When running a business, you could say it’s like running a car, you need every tool at your disposal and up to date reliable information. In business having a meaningful set of financial numbers is a huge part of this, and will help to ensure that: –
• You can see where you are now, and where you are going, even if it’s not where you want to be going, thereby ensuring there are no nasty surprises around the corner.
• You have enough fuel in the tank to get where you want to go.
• The dashboard displays are giving you all the relevant information you need so that you can be confident the appropriate warning lights will come on if you’re facing problems ahead.
The good news is that some Key Performance Indicators (KPI’s) do not require the skills of a qualified accountant to produce. Should you wish to, there is no reason why you cannot measure the performance of every aspect of your business.
As a preparer and communicator of Financial Numbers, we invest a lot of time communicating simply and effectively business finances. In additional to a meaningful monthly management accounts pack, we employ various other methods to assist business directors. Firstly, we produce a one-page report which tracks one fundamental number overt time. Visually this leaves the reader with no doubt about where the business is heading. Keep it simple!
Secondly, a comprehensive KPI pack is produced which reports all the typical KPI’s as well as other selected KPI’s which we feel ought to be flagged up for discussion.
Thirdly, the most effective method of ensuring the numbers are understood, and any necessary action is taken, is simply sitting down with the key people within the business.
So, so much for looking backward! Clearly, it is vital to also look ahead into the future with appropriate forms of short, medium & long term radar. To ensure the business will not unexpectedly run out of cash within the next month and that sales come in for the month as expected, simple and quick sales and cash flow reports must be produced each week.
As for the medium and long terms, you must maintain and monitor your normal rolling forecasts. Business strategy and plans have to be constantly updated, and the necessary steps taken to ensure necessary progress is being achieved.
Every business, of course, will have a different strategy, staff, values, culture, etc. But every business is essentially the same as it takes liquidity, profit, growth to grow sustainably.