Plain and Simple: Bright Business Insights Winter 2019 | Page 5

MEASURE WHAT MATTERS Understand Your Business Better With Key Performance Indicators Oftentimes, companies have controllers who are great “numbers” Think about of all the clearance sales you see. Sure, stores use clearance people, which is terrific when it comes to literally (and exclusively) prices to lure you in, but they are also legitimately trying to get rid of crunching the numbers. The problem, however, is that these money inventory. Liquidating could provide you with the influx of cash you’re whizzes aren’t always aware of how one seemingly minor factor over looking for while allowing you to consider investing in something that the course of a day or a week can impact the company’s overall cash could actually bring money in. flow in a major way. Many business owners struggle to get a handle on every single company function simply because it’s just too easy to To the Budget and Beyond revert to the practice of keeping our heads down and putting our noses One of the biggest business planning tools is your budget. However, to the grindstone. And while this way of working may feel productive, the days of setting a budget in stone at the beginning of the year and nothing is actually being done to move the business forward in the expecting it to be the same 12 months from now are over. During long run. the recession, business owners learned that annual budgets weren’t Instead of treading water, how about zeroing in on ways to grow the business? Measuring your key performance indicators (KPIs) is a great place to start. as useful as they had previously thought. That’s when supplemental rolling forecasts came into play. These tools give business owners the ability to reallocate resources as needed. As a rule, forecasts are done on a quarterly basis from four to eight quarters out. What Are Your KPIs? That being said, don’t totally disregard your budget. It can help you The first step is to zero in on the actions that generate positive results in control costs and communicate company performance. Just don’t set it your business. From there, you will not only track them, you will need and forget it ̶ be sure to update it throughout the year. to aggressively manage them. KPIs can vary greatly from industry to industry. For example, KPIs for manufacturers might include materials, In a Flash production by shift, inventory, overtime or scrap. In the construction A flash report allows you to list out your identified KPIs and see how industry, KPIs could deal with the daily production of each crew you are trending compared to a historical period, which may be as member, equipment run time, daily costs or overtime. recently as two weeks ago. These are normally compiled daily or When determining your business’s KPIs, consider the various ways you weekly. can measure whether you are being successful or not. Once identified, We once had a client who ran his business with accounting reports you can start paying close attention to them every single day. Ultimately, before he discovered the power of flash reports. He first identified your goal should be to use the current information generated by your three KPIs, (sales per day, inventory over 90 days and gross margin KPIs to formulate optimal business-minded decisions. per day), then set and measured daily goals for each of them. It For example, if you’re a manufacturer or distributor, you probably keep inventory with the goal of moving it back out the door as soon as possible. Unfortunately, things don’t always go according to plan. didn’t take long for his revenue to double and within two years, his profitability increased 500 percent simply by focusing on those three numbers each day. It’s not rare to see some companies struggle to pay their bills and yet You can make better business decisions by using the information you have hundreds of thousands of dollars in inventory sitting on the floor. already have at hand. All you have to do is get your arms around the Inventories are major cash guzzlers. data. This information can help you look ahead, make adjustments, act quicker and outmaneuver your competition. We can work with you or your CFO to develop a plan that’s right for you. By helping businesses in this way, we are able to take the stress off of business owners, reduce costs and maximize revenue. Give me a call to find out how we can help you. by: Ben Froese, CPA Senior Manager 545 North Market Street Wooster, OH 44691 234. 249.3454 [email protected]