Good Management Information is the Key to Better Business Performance
Can you answer any of the following questions about your business?
1. What single item in your business has the biggest impact on your cash flow?
2. Which one of your products or services contributes the most to the bottom line?
3. What is the value of your business?
4. What is the maximum sales growth that your business can realistically sustain in the coming 12 months?
It is important that fundamental questions like these can be readily answered. If you are confident you can answer these questions then you have an appreciation of the critical financial relationships that impact on your business. As a consequence you are in a much better position to make proactive decisions which can improve your business performance and lead to better cash flows, increased profits, increased business value and a better return on your money.
Because of economic pressures and time constraints, many business owners and managers are forced to think in the autopilot and often resort to running on gut feel. They don’t take the time to undertake detailed analysis of their businesses financial performance. Inevitably this can lead to poor decision making. You need to be able to answer the questions above and understand what the consequences of the answers mean to your business.
Photo: – Brenda Starr
The one main number is not found in the financials.
Businesses are used to collecting the financial information and with their accountants compiling financial reports. But the one main number that is driving the business is not found in the financials. The one main number that will predict where the future of the business is going is not in the financial data.
Because we are measuring the accounting data it is easy to be tempted to use this information to lead and manage the business. The accounting data though is a history statement and is useful to review but you will never find the engine of the business in these statements.
The one main number will be found in the operations. The operations of the business drive the future of the business. But be careful. It is imperative that we understand what is important to the customer to determine the engine of the business.
A great example from a few years ago is Contintental Airlines from 1997. Gordon Bethune became the CEO the airline had as the one main number as :- cost per airline mile. Now whilst this significantly impacts on the bottom line it is not what the customer sees as important. It lead to behaviour to reduce the quality of meals, fittings etc. Gordon changed this to :- on time arrivals. This changed the focus to something that the customer value. The airline went from worst to first.
The one main number was in the operations. Importantly though it was what the customer see as valuable.
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