The value of financial information

We have all heard the expression ‘what gets measured gets managed’, meaning that it is difficult to manage something (such as the performance of your business) without having some measurement of how it is performing – for example, sales volumes compared to the same period last year.

There are many indicators that are important to the development and success of a business, the most obvious of which are financial. To use another well-worn phrase, turnover is vanity but profit is sanity so it is important – particularly for small business owners – to understand that activity alone does not equal progress and that being busy all of the time is of no use if that effort is directed to the wrong places.

Where’s the money?

One of the best ways to determine whether you are heading in the right direction is to look at your financial performance indicators. Some of these will be common across many different types of enterprise, such as sales, profits or cash flow, but there will be some that are specific to your business due to the way your industry measures success. For instance, a multi-site retail business might look at same-store sales figures.

These figures will tell you whether the actions you have taken over a certain time period have had the desired results and can be used to make more informed decisions  in the future.

Time is of the essence here. Cash flow needs to be monitored on a weekly basis – if a problem arises the end of the month might be too late.

Everything in moderation

One of the major advantages of using a comprehensive accounts package is that the data it generates can be used to produce more accurate business updates and forecasts than an Excel spreadsheet. Accounting systems can also measure profit or margin in an informative way – for example, by allowing a business to calculate how its turnover would be impacted if customer churn was reduced by 5%. Current data can also be compared with past forecasts.

It is important to set limits on this type of analysis though. Once you have a good grasp of revenue/turnover and the amount of cash available you should have enough to go on. Don’t fall into the trap of ‘analysis paralysis’ where you spend so much time thinking about the data that you become unable to make decisions.

The bigger picture

It is possible to place too much focus on numbers rather than what they tell you about your business’s performance. Successful management involves interpreting the story behind the figures and taking appropriate action. After all, if you don’t know what success looks like, how do you know if you are on track to achieve it?

But figures are still important – what gets measured gets managed is a widely used phrase for a reason. A cloud based accounting solution such as Big Red Cloud will give you access to the financial information you need to manage your business successfully not just today but next week, next month and next year.