Key Steps to know how strong your business is performing
When was the last time you visited a doctor for a full examination on your physical health?
How would you know if you are completely healthy?
It’s not enough for us to know when there’s something wrong with our health based on just what we are feeling or seeing outside our physical body. Tests, examinations and check-ups from doctors are very important if we really want to know the state of our well-being.
Doctors and their teams have the tools, knowledge and experience that we don’t use daily. They have certain measurements as well as assessments that they use to look beyond the surface of our physical body and they look deep to see what is really happening beyond the surface.
Same with doing business. Often in a business, the CEO/business owner may look at the sales, bank account balance or even the number of projects you have in the pipeline to assess how your business is performing.
The danger with that is those variables do not dive deep enough into how your business is performing. We needed some tools just like those doctors so we can dive deep to see if it’s really performing well.
So what do we need to assess on how well our business is performing? We use key metrics and indicators
Using key metrics or key indicators in your company will improve your decision-making process and also help you as the CEO/entrepreneur or business owner to change quickly what is not working and do more of what is working.
The following are key metrics/indicators which will apply to most businesses:
1. Days cash on hand
If you have 5,000 in the bank after making sales of 30,000, that is a different scenario versus having 5,000 after making sales of 650,000. This ratio determines how healthy your cash on hand is in your business.
2. Inventory turnover
How quickly are you selling your products? Do you have too many items in stock for resale? How is customer demand impacting your sales? This ratio assesses sales and how you are re-stocking items for resale.
3. Days sales outstanding
Are your clients taking too long to pay you in full? Are you on top of collections and those who owe you? The lower this ratio, the better! Your company has more funds to use in the company to grow and invest as needed.
4. Budget variance
Why are your results not in sync with the budget? Why are your costs higher than the budgeted amounts? Why are your sales higher or lower than planned? Knowing the reason for variances from the budget will help to improve performance in your company and quickly change the direction of your business when needed.
5. Profit margin
You've made sales. However, were they profitable? How much did it cost you to make those sales.? This ratio is a one that allows you to compare the performance of your business to the industry as well as your competitors. Profit can lead to cash flow so it is important that you monitor this ratio at least monthly.
As a business consultancy agency, we also wanted to make sure that the well being of your business is performing well. With our help, we can guide and teach you in this kind of field. Again, it is very vital to use Key Metrics/Key Indicators in your business to be able to quickly change your business strategy as needed or even be positioned to grasp opportunities timely when are arise.
Let’s build your business and let JLSMEBC add more value in your company.
JLS MEB Consultancy - Design Studio (c) 2021