Management by Fact - April 2009

Take Control – of your business success
“A series of simple yet effective ways for your business to succeed in challenging times”

Management by Fact

Last month, we looked at some of the valuable business information that can be contained in your financial records. Your accounting systems may need some tweaking and your bookkeeper may have to change the reports they are providing. But the data can be there with a little bit of planning.

My experience is that many owners do NOT have the information they need to run their business. They have trusted their instincts in the past, and it used to work just fine. They don’t know another way. However, in these times, our trained business instincts need to be supplemented by what I call “management by fact.” For example, if you discover that one product line is growing much faster than another, find out why. Should you push it more? Raise prices? Facts can also cause you to question what you used to take for granted. For example, if you are working hard to push new installations of your product, but the facts tell you that you make higher margins on service than new installation, maybe you should push the service work, even servicing installations done by your competitors.

Each business has a few key indicators of financial health. They are going to be different for each business, but they will all include variations on sales revenue, cost controls, expense management, inventory and cash. It’s a real shame that most owners never look at them until it’s too late. Here’s a simple process to make sure that doesn’t happen to you.

A Budget
We recommend a very simple management system to use financial information. It starts with a budget. Make a monthly forecast (even a guess if that’s all you have) for sales, costs, expenses, payroll, net earnings, and cash. If you’ve never done it, use your bank statements or financial records, broken down by month. If necessary, use a bookkeeper, CPA, or business consultant to help you. Of course, you want the budget to show a realistic view of your business. If it makes money for you, is it enough? If it doesn’t, can you sustain the losses? You’ll know. Don’t be afraid to change the budget as you get smarter during the year.

Actual Results
Then, at the end of every month, get a report that compares your actual results to your budget. If you’re on track, great. If not, do something. You may need to adjust your budget. After all, you’re probably doing this for the first time and you’re learning as you go. But stay focused on what the discrepancies are telling you. Maybe it’s bad data. Do you need a better way to get information into your accounting system? Maybe it’s too optimistic a view of sales revenue. If so, what can be done to push more sales or defer expenses? Maybe it’s something else. Know it and react to it. As you adjust the plan, make sure you look at the impact it will have on cash balances. Cash is still king!

Board of Advisors
On a quarterly basis, get your top employees and a couple of outside advisors to join you for a review of your financial results, comparing your budget to your actual results. If you’re doing better than you planned, celebrate. Do something to reward yourself and your team. If you’re behind on your plan, make adjustments to your operations and to your budget. Outside advisors can be a great source of ideas and encouragement, and may be better than involving employees if you want to keep the books private.

We know that not many business leaders make the time to do these simple things. But we need to be better business leaders now more than ever before. The tailwind of economic prosperity has been replaced by a headwind or resistance. We have to work harder to tack into the wind than run with the wind. So make a few adjustments. Run your business with facts as well as instincts. Use your friends and advisors.

Most people won’t do it. But the winners will. Do you want to be a winner?


Barry Neagle
President, Neagle & Associates, Ltd.
bneagle@gmail.com