If an interested friend asked you how your business is doing, would the answer be “I have no idea” or “15.7 carrots and four thirds”?
I hope it wouldn’t be the former, although for an alarming number of businesses we talk it actually is. On the other hand, if the answer were the latter, your friend would probably think you had lost your mind.
But how many of us can give an accurate, meaningful answer as to the state of our business?
Another common answer is “well my turnover was £3,000 (or some specific figure) last month”. Is that good or bad?
The fact is that almost everything meaningful in this world is a) measurable and b) can be assessed through measurement. Feelings are probably the one significant exception.
We know prices and interest rates, we know how far it is to the shops or how fast we can travel on a particular road. We know the time or when our next dentist appointment is due. We have an idea how many pounds or kilos we would like to lose or how many calories in a cream bun. We can recognise when our child has a fever and when the water is too cold to shower. Money, distance, time, weight, temperature.
Business, you just knew where this was going to go didn’t you? How do we measure our business and what measurements should we or do we keep? Record keeping.
If you ran out of fuel in the car, milk in the house or money just before Christmas you would know about it. You might not be able to do a lot about it, but you would probably know it was happening. Why is it such a challenge therefore to monitor our business.
The accumulated information I have gathered from business advisors, coaches and accountants I know would suggest that this is one of the main reasons businesses fail. Lack of accurate measurement hand in hand with a lack of the numeric plan that such measurement would fit into.
Confused school measurements caused me to think of this this week. My daughter has just started secondary school and with it I have just started the learning curve of their forms of interim measurement.
She has recently received: 8 verbal praises, 2 positive referrals, 2 notes of positive behaviour, 1 post card commending her work and several stickers in various workbooks for noteworthy work.
That’s great, I think…but I do not understand all the different terminology, but more importantly, I don’t know whether to congratulate her or scorn her for not getting more (not seriously).
When I asked the school, the concerted comment was “she seems to be making a positive start”. I love it, but it really isn’t telling me enough is it?
So in your business, what should you record (and why)?
I’m going to start with some ideas and welcome some additional input.
a) How much you take (revenue, turnover, sales…whichever terminology you like)
b) How much you spend (materials and expenses)
c) How much time you spend (on all business related activities)
In simple terms, if you take ‘b’ from ‘a’ you have an idea of your profit and if you divide this by the number of hours, you can determine an hourly rate for your time. There are a number of further layers to these numbers, but it is the simplest starting point.
But you should also record:
d) How many prospective customers you have identified (on your “must phone” list or your “mailing list” or however you expect to be in contact with them)
e) The number of prospective customers you have to contact in order to statistically get a sale
f) The average value of a sale
g) The number of times that new customer will then buy again from you in a period of time
This information will tell you how many people you must add to list ‘d’ in order to make the revenue figure you wish to make.
This may seem oversimplified, but essentially, nearly all other records you keep will be to refine the answers these 7 records give you.
Finally, for now, the answers are all very well, but as with my daughter’s range of intriguing positive pointers, unless these are then compared with a plan, we will not know the answer to the initial question. How is your business doing?
The dreaded business plan fits in here. Whether you have huge spreadsheets of predictions or just some ideas, they should be committed to paper (or electronic document) and used as a yard-stick for the measurements above. Effectively your scale.
Your baby’s growth was measured against a known scale, so should your business. Your child is checked for health, so should your business.
Do share below, the business measurements you think important to your business and why? (Or the ones you think you should keep…we all have some of those.)
How is your business doing?