Do you use Key Performance Metrics to run your business?
One of the truisms I’ve come to believe wholeheartedly is that no business owner is good at every aspect of owning and operating a business.
To clarify, the skills necessary to own and operate a business are numerous and varied.
What tends to attract a business owner to operate their own business is a self-belief that they can excel in one or two aspects of running a business and either hire the skills they lack or acquire them over time.
I have also come to firmly believe that many business owners do not understand their business performance well enough, and more importantly, what they can do to make this task easier for themselves.
By law, every year, a business must submit a tax return to the IRS to report its performance. Most business owners outsource this task to a professional, such as a CPA or Enrolled Agent. Some business owners choose to prepare and file their tax return. This is perfectly fine as long as the tax returns are completed correctly, as accuracy is crucial when selling the business.
It will almost be impossible to sell a business if the tax returns are not accurate, as a bank will not consider lending against the business to the buyer/borrower, and the buyer will not take the risk of buying the business if they are not comfortable with the quality of the tax returns of the business.
The Importance of Accurate Financial Information
What’s important, though, is that the financial data of the business provides a goldmine of information.
Tucked in the Profit and Loss or Income Statement is critical information about gross sales, gross profit, net profit, and net income before taxes. This information is then adjusted for taxes to arrive at the net income. However, this document often includes other supporting documents that collect and manage the data that rolls into the Profit and Loss. It is in these documents that the gold mine exists.
With a bit of initial time and effort, a business owner can have their bookkeeper isolate what I call Key Performance Metrics (KPMs). These KPMs should be provided on a weekly or monthly basis, allowing the business owner to understand the direction the business is heading and identify any necessary adjustments. The KPMs will vary with each business and generally fall into specific buckets. Some examples include the total number of calls, the total number of calls to place orders, and the total number of calls to cancel orders.
The KPMs vary with each business, but they only reveal themselves when actively sought out and then carefully observed. There is a great expression – if you cannot measure it, you cannot manage it.
And so that’s my challenge to you. What are your KPMs? Do you not have time to collect this data? If you don’t have time, then delegate it to someone you trust and, just as importantly, set aside a specific date and time each week or month to review it. The numbers don’t lie and will tell you more about your business in the quickest time possible to provide your most significant return on time to manage and run your business.
Would You Like to know the Value of Your Business?
Suppose you would like to know the value of your business or would simply like more information. In that case, this link will allow you to view a sample of a Broker’s Opinion of Value, including a sample business valuation.
If you have questions about the value of your business, please don’t hesitate to contact Andrew Rogerson or call me Toll-Free at (844) 414-9700 or email me at support@rogersonbusinessservices.com.
Further reading
Calculating Capital Costs When Selling a California Business
The Uncertainty Principle when Selling or Buying a California Business