How well do you know your own numbers?
I don’t watch Dragons’ Den or Shark Tank often. They just make me cringe.
I end up feeling sorry for the entrepreneurs, but most of the time the unsuccessful ones are really masters of their own downfall. If you can’t pitch, you can’t sell. But these aren’t the only issues on show here, are they?
What really fascinates me about a lot of businesses is how little they understand about their own numbers. Think about it; do you know what your revenues, costs, profits (hopefully) and cashflows were last month? If not, why?
Every business is different, but every business has its Key Performance Indicators (KPIs). These are the tell-tale signs that keep us in check and let us know that all is ok or if there is a worrying trend growing somewhere deep inside the ship.
Dependent upon your business or your business model, your KPIs may range from stock levels, to available working capital, to currency levels, to revenues, to part lead-times or to available resources for any particular day. And the list goes on and on…
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If your business is seasonal, these KPIs may change significantly at different times of the year and, if you’re not careful, critical planning may be wasted if you’re not on top of your numbers at exactly the right time.
To get ahead of this there’s a process to follow and an outcome here;
- First of all, it’s really important for you to take the time to figure out what the KPIs for your business actually are. It really shouldn’t be that hard, and crucially, there shouldn’t be that many of them. If you have more than 5, start again. Ideally make it 3, or less.
- Once you have them, map out what ‘good’, ‘moderate’ and ‘poor’ values for these KPIs are so you’ll recognise them easily when you see them. This also makes you think about what has to occur for these values to exist.
- Then, forecast out what you believe these KPI values will be for a reasonable period of time into the future. These will need to be as accurate as possible without spending too much time on them.
- Finally, find a way to measure your new KPIs as accurately as possible and pick a recurring date each month to review them against your forecasted values.
What you’ll find when you do this is that three things will happen;
- Reviewing your KPIs on a regular basis will get you into the rhythm of understanding these numbers intimately.
- When you review them against your forecasts you’ll also start to become better at forecasting, so over time your forecasted predictions will become much more accurate.
- When you see a trend of KPIs over time you can quite often derive market or other types of intelligence from them that you just wouldn’t have seen otherwise. This is always helpful for planning and strategy making.
This is what I mean by knowing your numbers.
It really doesn’t matter if the most important number to you is ‘how many times the post gets delivered each day’. What does matter though is that you’ve taken the time to figure that out, forecasted what it should be, and can recognise whether the number you’ve measured is good, bad or moderate.
No matter how many KPIs you have, these numbers should always be at the front of your mind. You should be able to tell how well your business is doing at any particular time based upon them.
So, create your numbers, understand them, and always know them. Then, maybe you can impress the Dragons!