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Edition 185 – Colour By Numbers

Why do businesses insist on opening the door everyday, do whatever it is they do, finish up at the end of the day – and then not measure whatever it is they do?

Financial reporting in your everyday Xero, MYOB or big box accounting system is often a lagging indicator. For most businesses, the data is only truly brought up to date at the end of the month, at best. That’s simply too late to be able to take corrective action if the month ends up lousy.

I’ve talked in the past about a number of the businesses that I work with where we are recording data, daily, in order to determine what is happening in the business right in the here and now.

Whilst financial reports tell you a result, what you really want to know are the numbers behind that result.

In order to know what you should be measuring in your family business, think about these three key areas:

  1. Volume.
  2. Velocity.
  3. Efficiency.

Volume is all around measuring sales numbers, the level of enquiry, the amount of marketing activity you are undertaking.

Velocity is all around speed. What’s your rate of conversion? How quick to market are you once an order is submitted? What’s the average dollar value of each sale?

Efficiency is around the resources you are employing to generate your final result. If you have a business that is predominantly labour based, you’re looking to measure income vs. labour costs. If you produce a tangible product, what the total value of materials invested in the process, and what’s your level of waste.

Most family businesses have this information in some form of industry specific software programme. Whether it is a medical practitioner’s patient management system or a cost management system for a building company, most family businesses already have most of the source data they need right in the palm of their hands. It’s just they’re not going the final step to:

  1. Ask themselves what they need to measure; then,
  2. Start measuring it; then,
  3. Question the results; then,
  4. Seek advice as to how to improve the results.

In 90 minutes, I can work with most family business owners and managers to determine what it is they should be reporting on in their business. 90 minutes is all it takes to determine what the secret is to the financial and business success in your family business. Yet, for most businesses, they’ll continue to fumble their way through the everyday of business, hoping they generate a good result, but not really understanding why if they do, and why not if they don’t.

The colour you don’t want in your financial reports is red.
If, however, red shows up in your Daily Business Report, the simple question of “why?” can lead to critical analysis of what is, and what isn’t working in your family business.