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Wrong Level of Detail

Posted: 25 Jul 2011 in Blog Business Advice

The wrong level of detail

When you’re focused on survival you might need to spend most of your time on completing and billing for client projects: neglecting the strategic overview that all businesses need. Or if there is not much business out there, you might be focused on winning new deals and ignore operational efficiency. Either way, when the economy picks up, you'll want to make sure every level of the business has received enough attention, and your company is fully prepared to resume growth. Have you made sure that someone is keeping an eye on the parts of the business that are not your current priority?

 

What’s the big issue here?

 

You focussed on keeping the business going, You are busy working “in” the business not “on” the business.  You are surviving - but do you know how the business is really performing? Are you re-acting to the changes in the industry? How are you placed to grow when the market picks-up?

 

What can be done?

 

1.       Regularly monitor the performance of you business. Define what you key performance indicators (KPI’s) are. Normally there will be between 4 and 12. If you more than 12 then some of these are not key. Focus on the important ones. Measure the KPI’s regularly  as appropriate but as minimum at least monthly. Some you should monitor weekly or even daily. You will start to see trends – it is important to monitor these trends.

2.       Produce regular management accounts. Depending on the size and complexity of the business do these monthly or quarterly. This should include reporting on KPI’s as well as an income statement and balance sheet as well as projections. If cash-flow is an issue then there should be both a historic and projected cash-flow.

Tip 1: The key to effective management accounts are:

ü  Relevant – ie they must be useful to the reader.  They should include not only the financials but also how you are doing in relation to your Key  Performance Indicators

ü  Timely – they need to be published quickly – certainly no more than 4 weeks after the period-end. I was producing management accounts for a  complex  international group with a $ billion dollar turnover within two weeks of the month-end and so I just don’t accept that management accounts should take a long time to produce

ü  Brief - not too much details. If the reporting takes more than one hour to read and digest then it is too long and people will not read-it

ü  There must words as well as numbers. Without explanation numbers are either not understood or worse misunderstood

3.       Gather external information on your market and your competitors Bench-mark yourself your business against how your competitors and the market is doing? Do you know if you are doing better or worse?

 

Tip 2:  Benchmark your prices and what you offer against your competitors

Why? You may discover that you are cheaper than comparable competitors. If you are this means that you could put up prices by this amount without losing any business.  I am always amazed how many businesses don’t know how much their competitors are charging!

 

4.       Measure your internal efficiency. Where there is inefficiency eliminate it.

Tip 3: Find out where your staff are duplicating, rekeying or losing information

This is the single most wasteful activity – and doesn’t add any value in itself.  Indeed, it is likely to reduce value by introducing typing mistakes or nonsense if information is rekeyed in the wrong place. How:

ü  Sit down and look at each of your basic business processes.  For each, find out where and with whom it starts and then track the flow of paper/information and see where duplication occurs.

ü   For example, for a recruitment agency, one process relates receiving CVs. Look at whether any are received by email and then copied or rekeyed in to you databases. Or receiving written CVs, filing them without consistently entering them on the database and then having to spend time checking whether they received a particular CV

Tip 4 - Kill off all reports that you or your staff do not use

Many reports are never read at all – or when they are they are not acted on. Typically you will find that 50% of reports are not used. How:

ü  Firstly ask key managers for the really useful reports and you will probably come up with 6 indispensable reports, such as status of jobs being filled, prospects for new business, profit & loss and cash flow.

ü  Secondly Take a deep breath and stop all other reports and wait for people to miss them.  It’s amazing how many are never missed. For those that require the reports run through what’s really required before providing then again.

ü  Thirdly review the reports used and look to see if there are any covering similar ground but going to different people.  If so, you may be able to consolidate them into one report.

 

Case Study

 

In the case of one client – whose management had made a decision to close-down one Division as the accounts showed it was losing money.  It had been in the past. The issue was that because of the way that costs were allocated to different divisions this particular division looked like it lost money. Fortunately, when we investigated further, it turned out the business had a positive cash-flow and this trend was improving month-by-month. They realised then that as a result of poor information they had nearly made a costly and poor decision. Since then they have had a cash offer of more than £500,000 for the business

 

Ian Swycher

January 2010

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