It's extremely important to measure progress in your small business. There are so many ways…
Could You Take a Good ‘Business Selfie’ Right Now?
Money is a result. It requires activity, a product to be sold or a service rendered in order for money to be generated.
It is a core function of your business to generate that result, so it is critical for you to have a clear understanding of the levers in your business. Your goal should be to reach a position where with a tweak here and an adjustment there, you can increase your income or lower your costs to boost your profits and generate more cash in your business.
Take a ‘business selfie’.
I’m no accountant, so I have an extremely simple approach to profit and loss statements. At the risk of providing too simple an explanation, here’s my take on it:
“Marketing drives sales. Sales drive revenue. Revenue and costs drive profit.”
It’s as simple and as complicated as that! I know this is all very obvious, but it’s sometimes easy to forget the importance of these fundamental principles when we get lost in the minutiae of the day-to-day running of our business. We should all form the habit of constantly keeping a close eye on our income and expenses. If this is not something you can manage to establish, then at the very least, it is vital that every now and then you take a snapshot of your business, or to be up with the current terminology, how about we call it a ‘business selfie’.
Taking a ‘business selfie’ that is in frame and in focus instead of chopping off three-quarters of your head or looking straight up your nose or only capturing those emerging triple chins requires you to have an understanding of the Key Performance Indicators (KPIs) in your business.
Test yourself. Stop and think right now whether you really know, to a reasonable degree of accuracy, what the state of your business is at this very moment.
What are your KPIs?
There are a number of KPIs that are common across all businesses and then, of course, additional elements that are specific to different industry sectors and then even more that are specific to exactly what you do. It’s important for you to identify the factors that have the biggest impact in your business. The following provides an example of some KPIs to show you what I mean:
- Number of leads.
- Conversion rates of leads to customers.
- Number of customers.
- Number of purchases per customer.
- Average purchase value.
- Number of sales calls made.
- Level of marketing activity.
- Number of social media posts.
- Number of website hits.
- Bank balance.
- Debt level.
- Staff utilisation.
- Overtime paid.
- Hours on timesheets.
- Number of sick days.
- Number of accidents/safety incidents.
- Team effectiveness and morale.
- Product returns/failure rates.
- Customer complaints.
- Effectiveness of systems and processes.
- Debtor days.
- Dividend payments to shareholders.
- And many more…
Develop a list of the important KPIs in your business, get clear on what those values need to be in order for your business to be successful and then monitor them on an ongoing basis. This might sound like a lot of work, but there is incredible power in knowing your numbers. Imagine if you could know in advance you will face a cashflow crisis in three months-time because your lead generation dropped off a week ago; this gives you the power to take action before it’s too late.
Leverage your KPIs.
Archimedes, the Ancient Greek mathematician and engineer, famously said:
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
Your business KPIs are a bit like this; once you know what they are and where they need to be, it creates leverage in your business that empowers you to create change. Knowing what really drives success in your business means you can be laser focused on what truly matters and not be distracted by all the other time-wasting fluff that will take care of itself, as long as you make sure your important KPIs are where they need to be.
Commit to driving your KPIs and your next ‘business selfie’ might look a whole lot more attractive!
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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