By Steven Ingram
Measurement is not just for big business
The quote “You can’t manage what you don’t measure,” was made famous by business management expert Peter Drucker. His point being, if you’re not measuring and tracking your progress, what you’re doing isn’t much better than guessing. Some think that this way of thinking is primarily for big business and corporations. A strong case can be made, however, that measuring and managing what you’re doing is even more critical for small businesses.
Small businesses generally don’t have the depth of resources of their large, Fortune 500 counterparts, and don’t have the luxury to easily recover from bad decisions. Many small businesses only have a small number of major decision makers, sometimes only one, and this person’s decision can make or break the company.
If you own your business, you know how stressful it can be to juggle everything. In addition to business owners wearing multiple hats, the business owner and the business sometimes appear as if they are one in the same. Reviewing the performance of your business is similar to looking at yourself in the mirror and being honest with what you see. Unlike large organizations, a small business is often an extension of the owner’s identity, effort, and sacrifice. When numbers are examined, they can feel less like neutral data and more like a judgment of the owner as a person.
Tools for a competitive edge
Several organizations understand the importance of providing business tools to small businesses. SalesForce, the world’s largest customer relationship platform, has specific applications for small businesses because they recognize the importance of small business owners tracking customer interactions throughout their lifecycle.
QuickBooks is accounting software designed to keep track of income and expenses and has been implemented by thousands of small businesses for over 40 years. For small businesses, information management is crucial. It can help streamline operations, improve decision-making, enhance customer service, and increase revenue. Simply put, effective information management can give small businesses a competitive edge in the market.
In an unpredictable world, get control
As an entrepreneur, it’s important to see what works at your business and what doesn’t. Business is unpredictable, and the only thing that you can count on is that everything continuously changes. You need to constantly measure your business performance, so you know what’s successful and what isn’t.
While it’s possible to keep your business open without managing key information, your business will not be as successful, efficient, or profitable without measurements and managing those measurements.
What should small businesses actually measure?
Because every business is different, there are an infinite number of KPI’s (key performance indicators) that can apply to small businesses. For example, service contractors should measure planned hours and cost versus actual hours and cost while technology firms should measure activation rate and system uptime. Here are some areas and information that all small businesses should measure.
- Financials: Review your business financial statements, specifically the income statement, balance sheet and cash flow statement. The income statement measures the profitability of your business during a certain time period by showing your business’s profits and losses. The balance sheet shows your business’s financial health, measuring how much you owe and own. The cash flow statement shows how liquid cash is at your business. Even if money is not a personal priority for you, money is important when you run a business.
- Customer experience: Check your customer’s satisfaction. If your customers aren’t satisfied after buying from your business, they probably won’t do it again. Customers help you improve our products and services.
- Employee performance: Conduct performance reviews. You can’t forget about your employees. They are the greatest asset to your company. Without your employees, you would have a hard time running and growing your business. One way to measure business success is through conducting performance reviews to see how your employees are doing. Performances reviews are an excellent tool to have a two way conversation with employees on what’s working well and what can be improved. It’s an important step for managing the employer – employee relationship.
- New customers: Knowing how many new customers you get is a great way to measure your business’s success and predict growth. If your business is stagnant with the same 25 customers, you might need to kick up your marketing strategy.
- Market analysis: Sometimes, you need to know how the market is doing in order to measure the success of your own business. If you and your competitors aren’t doing well, it might be because there is a lull in the market. A business owner might be apt to beat themselves up if revenue and profits are down. Decreased revenue and profitability might be a result of the national market and out of your control. Decreased profitability could be a good time to introduce new products if demand for your current product or service is put on hold.
In conclusion: Measurement matters
Nearly all businesses will go through stages of success and failure, growth and decline, good times and bad. In order to have more positive outcomes than negative ones and to not only stay in business but grow your business, measuring your business and managing information related to your business should be a top priority. For help setting up the right measurement systems for your business, contact Cogent Analytics today.
