Three questions that can powerfully inform your vision of the coming year.
As December rolls around, most business managers turn their gaze optimistically to the new year. Dreams of fulfilled goals, excellent sales, and extreme organization fill our heads.
And why not? The end of something old and the start of something new is a good chance to reflect on what’s working and what’s not - to break down the big picture and come up with a clearer, brighter vision of the future.
So how do you breakdown financial successes and challenges to access the information that will powerfully inform your decisions about the future?
Here’s a guide.
There are three questions that you should be able to answer, not just at the end of each year, but at the end of each month.
1. Are we profitable?
2. When is our money coming in and when is it going out?
3. Are our clients happy?
The degree of detail in the answers of each of these questions will be dictated by the size and complexity of your operation. Some organizations need to review the profitability of each individual service or product, while others simply need to understand that their gross income exceeds their gross expenses.
Some businesses need a very complex cash flow report that should be reviewed each week. Others just need to know that their payables come in 15 days before their receivables, and they need to secure an interim cash source.
Some businesses need complex metrics around their customer experience, while other just need a face to face meeting with their clients once a year to get the info they need.
But here’s the magic word: numbers.
As a business manager, you should have a number associated with each of these metrics.
It’s not enough to say, “Yes, we made a profit” or “I think our cash flow looks pretty good”.
How much profit are you making? How does that number vary over each month? What are the components that make up your net profit?
How much of a cash gap will you have and when?
How happy are my clients? Do they refer other clients? Have we increased their sales value with our company?
The numbers you come up with will help you make decisions about your business model, your financing and your client base. Those decisions will help you build a business that is profitable and sustainable.
And that’s a good start for a new year!