DO YOU REALLY KNOW HOW WELL YOUR BUSINESS IS PERFORMING?
If you answer this question with “Oh! It’s OK” or “Just like everyone else”; without backing that up with the sales, cost or profit numbers your business may be heading for trouble.
Whenever I meet with new clients I ask this general question to get a sense of whether the business owner has a grip on their business. Many times the answers are what I mentioned earlier. Asking follow-up questions such as “why do you say so?” or “how is it compared to others or last year?” proves that most business owners don't have good numbers to explain their thoughts, so it's obvious that they need to work on getting a handle on their business.
On the other hand, once in a while you do run into small business owner who can rattle off all kinds of numbers from his head – the sales this week was 5% more than average; this year we are doing 10% less sales compared to last year or the labor cost has gone up by 4% and so on. You can tell immediately that this person knows his business by heart and will succeed no matter how economy performs.
Realising and acknowledging that you have a problem is a first step in finding a solution. If you don’t know how the business is doing, you won’t even realise that you have a problem let alone have a chance to find a solution.
Part of the problem stems from the need for business owners to wear multiple hats and fight fire all day. They are constantly running business operations with no time to take a step back and assess the business performance. They are RUNNING the business as opposed to MANAGING it. You have to learn to manage your time well by taking actions to free up time for the important tasks of understanding the business performance - See my earlier post for a quick way to start doing this.
After you have freed up some time, you need to allocate at least 15 minutes every day to look at daily reports showing sales, costs, customers and other important data. You should also allocate 2 hours per week to study weekly reports as well as few hours every month for monthly reports. Many accounting systems can generate these reports automatically.
In addition to the daily weekly and monthly reports you need to have good understanding of key parameters important for your business and industry. For example, if you are in the manufacturing business you need to know your labor cost and materials cost. You should know these numbers by heart and track them religiously on an ongoing basis. They are your early warning indicators. You can choose to ignore them at your own peril.
The bottom line is running a small business is no small task. If you are not careful, by staying one step ahead of potential troubles, things can go wrong very quickly and it may be too late to do anything by the time you realise you have a problem.