Key Performance Metrics
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 be a little clearer, the skills to own and operate a business are many and varied. What tends to attract a business owner to operate their own business is a self belief that they can do one or two aspects of running a business very well and either hire the skills they lack or learn these with time.
I have also firmly come to believe that too many business owners do not understand well enough how their business is performing and more importantly, what they could do to make this task easier for them.
By law, every year a business must submit a tax return to the IRS to state how the business performed. Most business owners outsource this task to a professional such as a CPA or Enrolled Agent. Some choose to create and file their own tax return which is perfectly fine as long as it is done correctly; especially if at some point they want to sell 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.
What’s important, though, which I see many business owners missing, is that the financial data of the business provides a gold mine of information. Tucked in the Profit and Loss or Income Statement is critical information about the gross sales, the gross profit, the net profit or net income before taxes and taxes to pay the government to arrive at the net income. However, this document often has other documents that collect and manage the data that rolls into the Profit and Loss and this is where the gold mine exists.
With a little initial time and effort, a business owner can have their book-keeper isolate what I call Key Performance Metrics or KPM’s and have these provided on a weekly or monthly basis to allow the business owner to know the direction the business is traveling and what, if any, adjustments they need to make. The KPM’s 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, the total number of calls to cancel orders.
The KPM vary with each business but they only reveal themselves by looking for them and then paying attention to them. 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 KPM’s? You don’t have time to collect this data? If you don’t have time then delegate it to someone you trust and just as importantly, put aside a specific date and time each week or month to go over it. The numbers don’t lie and will tell you more about your business in the quickest time possible to provide your greatest return on time to manage and run your business.
Would you like to know the value of your business? If you would like to know the value of your business or would simply like more information, this link will allow you to get a free sample of a Brokers Opinion of Value – Sample business valuation
If you have questions about the value of your business call Andrew Rogerson on 916 570-2674.