Know Your Key Indicators, The Pulse of Your Business
Track, monitor and control your business. Know what’s happening, review your key indicators every day, every week, every month. Then, you can control your destiny, either by holding the course if it’s all working as planned, or by making adjustments immediately if there is any fluctuation. Every day that you wait equals more lost money, opportunities not taken advantage of, and the potential for a small problem to become a very costly large problem.
That’s the beauty of small business–immediate responsiveness. It’s like sailing a small sailboat. Every adjustment you make and every tack you take immediately changes the direction that the boat is going. If you are tracking, monitoring and controlling your business you want to read your key indicators and make adjustments as soon as possible. If you are holding the course, no matter what your navigation is telling you (or because you have no navigation tools) and are not making appropriate and necessary changes, then you are allowing the boat to steer you. That’s not good.
So, what does this mean? Key indicators are the pulse of your business, they report your condition and direction. They may be the number of sales per day, per week, per salesman, per product, or it may be the length of your back-order wait time, when you can deliver the next job. Or maybe it’s the production figures, or the ratio between employees and dollars earned. Possibly, they are frequent reviews of accounts payable, cash in the bank, receivables, profitability, dollars per hour per service person or amounts shipped in dollars or widgets. All these key indicators are based on the type of business you run. A restaurant may count turnovers or seats served, while a manufacturer looks at the number of inventory turns and an airline looks at filled seats. Some track gross dollars, some track net dollars. The idea is to track relevant data and take note of changes and then respond to what it’s telling you.
Every business has four to six pulses that if tracked and monitored will tell you the condition of your business and the direction its going, up or down. Your job is to first determine what the most telling key indicators may be, what alerts you to success or failure. Track these numbers, monitor them, and a few things occur. First, when one tracks and monitors key indicators daily you can track small changes, predict trends, and make appropriate adjustments far sooner than if you were not monitoring your key indicators and thus you are forced to take note when the issues are much larger. Small changes can predict important trends before they become large issues, if you know how to interpret the changes taking place. Large changes point to issues that must be examined and interpreted. Something is either very right or very wrong. If you are tracking key indicators, you will know both small changes predicting developing trends, and large changes indicating an immediate problem requiring attention and input. It is added control.
Couple these key indicators with basic financial statements such as profit and loss statements by week, month and quarter, or, if your business is job-oriented, wouldn’t it be nice to be able to know your P&L on a job-by-job basis? How many of my clients never know any important financial operations or sales information until the year is over and the accountant does the tax returns? Many, far too many, before I get to them and install a key indicator system.
One needs key indicators in all three basic areas of your business: financial, operational, and sales and marketing. That way you can monitor all three important areas. That’s the objective. Make important, knowledgeable decisions as you interpret the vital information you are receiving. That’s the beauty of small business, you can see what’s happening by the end of the day and make adjustments that reflect the changes the next morning. Key indicators support management decision-making with real information, not gut feelings. Now, gut feelings are important, but best heeded when the information supports them.
I hear business owners say they do not have enough time to do this. I say that they must do this. It’s the other stuff that fills their days that must be reduced to be able to implement this style of effective management decision-making.
Track, monitor and control. These things are the steering wheel, the compass, the map, the heartbeat and pulse of your business, the information you must know.
