If you answer this question with “Oh! It’s OK” or “Just like everyone else”; without backing that up with the sales, cost or profit numbers your business may be heading for trouble.
Whenever we meet with our business colleagues and clients we ask this general question to get a sense of whether the business owner has a grip on his/her business. Many times the answers are what we mentioned earlier. We probe them further by asking follow-up questions such as “why do you say so?” or “how is it compared to others or last year?” and if they don’t have good numbers to explain, we know they need to work on getting a handle on their business.
On the other hand, once in a while we do run into small business owner who can rattle off all kinds of numbers from his head – the sales this week was 5% more than average; this year we are doing 10% less sales compared to last year or the labor cost has gone up by 4% and so on. You can tell immediately that this person knows his business by heart and will succeed no matter how economy performs.
Realizing and acknowledging that you have a problem is a first step in finding a solution. If you don’t know how the business is doing, you wouldn’t even realize that you have a problem let alone finding a solution.
Part of the problem stems from the need for business owners to wear multiple hats and fight fire all day. They are constantly busy running the business operations with no time to take a step back and assess the business performance. They are RUNNING the business as opposed to MANAGING it. You have to learn to manage your time well by taking these actions to free up time for the important tasks of understanding the business performance.
After you have freed up some time, you need to allocate at least 15 minutes every day to look at the daily reports showing sales, costs, customers and other important data. You should also allocate 2 hours per week to study weekly reports as well as few hours every month for monthly reports. Many POS systems have capability to generate these reports automatically. Also, if you are part of a large franchise many of them send you these reports on a regular basis. They will also include peer comparisons that you can use to understand how your business is doing compared to others.
In addition to the daily weekly and monthly reports you need to have good understanding of key parameters important for your business and industry. For example, if you are in the fast food business you need to know your labor cost and food cost. You should know these numbers by heart and track them religiously on an ongoing basis. They are your early warning indicators. You can choose to ignore them at your own peril.
The bottom line is running a small business is no small task. If you are not careful, by staying one step ahead of potential troubles, things can go wrong very quickly and it may be too late to do anything by the time you realize you have a problem.
How do you keep pulse on your business? Any suggestions for us and the readers?
