Back of the envelope financials

When I interview prospective clients there are a few key figures that I am looking for. Specifically I want to know the following for the current year (projected), last year and two years ago. Figures need to be provided to the nearest one thousand dollars.

1. Revenues
   


2. Cost of goods sold
   


3. Gross margin
   


4. Overhead, sales and general administrative costs
   


5. Net income before tax and net margin before tax
   

Within the two minutes it takes to write these figures on the back of a napkin I gain insight into revenue trends, benchmarking within the industry, break even costs, and market position.

But more important, I get to understand whether I am working with someone who understands the need to measure results or someone looking for a magic pill to make things better. My experience has been that business owners and managers who do not know these numbers by memory fail to measure all of the other things that can make a difference in their business. Drucker said, "If it gets measured it gets done." I find this to be a great litmus test to determine who you may be inviting to work with you.

Comments

[Ian Harris]

I also ask them what their most constraining resource is.