got: you are also the janitor! You have many hats to wear, but undoubtedly, only one head. To make matters worse, although many owners have strong experience directly related to the services provided by their busi- ness, they oſten lack experience, formal education or training in business management. This is especially true in the finance area, which is so important to effective management. But, as we’ll see later, efficient and effective business management re- quires more than understanding and using financial statements. Remember, the Small Business Administration (SBA) tells us that most businesses will fail and the cause will essentially be, a lack of business management skills. So if you think that business management is a low priority, you might want to take a closer look at the business casualty statistics. You will no doubt get a rude awakening. Why Do We Need to Track and Measure Performance? If you are fortunate enough to have a crystal ball, then it’s not necessary to read this section. But for the rest of us, business managers need some sort of early warning system. In a future article, we’ll discuss how to create and use a budget (that can function as a type of radar) but even a tool as powerful as a budget is not enough. So, what are we supposed to do? A typical visit to our medical provider includes taking tem- perature, checking blood pressure, tests and possibly blood draws for labs. These discovery processes are even more im- portant when the patient is unable to discuss symptoms, such as when the patient is an infant. Irrespective of the age of our business, we can all agree that early diagnosis of a problem is better than finding out when conditions have reached an ad- vanced stage. Just like the medical equivalent of our human bodies, a business has vital signs that are oſten referred to as ‘’business barometers,” also known as business drivers. Although these indicators won’t necessarily tell us the cause, they will at least provide clues that something is happening that may be of con- cern. This alert will point us toward the area(s) where we need to take a closer look. If we’re going to check and monitor these vital signs, we must track specific data, looking for material changes, early warning signs and trends. But Aren’t Financial Statements Supposed to Track and Measure Performance? Ask anyone who has run a business, and they will agree that things can change quickly. Just to be clear, I am certainly not suggesting that financial statements are useless. Although very WWW.ALOA.ORG important, financial statements are, in and of themselves, too late and simply not enough. Think about it this way: Fiscal months include anywhere from 28 to 31 days, and many smaller companies don’t close their books until several weeks aſter the end of the month — even longer at year-end. This means that, when released, the com- pany’s monthly financial statements typically cover a period of 45 days (and more) in the past, plus review time. Moreover, many smaller companies don’t prepare a balance sheet except at fiscal year-end, for tax purposes. It is highly rec- ommended that even smaller firms generate a set of financial statements monthly, to include at least: Income Statement, Balance Sheet and Cash Flow Statement. This can be done efficiently if you are using one of the more popular accounting soſtware applications such as QuickBooks or SAGE 50 (formerly known as Peachtree), although you will need some periodic and year-end adjusting entries by your accountant. Finding out who won the game on the 11 o’clock news is help- ful, but most of us would rather watch the game or at least keep track of the score as it unfolds. Coaches track and use statistics to help prepare for an upcoming game and also to manage a game in play; relevant data can help make decisions and influ- ence the outcome if they act wisely and in time. As business owner/manager, you are the coach! Which Business Barometers/Business Drivers Should We Track? In a service company, some typical business barometers may include tracking such primary activities as number of service calls and revenue per call, per day (overall and by vehicle, by technician etc.). You may also want to track types of service calls by market segment such as: residential, commercial, govern- ment, auto and other. You’ll definitely want to pay particular attention to the source of your leads and jobs. Where are new customers and new business jobs coming from — web, phone book, word of mouth, referrals, flyers, etc. Be sure to be on the alert for scammers pirating your phone number, company name and website. When was the last time you checked? While some of this stuff may not be illuminating on a daily basis, tracking this data over time will provide useful informa- tion, insights and history. You can use this data for productiv- ity analysis, resource utilization efficiency, establishing per- formance standards, setting up incentive systems and, if used constructively, to develop positive motivational tools. Track- ing simple daily averages can be extremely informative to spot trends and replace raw opinion as well as supplement gut feel with fact-based analysis and assessment. JULY/AUGUST 2019 KEYNOTES 25
