Small Business Measurements
It is getting close to the New Year. And in business, the New Year is the perfect time to examine any goals and adjust or create new, more achievable results. I always try to use this time to see where I am, what I’m doing right, and what I should be doing differently.
For years in my business, I tried to measure my goals based upon lofty data provided by industry standards. According to the norm, my profit margin should be over 15% of my sales. Or my advertising budget should be at least 4% of my sales. I had lots of ways to measure my business and my QuickBooks could generate enough more to dazzle a bean counter but only a few made sense to me and most did not.
Finally I learned a hard lesson. I was tracking the profit of my business based upon what my bookkeeper and account were telling me. But, even though I was profitable, I had less and less money. I discovered that I was using numbers that meant nothing to me. Out of frustration, I came up with what is called “Key Performance Indicators”(1) and put them in my quarterly “Report Card”.
My report card was not designed to impress anyone. No language of assets or P&L or debits. No big list of items. I demanded of my bookkeeper and accountant that they generate a one page report card a few rows of quarterly results with 2 years of history. They squawked and told me how my numbers were not giving me the entire story. But since it is my business and they worked for me (I had to gently remind them of that), they eventually agreed that it might be feasible to give me numbers that I understood rather than ones in their jargon.
I don’t need to know what I spend for office supplies or entertainment. I don’t need to know what percentage of my sales were for small insignificant categories. I didn’t need to know what journal entry offset which sale. Those did not tell me how my business is doing. My bookkeeper was used to generating those and my CPA loved to look at them for taxes.
But for my small business? Nope! I wanted to know on a quarterly basis how much of my business sales were from design work, hosting, and then “other” for everything else. I wanted to know how much of my expenses was for hosting costs and “other”. I wanted to know how many clients I have total. And how much money clients owed me for more than 30 days past due. That is my “report card”. It has my “Key Performance Indicators” and nothing else.
With those numbers, I can run my business without getting bogged down trying to figure out why my office supplies is $15 last quarter and $300 this quarter. If it matters, I can delve into the “other” category. But generally it isn’t significant enough to matter.
If you feel guilty that you are not sure what to do with all the yearly reports your accountant generates for you, perhaps it is time for you to demand a regular “report card”. You should know what numbers are meaningful for you in your business. When you see that those numbers are not indicating what you think your business is doing, you can spend some time drilling down from there. But without the ability to comprehend what your numbers mean, or if you are overwhelmed with lines and lines of numbers, you won’t have the time to take a quick look through your numbers to make sure you are on the right path. And you won’t be confident that you can get back to work to make those numbers look even better in the future. Don’t be afraid to take control of your financial records.
(1) I was reminded of the term “Key Performance Indicators” when viewing this Youtube video on goals: “LLWA – Lasley Live Website Analysis”