Ruth King Discusses Financial Benchmarking

Ruth King, channel manager for and president of Business Ventures Corp., talks with an Aire Serv franchisee about financial benchmarking during the group’s annual meeting in Lake Tahoe.

LAKE TAHOE, Nev. - Are there really business owners who are afraid to look at their financial statement each month in fear of what they might learn? Yes, according to Ruth King, channel manager for and president of Business Ventures Corp. King was a featured speaker at the Aire Serv Heating & Air Conditioning meeting in Lake Tahoe. She said business owners need to look at their financials constantly and use financial benchmarking to establish and maintain goals.

She noted that benchmarking “forces you to look at financials, helps spot minor issues before they become a major crisis, forms a basis for comparison, provides for better profitability, and draws attention to the things that really matter.

“What you pay attention to generally gets better - it’s not rocket science.”

She said some traps that business owners fall into is thinking they are profitable because they have a lot of cash, but that is not so. King asked, “Do you have enough cash to pay all of your bills? You should have at least two months of cash without depending on any more cash coming in. The choice is yours and it depends on what you are comfortable with.

“A rule of thumb is that if you are a $100,000 company you should have $10,000 on hand.”

If the ratio of cash to revenue is out of whack it, might be due to having too much debt, lack of productivity, high inventories, and slow collections. She told of a seemingly successful client who didn’t have money to pay her bills so King “made” her take a bookkeeping class. The advice worked.

She said a good ratio of current assets to liabilities is 1:8, which means that for every dollar an owner has in liabilities, he or she should have $1.80 in current assets. Increasing the ratio may also increase the profitability. King also cited several other ratios that business owners should keep abreast of including inventory-current liabilities; accounts receivable-accounts payable; debt-equity; long term liability-equity, etc.

In order to have healthy ratios as a part of financial benchmarking, King suggested ways to increase cash flow and revenues. She is a proponent of using service and maintenance agreements as a good source of cash flow. “The money you collect for service agreements should go into a separate account because it is for work you haven’t actually performed yet,” she said. “Call it your rainy day fund.”

She also said there are ways to increase revenues without increasing costs. One of the most logical ways is to increase closing rates on each sale because this increase does not add any costs and is a better alternative to decreasing prices in order to increase sales.

In closing, she added that another source for increasing revenues at little or no extra expense is by using current customers to bring in referral business.

“Why not use a happy customer to bring in new business?” she asked.

Publication date: 03/03/2008

Did you enjoy this article? Click here to subscribe to The NEWS Magazine

Recent Articles by John Hall

You must login or register in order to post a comment.



Image Galleries

2015 ACCA Conference

Images from the 2015 ACCA Conference in Grapevine, Texas. Posted on April 8, 2015.


NEWSMakers: Mark Crockett
Mark Crockett vice president, Crockett Facilities Services, explains the importance of technician training, the value of being a top minority-owned company in the U.S., current projects the company is managing, and much more. Posted on April 24.
More Podcasts


NEWS 05-04-15 cover

2015 May 4

Check out the weekly edition of The NEWS today!

Table Of Contents Subscribe

Legislation and Regulation

What legislative/regulatory issue is most important to you as a HVAC business owner?
View Results Poll Archive


2015 National Plumbing & HVAC Estimator

Every plumbing and HVAC estimator can use the cost estimates in this practical manual!

More Products

Clear Seas Research


Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications, Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.


Magazine image
Register today for complete access to Get full access to the latest features, Extra Edition, and more.


facebook icontwitter iconyoutube iconLinkedIn i con