Business is a numbers game
What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business.
In this series of articles and associated webinars and workshops, by Roland Hanekroot you will learn the basic concepts and get the knowledge need to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.
Format
The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of New Perspectives business development programs, to suggest some “First Steps” you can take straight away to put the knowledge into action.
The Numbers
In the fifth of these articles we’ll look at the numbers and ask:
How do we do business by the numbers and why?
Doing business without numbers is like playing football without a scoreboard. You simply cannot run any kind of business for any length of time without keeping your eye on the numbers.
This is a fact.
You may not like numbers and you may believe you are no good with numbers and you may want to just “get on” with running your business.
Well I have good news and bad news for you:
- Bad news: You’ll simply have to get over your dislike and your hurdles.
- Good news: Numbers are a lot simpler than you think, you don’t need all that many of them and you won’t have to find them yourself.
Measurement
Numbers are important because they are the result of measurement and measurement is what allows you to manage and develop a business and stop it from going backwards.
For example you have to know (measure) what is in your bank account if you want to stay alive… No argument there I imagine? Well your bank balance is a number.
You may also want to measure the effectiveness of the money you spend on marketing and again the answers will come in the form of numbers.
You may want to know if you have enough stock on hand to supply your customers in the coming week… The answer is a number.
You may want to measure why your bank balance has been going backwards in the last three months… The answer will be in the numbers.
I trust I’ve convinced you that numbers are key and you just have to get your head around them. But which numbers?
Lets have a look at one of my Business Bedtime Stories.
A Business Bedtime Story
(The ‘Business Bedtime Stories’ are real world case histories that illustrate this months topic in some way)
Once upon a time… a long long time ago in a country not unlike Australia… Michael had a carpet cleaning business …
Michael owned a carpet cleaning business in Sydney and Michael had ten vans on the road with 16 staff. Michael’s life was full of crises, most of the crises involved his staff not delivering the customer service or quality that Michael’s clients expected.
Michael kept thinking:
“If only I had a simple way to measure “Good Work” and “Good Service” that I can apply across the board and use to manage the performance of the guys ?”
Working with me as his business coach Michael learnt that you can create relative measures for intangible things. For example If you were asked to give a score out of ten for how happy you felt at this moment, where “10” was that you felt delirious and “0” meant that you were at risk of self harming, you might say “6”. If I were to ask the same question again tomorrow you might answer “7”. This would lead us to reach a valid conclusion on your state of happiness tomorrow relative to today.
This same principle can be used to measure all sorts of intangible things in life and lends itself really well to measure quality, service and satisfaction levels.
Self-scoring
Michael and I went to work to create a self scoring system, where a staff-member filled in a small form at the end of each job in which he gave himself and the just completed job a series of scores out of 100 on a number of different measures (for example: “Give yourself a score out of 100 for being punctual”)
The forms would be collated in a spreadsheet and the numbers averaged for each staff member and for the business as a whole. Every week on Monday morning Michael received a report from his admin assistant with the average performance numbers across the company for service and quality in the last week. At the same time Michael had his assistant call 10% of all clients every week and ask them to rate the completed jobs in a similar manner and these ratings were listed side by side with the staff member’s own ratings. The staff members would be given access to the customer ratings as well and as required Michael would sit down with individual staff members, compare notes and generally help the staff improve on their ratings and become more accurate in their self-scores.
This scoring system completely changed the way Michael thought about managing his business and he realised that the way to build a great company and great business value was to step back and create management systems, scoreboards and dashboards.
Five years later Michael sold his business for a price much higher than he could ever have hoped to gain when we first met.
And Michael as well as the new owners of Michael’s business will live happily ever after… The End
Lessons from Michael:
So let’s have a look at what we can learn from Michael:
- First: There are many other numbers that we can focus on besides money in the bank
- Second: Measuring intangibles like punctuality is actually quite simple.
- Third: Measuring an aspect of business allows you to improve it.
Deserted island
Here is what I’d like you to do: Imagine that you are banished to a deserted Island. And for a period of time, say 6 months, the only information you get about your business comes from the weekly mail boat. The mailboat can deliver you only a single piece of paper with maybe 15 numbers on it and the mailboat will wait for 15 minutes to take your instructions back to your business for that week.
What are the 10 to 15 numbers that will tell you how healthy the business is and allow you to make quick management decisions and instructions that you can send back?.
Most businesses will have a couple of common numbers, such as bankbalance and profitability on their mailboat report, but beyond those common numbers every business owner has his or her own priorities that tells him/her what’s going on. For example, in my business I constantly need to know how many inquiries I have had in the past 6 months, because it gives me a really good indication of the number of new clients I’ll get in the next 6 months. In another business a critical indicator might be the average number of days it takes to get paid, because if this number goes up, the business will to run out of cash.
Don’t do it yourself
I mentioned in the ‘Good News’ that you don’t need to be the one who finds the numbers.
This is actually a critical point. You as the business owner are primarily responsible for keeping your fingers on the pulse, but I want to encourage you to delegate the production of the numbers to others as much as possible.
There are a whole lot of reasons why you should delegate getting the numbers to others. This article is not the forum to go into the detail of those reasons, but let me assure you that business owners who truly manage their business by the numbers, get one piece of paper every week, with the critical numbers from their bookkeeper, one from their sales department and one from their production department. It is simply not the job of the business owner to dive into the bookkeeping system themselves to find the numbers; that is not ‘best use of your time’
So start thinking about that deserted island, what do you need to see on that single page mailboat report to enable you to manage the health of your business?
Your First Steps:
As mentioned at the start of this article, here are some resources and actions you can take right away, that will get you started on implementing the principles I discussed:
- Go to the resources page http://tiny.cc/numberslpage the following resources will help you start to manage the business by the numbers
- A sample dashboard with critical numbers of a past client of mine in the catering industry.
- Article about business dashboards by Valerie Khoo in the SMH
About the author and the Masterminds sessions
Roland Hanekroot is a business coach who works with Small business owners to help them have more Fun in their businesses and build businesses that sustain them for years to come. Roland is also the author of “The Ten Truths books for Business owners” (more about the books here: http://thetentruths.com.au)
Every month Roland Hanekroot runs a business development workshop as well as a webinar called “The Small Business Masterminds” more information here and to register for the next webinar or workshop, follow this link: http://smallbusinessmasterminds.com.au/ The first time is free.