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25 Sep, 2019
Most business owners will say that they keep a close eye on the numbers, but they’re usually watching the wrong numbers, so let’s look at what you SHOULD be doing to actually move your business forward.
The single biggest mistake is missing the difference between leading indicators and lagging indicators, or to cut out the jargon, between CAUSES and EFFECTS.
Stepping away from business for a moment, I’m trying to lose some weight. Standing on the scales every week tells me HOW I’m progressing, but not WHY. What I should be measuring are the calories I’m taking in, the time I spend exercising, the mixture of food groups, things like that. Those are the CAUSES of my weight change and what I need to measure to (quite literally in this case) move the dial. The scales just tell me how successful (or not) my actions are.
Turning to a business example, SALES are obviously important, but simply looking at a sales figure, or the trend in sales over time, won’t in itself make any difference to the result. You need to measure the activities that generate those sales.
That will vary from business to business, but could be the number of networking meetings attended, the number of telemarketing calls made by your sales team, money spent on google advertising, workshops held – whatever is relevant in your business.
And it’s not difficult to do – just set up a spreadsheet, record the level of each activity undertaken, and see how tweaking each one impacts on your order book. Oh and by the way, you’ll learn far more about what works and what doesn’t if you only change one of the actions at a time. Changing multiple activities together doesn’t show what impact each change is making in isolation.
By measuring those activities, and putting in place concrete plans to improve performance in those areas that show the greatest impact, the sales dial will naturally move in the right direction.
And you will have noticed that they are all things that you have some degree of control over, whereas the financial figures are just spat out at the end. The reality is that most information in a typical monthly accounts pack doesn’t help you change your future performance one little bit.
Obviously sales isn’t the only area to look at. For your company specifically, you need to decide what’s important to track and manage. It could be wastage, productivity, downtime etc.. You will probably end up with 8 or 10 key non-financial measurements that will give you a deeper insight into your business than any accounting report ever will. Even if you begin with just a couple today, and keep on top of them, you will quickly start to see the impact that this can make.
If you’re not keeping an eye on what you’re actually doing in terms of the cold, hard facts, you’ll be wasting money on adverts which aren’t working, you (or your staff) could be spending time on things which aren’t driving the business forwards and ultimately, you’re going to be missing your goals but not knowing why or what can be done about it.
Remember: You can only manage what you measure, so just make sure you’re measuring the right things, and you may be surprised when you find most won’t have a pound-sign in front.
To measure how your actions are working you obviously need to know your starting point. A good way to see where you are now is by getting your FREE Value Builder score, showing your strengths and weaknesses and how you stack up against others in your industry. You’ll also get the chance to reflect on your business and get your head out of the trenches.
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Mike Tombs is a Chartered Management Accountant and Certified Value Builder who has spent his working life in businesses of all sizes from small family-owned businesses in the UK to billion-dollar enterprises in Canada, South Africa and Tanzania. When he returned permanently to the UK in 2007 after a long spell abroad, Mike founded what has now grown into TLA Business Services. Although it started out focusing on routine accounting services, it became apparent that there was an opportunity to provide much more value to owner-managed operations by using Mike’s hands-on experience to help them grow and develop their businesses. He has direct experience in engineering, manufacturing, motor trade and professional services, as well as deep-level gold mining, which there isn’t much call for over here!