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| Find Your Business Pulse |
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What's the one singular statistic that indicates whether your business is healthy or not? Is there a metric you can put your finger on which tells you if you're headed for smooth sailing or rough seas? Few executives know such a magic number, but those that do exercise more control over their operations and sleep more soundly.
Just like taking your own pulse, there are ways to monitor key aspects of your business. You probably measure some already. Many business owners look periodically at a set of operating results and statistics. But most of the analysis is spent on lagging indicators, those figures that reveal past performance. To find your business pulse, you need to find leading indicators, those stats that predict future results.
For example, the semiconductor industry uses a statistic called book-to-bill ratio. It compares inbound sales orders to outbound sales shipments, revealing the upcoming rate of growth or shrinkage. Companies using this figure can plan inventory usage , production levels and staff requirements. Other industries use similar statistics to gauge growth.
The hardest part of determining where to find your business pulse is figuring out what objective you want to measure. Some companies are driven by growth; some are driven by profitability; others may have even different goals.
But the effort is worth the trouble. Finding and taking your pulse is an early-warning system. It provides you insight into operational strengths and weaknesses, becoming a basis for decisions and corrective action. It also allows you to macro-manage, to exercise high-level control without getting lost in the details.
Consider the records storage company primarily interested in growth. They use number of boxes received each week as their pulse. A manufacturer of auto parts uses total weight of shipment to track sales steadiness. A building contractor uses total square feet under construction, and a restaurant uses wait time at 8:30pm. Some use more financial metrics like the design firm who follows net revenue per employee.
To find your pulse, start by defining your objective. Sales growth? Profit? Other? This is the dependent variable. Then identify factors (the independent variables) most critical to the achievement of the chosen objective and correlate the two variables over time to find the strongest relationship. The independent variable can be a single number or a ratio, financial or operational. Be sure to derive the date from accurate and timely financial statements. And use consistent time frames when making comparisons between variables.
Once you find your pulse, track it daily or weekly, according to a reporting routine. Establish a target for your pulse, then announce that goal, sharing responsibility for meeting the targets. You may even develop a pulse for business segments that each manager can track. Once the targets are set, compare pulse results over time. If actual results fall short of goal, hold yourself and your teammates accountable. Dig down to the root causes of the problem and take swift corrective action. If you fall too far off goal, recast the target. If, however, you're meeting or exceeding target, celebrate loudly and widely.
Contact Beanstalk at mail@beanstalkcfo.com for more help in finding your business pulse.
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