KNOWING YOUR KEY PERFORMANCE INDICATORS

QUESTION: “AS A SMALL BUSINESS OWNER, WHAT CAN I DO IN THIS PRESENT ECONOMY TO PROTECT MY COMPANY?”

Know Your Key Performance Indicators!

If you are not keeping score, you aren’t going to make it. You must know your numbers! You can start with your monthly income statement and balance sheet. You must identify the Key Performance Indicators (KPI) of your business. What are the trends of your KPIs; how do the current month’s KPIs compare with the monthly current year to date numbers and with the same period last year? Do the trends show growth, decline or stagnation? How do you compare to similar sized companies in your industry? Possible Key Performance Indicators of your company may be:

1. Sales Growth
2. Gross Profit Margin Percentage
3. Net Income Percentage
4. Debt to Equity Ratio

KPIs are not always financial statement measures that are predictive of results but may be predictors of the future profitability of your business. You must answer the question: if my business is going to change, what would be the first indication; learning to anticipate instead of reacting. These KPIs will include:

1. Number of days’ order backlog
2. New bookings
3. Dollar volume of quotes/bids
4. New customers

Be More Cost Effective!

Know exactly how you make money; identify priorities, review budgets, right size and cut non-essential costs. Fine tune the familiar and redefine the processes. Remove all cash outlays that do not generate revenue. Accountability from the bottom-up; assess employees. Reduce all non-employee expenses by 10 to 20%. Use incentives to motivate, encourage behavior and retain employees. New equipment and other capital outlays must be justified; consider postponing new capital investments.

Go For Revenue Opportunities!

Listen to your employees, existing and potential customers for opportunities. Seek out the best of advisors; be flexible and ready to change. Explore all revenue opportunities; especially non-expensive marketing activities: blogging, podcasting, refresh web-site, vertical and horizontal expansion of sales. Be proactive; invest in training your sales force!

Manage Cash!

Cash is King! Manage your transactions for greater liquidity; position the company to operate from a position of strength. Expect higher taxes, slower accounts receivable payments and tightening credit; reduce inventories and collect receivables as aggressively as possible. Communicate to your banker regularly; know what is working and acceptable; ask to be introduced “up”. Now is the time to establish second relationships with other banks.

You Must Change Now!

The future is unpredictable; being prepared is the best way to “win the game”! Use assessment tools; benchmark goals; set times for achievements (deadlines)! Challenge your current thinking, maintain a great attitude and take action. Remember the things that brought you success in the past are not necessarily going to carry you forward.