Move With The Cheese ...
Posted by Maureen Windridge on 22/03/2012
I recently received a gift of a book, ''Who moved my Cheese''. To me it was a tale - and a warning - about complacency. You've probably all heard the phrase ''if you carry on doing what you're doing, you will carry getting what you're getting''. However, that is not always so ...
prepare for change and move with the cheese
It wasn't so for the characters in "Who Moved My Cheese" either, because they became complacent. This happens so often in business - not because the owners/managers of a business fail to notice the warning signs but because they are so sure that things will carry on as they are, that they don't bother looking for them. Then one day it is too late. Things have changed, they don't have the reserves to see them through a necessary transitional period which they didn't plan for and suddenly their business ceases to exist.
So, what should you be doing to prepare for change?. To use another common phrase, "forewarned is forearmed". Your business coaches and advisors will tell you to "Test and Measure" and regularly review your KPI's (Key Performance Indicators).
KPI's are used to evaluate the success of an activity or process within your business. The KPI's used by financial people will be quite different to the KPI's used by sales teams or production departments.
My area of expertise is finance, so the KPI's that interest me are those that are obtainable from a regular review of the management accounts. The obvious ones are % gross profit and % net profits. Are these being maintained? If not, why not? Your accounts will give you an indication of why, if not an answer.
For example, what's your average sales value? Is this value being maintained or is it falling? If so, why? What can you do about it? What would a small increase in the average sales value do to your revenue? Is up selling a possibility?
You don't just want to obtain information. The information your KPI's give you should be generating questions. The answers to these questions provide knowledge. As we all know, knowledge is power!
Other areas where you might want to consider implementing financial KPI's are:
Overheads - are your overheads staying steady? If they are increasing, what can you do about it?
Cash Flow - how's the cash flow? If it isn't too good is that because of your average debtor days (another KPI)? For how long are your customers making use of your resources? Over and above the terms that have been agreed and are you borrowing and paying interest in order to finance your customers' businesses? Can improvements be made to credit control procedures?
Supplier Terms - conversely, what are your average payment days to your suppliers? Can you renegotiate terms with them. Are you taking advantage of all available discounts?
Stock - do you hold stock? Is this tying up useful cash?
All these considerations - all these KPI's - are generating questions and encouraging you to obtain knowledge.
Let's go back to sales for a second. What if your sales start increasing? Wow, this is good isn't it, or is it? If the trend continues can you afford it? Do you need more staff and office space? Do you need to carry more stock or buy more raw materials. Seeing the trend helps you plan and will help you to avoid over trading.
You're making a healthy profit, regularly. Where's the cash? Are there balance sheet items that are using up cash? Capital expenditure or loan repayments, for example? These need to be budgeted for and without proper financial procedures, without the means to keep a check on what is going on, these things can be forgotten.
There is a mine of information in your accounts - please use it. Be aware of what is happing within your business. Accounting information is not the only area of your business where KPI's can be used. A look at www.kpilibrary.com will probably amaze you!
Be prepared for change - your cheese will move! And remember - noticing small changes early helps you adapt to the bigger changes that are to come.
"Move with the cheese and enjoy it!"
I'm sure that this all makes good sense to you; if you'd like to have a greater insight into how setting KPI's within the accountancy framework of your business will help you, simply call me on +44 (0) 1908 692378 and I'll be more than happy to chat this subject through with you, together with any of your bookkeeping challenges!
Until next time ...
I consider myself to be incredibly lucky because I am a bookkeeper. At the age of thirteen I did a three year course in three months and passed with distinction. Many years have gone by since then and I am still fascinated by the process of double entry bookkeeping. A process developed over 500 years ago by a venetian monk called Luca Pacioli.
Many people would like a machine that they could put all their paper work into at one end and it would come out the other end all sorted totalled and balanced. I'm glad it hasn't been invented because it would take all the fun out of my work!