Many small- and medium-sized business owners are reactionary in their operations – they work and make adjustments based on the results they see after the fact. Most owners who work this way do it because they aren’t aware visual business metrics tools are not available or believe that they would be too expensive or time-consuming to implement. Data needs to be visual and easy to digest for it to be of any use. Owners need to utilize available tools to analyze the accounting data that accrues on a quarterly or even weekly basis for it to be of use in considering whether to alter business practices. For more on this continue reading the following article from Blue MauMau.
One of the biggest problems small to medium sized businesses (SMBs) face is lack of meaningful financial and operating information that is both timely and digestible.
What is timely information?
Most owners/operators tend to work head down, in the business, not on the business. Of course, such an approach is natural, given the typical passion an owner has for his or her product or service. That’s where their interests are, it’s what drives them, and generally speaking, it’s the most fun. After some time period – be it a month or quarter or year – the owner will look at the historical financial results. It usually goes something like this:
“How’d we do?”
“What do we do now?”
An analogy is driving your car without a fuel gauge or odometer – lots of action and movement, but no way to measure your status, progress, and performance. All of us have been conditioned to constantly monitor speed and fuel, because (i) there’s an easy way to do it (look at the dashboard), and (ii) the consequences of messing up are sufficiently painful (getting a ticket or being stuck on the side of the road).
Many businesses, however, find it too painful or difficult to monitor dynamic operating data. They don’t think about it, don’t know how, don’t realize it’s possible, don’t have a system in place to do so, or all the above. So they run the business and react to the results after the fact. This approach is costly in many ways, including expense overruns, lost revenue opportunities, other operational inefficiencies, and falling behind the competition – not to mention the costs of corrective action and the impact on the overall viability and survival of the business going forward.
The most successful businesses monitor dynamic financial and operating data – and in today’s economy, that means daily or at least weekly.
What is digestible information?
Many businesses do not have a convenient way to collect, see, and use their financial/operating data. Those that make the attempt often print out an accounting report after the close of the month. If the business is multi-unit, the unit operators may fax or email an Excel or some other report to headquarters. Each report may be in a different format, with different charts of accounts for similar items. So what happens? The top line items may be reviewed. Some items may be spot checked. Or the whole pile of paper may gather dust until it’s tossed out. Frankly, the effort and time to collect, align, and consolidate data on any significant number of business units is usually far too difficult.
To be digestible, the data should include visual representations – graphics are much easier to digest than endless rows and columns of numbers. The data should be formatted and organized in a way that makes sense, particularly for multi-unit enterprises. Is there a standard chart of accounts? A 1,000-line P&L breeds indigestion. The data must be usable. Is there a way to consolidate unit data so that the enterprise owner or multi-unit zee or franchisor can see the entire business, any region, and any unit instantly, with one click?
Once the owner/operator has timely data in a form that is digestible, he or she can then apply intelligence to the data and make informed decisions that improve business performance. This is where the possibilities get really interesting – and potentially very profitable.