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« COMMERCIAL BOATS AND MARINAS | Main | Preparing for Every Marina Emergency »
Tuesday
Jun282016

ONE MORE REASON FOR GOOD RECORD KEEPING

This article, by Dennis Kissman, was published in Marina Dock Age –  May/June 2014

One topic that I have written and spoken on at many marina conferences is the importance of good record keeping and financial reporting.  I think it is time to revisit this topic as many marina owners do not put enough emphasis on it when conducting their business and making those important decisions that will guide their business and, more importantly, their profitability going forward.

There are several issues that come to mind but I believe the most important is having consistency in how and what you report.  Even if your information is not the most detailed or complete, having consistent information that is presented in a consistent format will allow you to compare from one year to the next on how well you are doing.

Following in importance is non financial information.  We are in a reactionary business and there are a number of outside factors that you have no control over but still have to react to.  This can impact your profitability. Some examples are the weather, inland lake water levels, economy and other recreational activities in your market area.  One of the busiest holidays for boating activity is the Fourth of July.  If July fourth falls on a Tuesday, Wednesday or Thursday, boating activity in that year will be less than if the fourth falls on any other day of the week.  Keeping track of this non financial information in a consistent manner is just as important as the financial information.  Make sure that when you look at what you wrote a year ago it still has meaning.  To help me, I like to make what I call a “cheat sheet”.  This is just a list of the external issues that impact your business.  The one thing that tops the list of issues is weather.  Typically if there is bad weather when a holiday occurs most likely it will negatively impact your bottom line for the year.

I would like to get back to the financial information and how non financial information plays a role in helping make the right business decisions.  I stated how important consistency is in financial reporting but many times the difference in a number does not tell you what is going on in your business.  If you did not understand the makeup of the amount reported for prior year as well as the current year the decision you make guiding your business may be the wrong one.  Let’s take a look at one example, fuel sales, and dissect what is or is not important.  What are the important components that impact the profitability of your fuel sales; gallons of fuel sold, the price you paid for the fuel, the price you sold the fuel for, the weather and local economic conditions and last but not least, the fuel inventory balance.

I want to put some numbers to the analysis mentioned above to show how you arrive at some meaningful information to make a business decision on.

In this example the marina only sold one type of fuel.  If more than one type of fuel is sold a similar analysis should be performed.  The information shown in the first section represents basic information that is from your accounts payable for fuel and your daily sales log of fuel sold.  The information shown in the second section in the table represents what you have recorded as revenue and cost of sales for the period.  The bottom section of the table is the analysis of the numbers that are previously stated in the table.

 

 

Month

 

 

Prior

Current

Difference

Gallons of Fuel Sold

8,740.0

6,928.0

(1,812.0)

Average Sales Price Per Gallon

$4.45

$4.70

$0.25

Average Costs Per Gallon

$3.25

$3.17

($0.08)

Gross Profit Per Gallon

$1.20

$1.53

 $0.32

 


   

 

Total Fuel Sales

$38,893.00

$32,561.60

($6,331.40)

Total Fuel Costs

$28,405.00

$21,961.76

($6,443.24)

Gross Profit on Fuel Sales

$10,488.00

$10,599.84

$111.84

 


   

 

Due to reduction of Gallons Sold

($2,174.40)

 

Due to the Price Increase on Gallons Sold

$1,732.00

 

Due to the Cost Decrease on Gallons Sold

$554.24

 

Net increase in Gross Profit

 

$111.84

 

 

 

 

 

 

You may be asking how you arrive at those numbers to explain the increase in gross profits.  Here are the formulas:

  1.        To get the Reduction of Gallons Sold you take the difference in the top line ($1,812.0) times the gross profit per gallon for the prior month ($1.20).
  2.        To get the Price Difference you take the gallons sold for the current period (6,928.0) times the difference in the average sales price per gallon ($0.25).
  3.        To get the Cost Difference you take current number of gallons sold (6,928.0) times the difference in the cost per gallon sold ($0.08).
  4.        The Gross Profit is the net of one through three above.  Keep in mind as a general rule decreases in gallons sold result in a negative number while price increases and cost decreases result in positive numbers.

Now that you have the financial information analyzed you can apply the non financial information to further explain the change and make changes accordingly.  For example, there are three factors that could have reduced the number of gallons sold.  They are: local economy, weather, or price of fuel which would be a factor in the status of the economy.

This is just one account that we have analyzed but similar types of analysis can be set up for every type of revenue and expense account as long as you understand what the components are that goes into determining the amounts reflected in your profit and loss statement.

This is just one more reason for keeping good records of your business’ performance.  This whole process may sound complicated at first but once you get into it you will see how much easier it is to make the right decisions to improve your marinas profitability.


References (2)

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