
The Balance Sheet measures financial
capacity and health.
profit & loss statement
The Profit & Loss Statement is the
undisputed bottom line. The P&L computes the
total revenue collected less the total incurred costs.
This computation answers the question - are you making
Budget vs actual
Initiate each month, quarter, and year with an annual set of projected
profit & loss statements. Use
the projected operating expenses as your operating budget.
Scrutinize actual results that deviate from the
budget. But keep in mind that lower than budgeted
expenses are not necessarily a good situation. For
example, lower than budgeted promotional expense may be
due to a failure to execute an advertising
campaign. Lower than budgeted payroll may lead to
a loss of personnel.
the P&L to manage inventory. Adequate
levels of inventory (the
principal consumer of cash) must be
maintained to fuel sales.
Manage inventory purchases with an "Open to Buy"
budget. The "Open to Buy" is equal to the
projected cost of goods sold less the actual inventory
on hand. Allocate this budget on a monthly or
use of inventory cash
financial yardstick of inventory
Inventory turnover equals the number of times you
annually sell and replace inventory.
Calculate inventory turnover by dividing the annual cost
of goods sold by the
average monthly inventory level. Your turnover
goal should be within the industry average
for consumer electronics retailers of 4 to 9 turns per
The Balance Sheet is an account of what a
business owns and owes - assets vs liabilities.
It also accounts for the value of ownership's stake or
equity in the business.
Fixed vs liquid assets
An asset can be fixed or liquid. Cash is
liquid. A light fixture is not.
The faster an item converts to cash, the more liquid it
Hot selling items are liquid. Dead inventory is
vs current liabilities
A liability can be current or long term.
A current liability is a note or invoice that is due
soon, as in 30, 60, or 90 days.
A long-term liability is due in years not months.
Somewhat analogous to an oil pressure gauge -- use the
balance sheet to assess your cash flow health via the
Current Ratio or the Acid Test. Industry
standards for specialty retail stores are 2.2 for a
Current Ratio and more than 1 for the Acid Test
- The Current Ratio
of Liquid assets (cash + inventory
+ accounts receivable)
to Current Liabilities.
- The Quick Ratio
+ account receivables + short-term investments) to Current Liabilities.
The business power supply
Think of these ratios as the power supply specs of the
A power supply
that establishes the Asset-voltage-pressure
and the Cash-flow-amperage
to drive the system.
Each test assesses the capability of a business to
meets its financial obligations.
compute the value of the owners' stake -- owners
equity -- by taking the difference
between the assets and the liabilities.
It’s the balance of the balance sheet. The
industry standard of owner equity health for a specialty
retailer is 0.485 times the total assets.
Ed's AV Handbook
Copyright 2007 Txu1-598-288 Revised 2022
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