Are Your Gyroscope and Radar Connected and in Full Working Order?
Some people are born leaders and perhaps you are one of them. Leaders, leading, and confidence go together like strawberries and cream. Leaders have a vision and know exactly where they are heading so why do so many visions fail to achieve the outcome wanted?
Could it be, you are missing some vital ingredient?
I happen to believe you can’t ever have a strong gyroscope or vision and achieve your desired outcome without a sensitive radar which is needed to work out what’s really going on. Your gyroscope gives your heading, but you must make decisions based on your radar feedback.
You Must Measure What Matters
As the leader of your business you obviously need to know what’s happening. Identifying trends, employing the best people for the job, identifying problems and move quick enough to take your business to the next level.
Most or many business decisions have financial consequences and not just of profit or cash flow.
It’s interesting and slightly bewildering that business owners will tend to look at their bank balance as a sign of how well or how badly their business is doing! If you are one of them, please stop doing that and read on as I explain why.
There’s a massive problem which is hiding in plain sight.
A limited company is duty bound to provide up to date accounts and upload this information to Companies House. Almost all businesses must account for VAT, PAYE and Corporation Tax. In most cases a business owner will find an accountant who will diligently provide you with and fulfil your legal requirements.
And herein lies the problem!
Yes, you may look at your bank balance and it may well provide you with peace of mind or put you into a blind panic because PAYE is due, but you need something more.
Annual accounts is a step up from looking at your bank balance but it will only tell you what happened a year and a half ago or at best a year ago if you have your accounts completed quickly at year-end date. In other words, it will give you an historic or lagging figure and not a future predictive figure.
Having management accounts is slightly better than waiting for your annual accounts as these could be done every quarter or monthly. But can we do better?
I believe we can
Cloud based accounting with services like QuickFile are changing the way of moving towards the big league. Business owners can now see, in real time exactly where they are. Profit and Loss, Trial Balance and Balance Sheet is available almost at the press of a button.
How to Predict the Future – Start Measuring What Matters - Key Predictive Indicators
Once you understand your key predictive indicators you can then start to understand exactly how you are performing, but there’s another problem. What are your indicators? What’s critical and what isn’t?
You must determine your trajectory, your vision, your gyroscope before you can identify what’s important. Once you have this, you can then measure and get feedback much like a radar system does.
Allow me to explain, your vision/goal might be to offer the biggest range of products within your sector. Or maybe you’ve decided to deliver the absolute best in customer service. Or your vision is to build the brand strategically.
There’s nothing wrong with any of these goals, but they do mean your key predictive indicators will differ.
For example, offering the greatest range of products and you will want to look at the cost of stock and compare it with the average transaction value, how often people buy from you, how much they spend and what margins you achieve.
Delivering the best customer service and you will probably be looking at staff training costs, customer feedback and whether you get a lot of referrals.
These measurements provide you with something which is up to date and immediate whereas the accounts don’t.
If your predictive indicators are well thought through you should see whether your vision/goal is working or not. This feedback will provide you with information in which to make further informed decisions.
I use and recommend you use a simple system for evaluation. W. Edwards Deming formulated a methodology which is simple and powerful.
Plan – Do – Check – Act
I’ll write about this in another post, so please keep a watch out for it!
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