Building and developing a business is a challenge, but one that can be made easier
if you are able to demonstrate what’s actually happening. Whilst you might know the value of last month’s sales, but do you really know
what your markets are, or more importantly, who the customers are, or how they
found you!
How do you satisfy yourself that you are progressing and that the business is
getting better? It is not enough to rely on “gut feeling” or a “nose for when we are being productive”. As a professionally run business you and your team should be able to demonstrate
that you are moving forward in whatever way is required.
Which indicators get best results?
· Pick indicators that are performance related.
· Pick those that are available for ease
and speed.
· Monitor regularly and frequently for consistency.
· Ensure that people can understand - that the indicators are easy to comprehend.
Clearly there are financial indicators that we are all familiar with, and these
are important. Of equal importance are the non-financial indicators that relate
to the effectiveness of the business. These can range from very sophisticated error recording, to simple salesperson
visit rates.
We can also look at combinations of financial measures with the non financial. Output per employee, stock turns, debtor days and creditor days. The combinations are countless, but they must be relevant, easy to read and to
understand.
Setting your parameters
Ensure that whatever your chosen indicators are they are measured
consistently and regularly. It would be a futile exercise measuring results if you keep adjusting or changing the criteria. This also relates to timing. If you monitor monthly, ensure it is truly the month’s results; not one day early
nor one day late.
Make sure that they are available when they have relevance. There is no point if it is too late to take corrective action. Remember that the selected indicators are meant to help you run your business,
not to cause frustration.
Indicator examples
Let’s consider some examples that apply to nearly all businesses. You have to legally report your turnover. Therefore, monitor your sales monthly,
or weekly if you are in a volatile business. Profit has to be calculated for your reporting. Get this data monthly, which in turn means costs have to be quantified. Repeat this exercise monthly and you will have a meaningful set of financial
indicators.
For the non-financial, don’t forget the value of percentages as ratios. These are pretty generally understood and can be calculated easily.
One of the businesses I ran, which was part of a major publicly quoted company used the following ways of judging performance:
three different methods of margin measurements, stock-turns, debtor and creditor
days, asset turns, and also delivery performance, scrap and reject rates, customer
returns, sickness and absenteeism, accident reporting, headcount level etc.
If you are thinking “Well that’s’ OK for big companies it wouldn’t suit me”, there are always appropriate measuring methods, for instance if yours is
a service business with no inventory or factory, try measuring billing queries as a measure of client satisfaction!
How happy is your team? Look at people turnover and sickness and
absenteeism. Benchmark your business against industry trends. If you don’t have this information to hand, get hold of published data from people
like the CBI.
Using the results
Make your indicators relevant, readily available and easily understood,
but whatever you choose make them useful. With all the indicators in place, and with the regular supply of data, you can start monitoring trends to help you improve and grow your business.
Remember that building a business is not a sprint. It’s a marathon and does require a commitment to continuing
improvement. Good indicators are fundamental to this.
More about Nick Brown
Nick is an experienced and highly successful Director who has built and managed substantial businesses in the
UK, Europe and
North America. He has real and extensive experience in making businesses successful - from
strategic intent to sales development, from building productivity to developing
people teams. He specialises in Director mentoring and is highly focused on achieving
a business owner’s expectations and goals.
You can contact Nick on
07786 540230
nick.brown@talktoSPS.com
