How to get the information you need to manage your business
In my last post I started to talk about getting the required information to help you manage your business…
The information you receive through your year-end financial statements is outdated the minute its in your hands. Your financial statements are prepared anywhere from 3 to 6 months after your year-end. How useful can 6-month-old numbers be for decision-making purposes?
Not only is the information old, it’s quite limited. The statements are prepared for outside parties who typically do not require details. If you’re using these statements to make important decisions for your business, you’re basically wandering in the dark.
As a business owner, it’s your job to steer your business and make decisions that will affect future profits positively. This is extremely difficult, if not impossible, to do with the limited and out-dated information contained in your year-end statements.
As big business well knows, managing a business requires access to details so you can analyze your products and services, your cash flow or any other aspect of your operations. This analysis is the only way management can get the information they need to make effective decisions.
Information divided into pre-established categories can shed new light on your business. For example, it’s all well and good to know the profit margin for your entire business for the year—a number you can get off your year-end statements—but what can you do with that information?
By digging deeper, you can discover the profit margin of product A and compare it to the profit margins of products B, C and D. This allows you to make decisions about your product lines in order to increase future profits.
Through a detailed breakdown of information, you can discover:
Opportunities for growth
- Which products or segments to drop or promote
- Where you may be able to, or need to, increase your prices
- Areas for cost reduction
- Problem areas that need your attention
Try getting all that from your year-end statements!
3-steps to obtaining the numbers that will help you grow your business
- Decide what information you need to achieve your business goals.
- Establish a system to collect that information.
- Generate useable information frequently so it is always current.
Small steps to success
There is no end to the types of information you can collect about your business but setting up to obtain the numbers you require isn’t always easy.
I recommend taking small steps and slowly creating information management systems. You don’t have to begin collecting every piece of information immediately. A little is always better than nothing, so just begin with one change and see what happens.
For example, I have a client actively pursuing growth, who decided to make a small step in this direction. After determining the kind of information he wanted, he divided his customers into four market segments. Then he kept track of sales made to and profits realized from each of those segments.
After several months, he noticed something surprising. The numbers were clearly telling him that a hot segment of the market was responsible for a relatively miniscule number of his sales.
Somehow, he’d missed taking advantage of the growth in that particular market segment. His numbers were practically shouting: Here is an easy way to increase profits! Luckily, he’d tuned in to the message soon enough to take advantage of the situation.
The client responded by directing his sales team to focus on that market. Not surprisingly, sales increased substantially.
One small step. One big return. Next year, he can, if he wishes, add to the amount of information he collects to further strengthen his management capabilities.
There is no doubt this process requires more effort on your part. While the actual duties can be delegated, you are the one who needs to determine what information will provide the most benefit, how you will keep track of it, and what reports will need to be generated.
More importantly, you are responsible for putting what you learn from your numbers into action.
But please don’t let the thought of the extra work keep you from making changes to your accounting system. Start collecting some additional information today and see what results.
In my next post I will give you a ‘real life’ example of how applying the concepts from my first few posts were implemented in a business and helped transformed that business.