We all run our businesses based on what we think we know, unfortunately for most business owners, it is what they don’t know or don’t track that can hurt them. My very first client, Nancy, was an amazing business woman. I worked with her for almost 12 years until she sold her business and retired. She was more than just my first client; she turned out to be a great mentor and teacher.
Nancy taught me more about business and the importance of tracking Key Indicators than I ever thought I needed to know. She not only always knew within about ten dollars; plus or minus; what her profit was for each month, but she could also tell you how much her payroll was, and how the company profits could be directly attributed to each of her employees, which networking events gained her new business and how much each marketing campaign not only cost, but what the profits directly related to that campaign was. She did all this because she understood her financial reports. And because she tracked everything. She paid attention to her Key Indicators.
When I first started working with her I honestly thought she was a little strange. I couldn’t understand why Nancy cared if payroll was up or down when her payroll was already around $75K a week. I also didn’t truly see what the point was in tracking the number of lunches each sales person had with current or potential clients. After about six months of working with her it finally dawned on me that the reason she was tracking this information was because it had a direct correlation with her profits each month. When the number of sales lunches went up, so did the profits. Since her payroll directly correlated to the number of clients she had, she could tell if sales were off just by looking at her weekly payroll numbers.
This got me wondering why all of my clients didn’t track these numbers. It took me several years to understand it: most business owners only want to know what their bottom line was. How many sales were made and what was the profit or loss for the year. Most don’t even know what those numbers were until they did their tax return. By then it’s too late to make any adjustments to correct any problems.
Key Indicators are like the instruments on an airplane’s instrument panel. By watching all the dials and gauges, the pilot can stay in control of the airplane. By tracking her payroll each week, Nancy was able to tell if her sales would be affected and also how effective her sales people were. She could then check the number of meetings they had that week and be able to accurately predict the payroll for the following week along with sales for the following week.
Alpha Omega Accounting is offering a new service that will allow you to quickly see the Key Indicators for your business in one easy to understand report. If you would like to see a sample report or would like us to create one specific to your business to help you track the important Key Indicators to keep your business flying straight and true, please either call the office or drop us an e-mail.
Over the next few weeks I will be discussing how to track each Key Indicator and what it means so if you have a question about what Key Indicators you ought to be tracking, let me know in the comments below, because I am sure others will want to know too.