MEASURE YOUR OPERATIONS WITH KEY INFORMATION
Building a Better Business From the Inside Out
Many business owners struggle to get their hands in every function of their company . Their entrepreneurial spirit , which is a blessing in so many ways , leads them to put their heads down , figure things out and get things done .
But as your business grows , you need to tap into more data – from the shop floor or job site , to production meetings and the sales team . You need a person who knows finance and operations . A person who understands where in the business ’ money is made .
Numbers and operations go hand-in-hand , and successful businesses blend the finance , operations and sales functions . You need to focus on the right things – that critical financial information that drives each aspect of your business operations .
Focus on Your Key Drivers
There are always three or four things that generate positive results in a business . You need to figure out what yours are , track them and aggressively manage them . Recognize that these key performance indicators ( KPIs ) vary greatly by industry . If you ’ re in manufacturing , they might have something to do with production by shift , materials , inventory , overtime or scrap . If you ’ re in construction , it might be the daily production of each crew , equipment run time , daily costs or field overtime .
I once found a construction company owner looking out the window at the equipment yard during a meeting . When I asked what was on his mind , he said he was counting trucks . He knew the more trucks that were in the yard , the less money he was making . His KPIs are the number of trucks on job sites , the overtime he pays and the cash he has in the bank – and these drivers are always on his mind .
Think about those things that tell you if you ’ re being successful and pay attention to them every day . If you ’ re waiting for accounting reports to make decisions , the data you ’ re using is 45 days old – and you need to be able to gauge your progress much quicker than that .
Know Where Cash Hides
If you sell or manufacture products , chances are you have extra inventory eating into your precious cash . When you add inventory , you do so with the intent of using it and selling it . Once you spend the cash , you need to sell the product . The faster you do , the more efficient you are at managing your inventory .
Some businesses that are struggling to pay bank loans and other debt have hundreds of thousands of dollars of inventory sitting on their shelves . Do these businesses need to liquidate ? Retailers have clearance sales so they don ’ t hold on to inventory – it ’ s something you might want to consider . That way you can have more cash to invest in something that you can actually make money on .
Look Beyond the Budget
Budgets have been instrumental in business planning for decades . But long gone are the days of setting a budget in stone at the beginning of the year and expecting it to still make sense in 12 months . A budget is outdated as soon as the ink is dry .
When the economy tanked a few years ago , some businesses learned that annual budgets weren ’ t as useful as everyone thought . That ’ s when those businesses supplemented their budgets with rolling forecasts . This forward-looking view of your business allows you to reallocate resources as needed . Forecasts are most often done quarterly for anywhere from four to eight quarters out .
Your budget still serves a purpose , so don ’ t go scrapping it just yet . It can help you control costs and communicate company performance . Don ’ t set it and forget about it . Be sure to update it throughout the year .
Manage With Flash Reports
A flash report is compiled daily or weekly . It lists your identified KPIs and shows how you are trending compared to a historical period , which may be as recently as two weeks ago .
One owner I know ran his small business off accounting reports before discovering the power of flash reports . He identified his three KPIs , ( sales per day , gross margin per day and inventory over 90 days ), then set and measured goals for each of them . Within two years , revenue doubled and profitability increased 500 percent – simply by focusing on those three numbers daily .
One way to strengthen your business is by using the information you have to make better decisions . Use it to look ahead . Act quicker . Make adjustments . Outmaneuver your competition . But none of this is possible if you don ’ t know how much money you made yesterday – that ’ s one KPI every business owner should measure . by : Kyle Stemple
CPA , CGMA , Principal 122 Fourth St . NW
PO Box 1020 New Philadelphia , OH 44663
( 330 ) 308-6883 kyle . stemple @ reacpa . com