IN THE KNOW —
Are you driving your business blindfolded? When driving your vehicle down the road do you glance down at the dashboard from time to time? Maybe check that your speed is okay, you have enough fuel to get you to your destination and there are no warning lights blinking at you? Of course, everyone does, so why don’t all business owners apply the same sort of dashboard idea for their business? Many drive their businesses like they are wearing a blindfold. As owner of your company, you should have a handful of “smart numbers” that give you insight into how your company is doing, and even more importantly, what it’s likely to do in the near future. Perhaps in recent years your business gas tank has been constantly full and so you have been able to operate with generous safety margins. But things are changing, costs are going up quickly, projects are being delayed for a number of reasons and this can lead to a significant squeezing of margins and pressure on cash flow. It is becoming more important than ever to keep a more proactive check on the numbers in your business to avoid being blind-sided by the effects of the changing environment. You should develop your own business dashboard and at least check it on a monthly basis. Commonly referred to as KPI’s, or Key Performance Indicators, these are numbers that are objectively calculated (not opinion based) and can be tracked over time to spot trends. They are likely to be associated to key objectives of the company so that progress towards those goals can be measured. Some are looking at what is happening now, or in the very recent past, and some are focused on the future. Some can be found within your accounting software system and some need to be calculated a bit more manually.
It is becoming more important than ever to keep a more proactive check on the numbers in your business to avoid being blind-sided by the effects of the changing environment.
Some are obvious, like Sales Revenue, Gross Profit and Net Profit. Some may need to be calculated, like Gross Margin or your Current Ratio. These types of numbers give a very quick idea of the current health of your business. A “leading indicator” number may also be very helpful in showing what the near future is looking like, for example your runway of work measured in weeks or months. It’s best if you also have one or two “critical numbers” around which to align the company. A critical number represents a key weakness in the company, that if corrected, will fix a lot of other problems. Every person or team should have some kind of weekly metric that aligns with the critical numbers. Post the critical numbers and the regular updates where all staff can see them. It will act as a reminder that what they are doing on a daily basis should be influenced by wanting to improve that number. To receive a copy of a KPI formulation and monitoring template, email me at andy@tradescoach.co.nz.
The ability to predict is a key leadership function. To have a “smart” number measure or ratio that gives you some insight into future performance of the firm is absolute gold. Would you agree? Imagine you were separated from your business for an extended period and had to phone in for an update on how things were going. What are the measures that will give you an idea on how each part of your business was performing? Andy Burrows, Director of The Trades Coach and NZCB National Partner. I encourage you to take advantage of a free business strategy review session to see how we can improve your business performance. Call Andy today on 027 688 6721 or email andy@tradescoach.co.nz.
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