I talk to many business owners about the numbers and they often have no idea of the numbers in their personal finances let alone their business! It seems staggering that they make decisions based on a whim that everything will be fine rather than making an informed decision based on reliable data.
So what are the key numbers in your business?
The answer will be different for every business but there are some similarities for everyone which is a great place to start.
Your financial numbers are pretty key to your business and something which you should be aware of on a day-to-day basis or at the very least, on a weekly basis. When I say that, business owners often think that they know the answer to that simple question but do they I wonder?
Knowing how much money is coming in is great but do you really know how much is going out and when? There are lots of expenses which need to be taken into account when running a business but which you really do need to take into account. One which seems to catch quite a few out is the tax and National Insurance which is payable. A good book-keeper or accountant will be able to tell you what is due and when so that you can plan for these payments. If you employ staff, these figures could be quite high so definitely well worth planning for.
Another key payment which goes out of your account regularly is VAT. The VAT that you collect is not meant to be your cash flow! So many business owners seem to forget that they need to pay this over to HMRC on a regular basis and when the payment date arrives, they have no money to pay it. A simple solution to this would be to put that money into a separate account so that when the payment is due, the funds are there to pay it. Make a note in your diary to check how much VAT you have charged out and transfer the appropriate amount into a deposit account on a regular basis.
What other numbers are important to your business?
When designing a balanced scorecard for your business, you would look at your customers, your internal processes and your staff training and development so that you see the bigger picture. As the business owner, you will be looking at your business plan and the strategic objectives to ensure that you are on track to achieve them . If you are a manager, then you will be looking at the operational targets and again making sure that you are on track. In both cases, the information will be used to make informed decisions depending on the results you have.
If something isn’t quite going as you imagined, you will be able to look at the data, drill down to find out the specific problem and then decide on a course of action which will bring you back to your original course. By doing this on a regular basis, you will be identifying problems early and take action to deal with them before it’s too late. If you don’t do this, things can very quickly get out of hand and it is far more difficult then to bring things back on track.
I recently did some work with a client who looked at the vision for her business and the associated goals which would take her closer to where she wanted to be. During the conversation, she described a scenario whereby she was required to make a decision within 30 minutes, otherwise, the opportunity would be lost. Now 30 minutes is a very short space of time to gather all the information you need in order to make that decision unless of course you have identified the critical data that is required and then have it to hand when you need it. I suggested that she sit down with the appropriate people and work out the goal – to make a decision within 30 minutes maximum – and then decide which information is critical to have in order to make that decision. Once they had decided on the key metrics necessary, they will be able to put in place a process to make sure that information is always at hand and they can then make an informed decision based on reliable data.
In this instance, the first 30 minutes are critical. Once that time has elapsed, they know whether they have secured that contract or not. If they have, then they have 48 hours to work through the next stage. At this point, different data is required and so this is a two-step process which they have ready to put into action as and when required.
Do you have a process or a scenario within your business which requires specific data on which you need to make a decision?
For many businesses, it is about staff resources and making sure that you have the right people in place in order to complete your orders – whether that be products or services. If you are working with products, then the key data could relate to ordering and stock levels; if you are offering a service, then it could be down to resources and your ability to deliver on time. Having lots of work is great as long as you have the people and products available to service those orders.
If you regularly miss delivery dates then ask yourself why? Is it because you promised delivery but were unrealistic in your estimate of the time it would take? Is it that you’ve taken on work without considering the staff hours involved in delivering that work? Do you have the people available with the right skills?
Your customers are also important in the process and it is vital that you understand what they think about your business and the service you provide. Asking for testimonials is a great way to gauge their level of satisfaction or a short customer survey on completion of the transaction. You may want to keep an eye on returns or complaints – if there are an increasing number about a specific area of your business, then that is an indication that you need to look more closely at that and take immediate action to remedy the problem.
I hope you can now see why the numbers in your business are important and will help you give an amazing service to an increasing number of clients if you monitor them on a regular basis and take action when appropriate.