Aside

Wood for the trees?

Measuring Non Financial KPI’s
by Peter Morgan Business Development Advisor

 We live in an age of information overload and it is sometimes hard to see the wood for the trees, particularly when running a business. So how do we develop that laser like clarity on the things that matter in our businesses? What should we be measuring?

 The first thing we could measure might be the financial results. But the results really are just a consequence, you can’t manage the results, they are a consequence of getting the other things right, or wrong.

 Sure, we need to measure the cash.  There are plenty of examples where businesses that are profitable go out of business because they run out of cash. It happens regularly.  You will have heard the expression cash is king and business owners do need to be monitoring cashflow.

 Clearly we also need to be measuring the profitability of the business for tax and other purposes, but profits are a consequence, they are an end result, so we can’t really manage profit directly. We need to measure the things that drive profit, and manage those instead.

 In very simple terms profit is the income from your sales less your costs.  What we need to do is focus on what are the things in our businesses that drive sales, and drive costs, because if we can focus on those things then the profit will look after itself.

 Unfortunately, most businesses just measure the simple things like the “stuff” from the accounts, the financial “stuff” because it is the easy “stuff” to measure.  We have our accounting systems and it’s very easy to pull out financial numbers from these, but they are often not the most important things, not the things that are critical to success.

 What we need to do is identify the key underlying success drivers.  What are the things that we have got to get right to make our businesses successful? All businesses have different success drivers, but they are the things we need to identify and measure. They are probably non financial.

You can then drive your business looking forwards, rather than out the rear view mirror.

 © Munro Accountants 2012 

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