Have you ever noticed that people tend to focus on what is thrown in front of them rather than what is important? In your small business you need to focus on what is important, not necessarily what is in front of you at the moment. The news is a great example because it can be so influential. In general the news causes people to be reactionary to whatever someone is telling us. The news can literally run your life if you allow it to by not filtering what is actually important. The same thing is true in your business and you need to focus on what is important, not necessarily every little detail that pops up in your day to day activities.
Know What to Measure
Many small business owners don’t know what they should be measuring which causes them to be reactionary to their financial statements. What happens when you ask for some financial reporting from your bookkeeper? They pop a profit and loss and balance sheet in front of you right? And what do you do? You look at the sales and the bottom line and then you freak out. You freak out in either a good way or a bad way. Look how great sales are or look how bad profits are. Do you care if all of your sales are sitting in accounts receivable? I know that I would because this means I have no cash.
You need to create a list of both reports and financial metrics that are important to you. Not only what is important but what benchmarks and goals are important. How can you possibly know if your business is doing well if you don’t have any clearly defined goals and budgets? You can’t because a business owner that is operating without forecasts and budgets is literally running their business blind.
Measure Results Consistently
Another mistake I see business owners make is not measuring their results consistently enough. You need to set clear deadlines with your bookkeeper for what reports and metrics you want to see and how often you would like to see them. I see business owners become lax and they are too easy on their bookkeeper because they have formed a personal relationship with them. If you need to see your financials by the 10th of each month then tell your bookkeeper that and hold them accountable to hitting that expectation every single month.
I have one client that is a great example of this. When we first started working with this particular client I told them that we could deliver accurate financials by the 10th of each month. They told me they needed them by the 5th and I said that it may not be possible given several factors but that we would do what we could. Most months depending upon how the calendar falls we deliver updated financial reports by the 5th. Our client doesn’t just look at the reports and say ok I trust you, they question them. Why is this number so high or low, are you sure about this, can you show me back up for this etc? You know what is also true, this client is very successful. I enjoy working with them, I learn from them and they mold the way I run my business and how I try and get other clients to run their business. Most business owners are not this disciplined. They are too nice to their bookkeeper and they let things slip. Sure I like when clients are nice but I also like when they hold us accountable so that they can be more successful.
So now you are measuring and looking at business metrics that you actually care about not just those that are popping up. You are not worrying about every little thing that happens but you are focused on the big picture. You are consistently measuring your results and holding your team accountable for delivering you the information you need when you need it. What is next? Making adjustments based on the results you are getting.
It is so frustrating to me when a business owner gets a good or bad set of financial reports and links it to some outside factor like the weather or the economy. Sure those things can have an impact on financials and can even help explain some fluctuations but that doesn’t mean you just sit back and let them win. You react and adjust before it is too late. Better yet. adjust before they happen so that you can maybe counteract them and come out with a positive result. The only way that you can do that is by constantly and consistently measuring your results and learning from the past. Having accurate and updated financial information can help you make adjustments that can keep your business on a profitable path.
Don’t get distracted by little things in your business that don’t have an impact on your long-term success. Understand what is important to you, measure it on a consistent basis and make adjustments as necessary.
Do you know what metrics you should be measuring in your small business?
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