What information should I use to run my business?
It’s that moment where you are sitting amongst a pile of information – numbers, graphs, returns, production numbers, stock levels, customer surveys…….all with seemingly important information……but what does it all mean......what information should I use to run my business?
These are the questions which are being raised more and more with the rise of technology, as we tend to have an unending supply of data and reports available. The secret to all of this is to understand what material is relevant to the business operations and then, to understand what the information is telling you. From this point, it's then a case of plugging this knowledge into your business strategy and adjusting your business operations as required.
To take this a step further, listed below are 4 frequently reported items – inclusive of what to look for, what these can mean and finally, how these may be used to your advantage.
- With a long history in Banking, there is little wonder why I have lead with this – but experience shows that financial data is incredibly underutilised by many businesses. The data you want to see – monthly – includes sales, gross margin, key expenses categories, net margin (profit), cash reconciliation, debtors, creditors and stock levels. Each business will have a handful of “special” items which are its key drivers, such as the number of billable hours for professionals, patient numbers for a doctor, fuel for a transport company or paper/ink for a printer.
- Having this information means that you can then manage the inputs and outputs to create a better outcome (normally profit). The more that you review this type of information, the more critical some numbers will start to appear – so naturally these are what you measure and monitor more closely.
- When it comes to management reporting I am an advocate of dashboard or exception reporting. Both of these keep the minute detail out of the way – unless it is required to support or explain poor results. Dashboards may be 1 to 2 pages, be clear on the critical operational and financial metrics, ideally have a monthly spot and a year to date cumulative value, and then be compared to a budget or threshold values. Exception reporting then covers anything that is outside a previously agreed “acceptable range”, so if for instance Gross Margin is expected to run above 32%, yet a month’s result is only 30% – then it would be reported along with the reasons why.
- Having this type of reporting means that management have the critical data presented to them in an easy to read and relevant way. This will cut their review time significantly – paving the way for more active discussion about how to gain benefit from the information.
- As an additional tip, I always recommend providing reporting to the management team prior to the meeting – with the expectation that they will have read it prior to the meeting. Once again this focuses more of the valuable meeting time on what needs to be discussed, as opposed to simply presenting the report/information.
- There will be plenty of views on this, but in my mind it is pointless asking customers for their opinions if they are not going to be taken seriously. I’m not saying that the customer’s response or opinion is the only factor that counts – far from it, but it should not be automatically discounted or ignored. To ensure that customer surveys don’t have a detrimental effect, every care should be taken to advise the customers how the material will be used or at least enable them to see that their comments have been “heard”.
- Gaining client feedback can be very powerful, as it means that you are getting a very different perspective of your business – from someone important – your customer! The more effective surveys are typically short and narrow in focus, as lengthy surveys are seen as a chore and often not completed. Surveys can be used for a wide range of questions, from simple service quality to what sort of stock should be held, and naturally feed into your forward strategy.
Sales & Profits.
- Whilst it would be easy to consider these as simply part of the data spread, they are the two most common financial points which people talk to. To put these in perspective, Sales are naturally important as without them it is impossible to make any Profit, but for me Profit is the more relevant number – as this is the net return to the business owner for the work/service/product provided.
- The meaning of this is also clear, if you are a “for profit” business and you are not making enough Profit, then you need to take appropriate action to increase it. As to how you use Profit the choices are endless, but I caution taking all of the profits from a business. Every business needs a level of reinvestment to just keep pace with the environment around it, and if you are growing, then you need more money retained in the business.
- A last point on Profit, often the difference between a viable business and one which is on its knees is only a few months – so don’t wait around, act quickly if you see issues.
So the next time you are faced with an avalanche of material, have the presence of mind to step back and assess what it actually means. If you conclude that it means nothing or has low relevance to the direction of the business, then you may wish to kill off or modify that reporting line.
Efficiency is bounded by the receipt of the relevant information at the right time, reviewed by the correct people and then acted upon as appropriate. Drawing the information you use to run your business back to “what it means” will enhance the outcome.