What’s Your Number?

numbers

“What gets measured gets managed.”

 It’s hard to argue with that piece of wisdom. That said, here’s another old saw to consider:

“If everything is important, then nothing is important.”

Between these two valuable quotes is a balance and a guideline for business owners.

All businesses have certain numbers that define success. Some, like profit, are universal. Every business must take in more than it spends, so an argument could be made that this number – profit – is a definition of success for every business.

But what about other numbers? There’s certainly no shortage of other things to measure – sales, costs, margins, cash … the list goes on and on.

They’re all important. But don’t forget: “If everything is important, then nothing is important.”

Focusing on a small, carefully-selected handful of numbers and actually doing things to improve them is much more likely to lead to overall success than scattershot oversight of dozens of different numbers.

Some business owners create a scoreboard or “dashboard” of metrics – to pull selected numbers out of the blizzard of income statements, balance sheets and other reports – and single them out for an appropriate amount of attention.

This is how the “What gets measured gets managed” piece comes into play.

So, how do you cut through the scads of potential metrics which might be worthy of your undivided attention, and discover the select few which will truly make a difference?

Think about your business. Two questions:

1)    Are there things related to your specific business model that are absolutely critical to ongoing success? For instance, if you are the low price leader, then cost of sales is likely a primary area of focus.

2)    Are there things going on in your business right now that deserve attention? Examples might include things like declining quality, too much dependence on one customer, or high employee turnover.

If you find that there are specific things that warrant a permanent place on your scoreboard, then add them and leave them there. Or, perhaps you’ll discover that a temporary issue needs attention – so it gets a spot, only until it is resolved.

In most cases, these big-picture, corporate-level “critical numbers” will have underlying “drivers” – activities which must be done to move the number in the right direction. A simple example: weight loss. If your critical number is pounds, the drivers would be calories in (eating) and calories burned (exercise.)

The best drivers measure activities and behaviors, as in this weight loss example. If you want to change a number, you’ve got to change someone’s activities or behaviors.

These are the numbers that deserve a significant amount of time and attention. That’s not to say other numbers aren’t important. They’re just not as important.

Identify and break out your critical numbers and drivers. Get them on a scoreboard for all to see. Talk about them. Teach and learn about them. Assign responsibility for them. Track them. Most importantly, be sure to move them in the right direction.

Your business will be more successful for the effort.

Track Your Numbers Manually

One of the best things to happen to small businesses – heck, to businesses of any size – is computerized accounting.

Can you even imagine someone sitting down with a two-column ledger book and documenting each individual sale, line by line? It’s the way companies did it for centuries, until recently. We’re fortunate to be living and running our businesses in the modern era.

Despite my high praise for computers and all the things they can do for your business, I still urge you to manually compute your most important numbers. That’s right – use a calculator and a pencil and write them down. Every month.

Here’s why:

It’s so easy to nonchalantly look at a report – like a computer-generated income statement or balance sheet – and put it aside. Critical numbers don’t necessarily jump off the page at you.

In fact, your basic reports may not even give you certain important ratios. If you track revenue per employee, the ratio of current assets to current liabilities, and other key ratios, you may well have to calculate these manually.

My recommendations:

  • Determine what numbers, ratios and other key performance indicators are important enough to track monthly.
  • Set an acceptable range – maybe even specific high and low “red flag” limits – for these indicators.
  • Create a routine for this work. Set aside some time, and use the same format each month. You might do your calculations in the margins of your computer-generated reports, you may use a blank sheet of paper, or you might design a fill-in-the-blanks form. It doesn’t matter how you do as much as that you do it.
  • Working from your computer reports, find the numbers that you’ll need and do your calculations. Do it religiously each month.

If everything is within acceptable range, terrific. Celebrate with your team and maybe even give out some sort of reward for a job well done.

When you find numbers that are out of whack, spring into action and do something about it.

Of course, timely monthly reports are key to making this work. If you’re getting your reports weeks after the month closes, that is a problem that also needs to be tackled.

Using this simple and low-tech approach, you’ll quickly develop a “feel” for your numbers and will stay on top of problems while they are still small and manageable.