Digg it UP - Do You Have Real Control Of Your Business

To run your business effectively it is essential that you have the right financial and other key performance indicators provided to you – regularly and you need to remember that (regardless of what others may think) this information is there simply to help you run the business.

You must therefore ensure you get it in a format, a level of detail and using terminology that you are happy with.

Accountants, just like most professions, make their activities appear more complex and difficult to understand than necessary - I think it must be some form of self-preservation activity that we all have!

So let's start with the terminology:

Each of these terms mean exactly the same thing:

orders = bookings
order book = backlog
backlog = overdue orders = back orders
sales = revenues = turnover
cost of goods sold = cost of sales
gross profit = trading profit = contribution
operating profit = trading profit = PBIT = EBIT = surplus = EBITDA(sometimes)
earnings(sometimes) = EBT = PBT = net profit
debtors = receivables
creditors = payables
stock = inventory(sometimes)
cash = liquidity
work in progress = work in process

- and there are many more*

So you need to get in your helicopter and take control – you’re the boss. Decide which accounting terminology (finance-speak) you wish to adopt and then make everyone, including your auditors, stick with that in everything you, and they, do.

The next thing you need to be clear about is the information you need and the way in which you want it to be presented.

All the figures you see in a set of accounts are, by definition, historical but what you need to do, of course, is look to the future. Running a business successfully is much more about looking at trends rather than absolute figures and you need to track key financial information month on month, year on year and against budget to really see the direction the business is going in. It is so easy to get bogged down in the detailed numbers and miss the big picture – and I’ve actually seen this more with Corporates than with SMEs.

I worked for Burmah Oil at one time and their monthly reporting packs and annual budget packs were up to 50 pages long! – and were not drawn up in any way to help the CEO run the business. When I was at BTR, however, the reverse was true. They had the most outstanding monthly reporting pack I have come across – it was never more than ten pages and the first page summary gave you an instant overview of the business from which you could then go further into any areas of concern. I’ve since used that format in many companies and if you’d like a copy just drop me an email at roger@rogerharrop.com

So what information do you need on this front summary sheet?

• Start with what’s most important - Profit – that is if your purpose in some way involves profitable growth.
• If you’re in the type of business where there is a time lag between receiving the order and the sale taking place then you need Order Input as this is the very first indication you get of what’s going on in the business.
• Also have Order Book so you can see what you’ve got to go at.
• ROS (Return on Sales) – see later
• Depending on the business, one or two balance sheet items always including Receivables.
• Cash Flow is very important
• People Numbers
• one or two non-financial ratios which are relevant to your business for example OTIF (delivery on time in full) and maybe a quality, customer satisfaction, service level or health and safety measure.

That information alone shown month on month, tracked against last year and your budget should give you sufficient trend indications to see instantly the health of the business and how things are going.

Next I have always found the need to get in the helicopter and look at the big picture more with financial information than probably any other area of the business. Along those lines, I would strongly recommend that you draw up a simple “helicopter” P&L account with only those 7 elements shown below whenever you are looking a budget - be it your own, or one that, maybe, a subsidiary company is putting forward to you for approval, or indeed merely to compare year on year performance:

If you're in a manufacturing business then as likely as not you will have some element of labour and factory overhead taken into your product costing and your gross margin calculation and I find whenever comparing year on year this can really make true comparisons difficult. So if you have such a business you will need to have a further line included above of labour, overhead and materials going into or coming out of stock (just one figure) to complete the P&L statement. Looking For The Perfect Work At Home Computer Jobs?
Every day thousands of people try to find the perfect work at home computer jobs, but what happens? they get frustrated of not finding what they really want, a job that will pay them well, a job that is legit and will pay them on time.The ConcernsPeople search for reliable work at home computer jobs but then they have some doubts. How do i know which opportunity is legit? how do I know if they are going to pay me? how much time do i have to commit? can I do it part time? this and many other questions come to your head and you know what? you are right, you just cant trust anyone online, there are too many scams.The SearchWhat happens is that you start searching all over the internet you go to the different sites and even the popular ones. But you are still skeptical or you just cant find that job that you want.This happens every day and although you have th
order book = backlog
backlog = overdue orders = back orders
sales = revenues = turnover
cost of goods sold = cost of sales
gross profit = trading profit = contribution
operating profit = trading profit = PBIT = EBIT = surplus = EBITDA(sometimes)
earnings(sometimes) = EBT = PBT = net profit
debtors = receivables
creditors = payables
stock = inventory(sometimes)
cash = liquidity
work in progress = work in process

- and there are many more*

So you need to get in your helicopter and take control – you’re the boss. Decide which accounting terminology (finance-speak) you wish to adopt and then make everyone, including your auditors, stick with that in everything you, and they, do.

The next thing you need to be clear about is the information you need and the way in which you want it to be presented.

All the figures you see in a set of accounts are, by definition, historical but what you need to do, of course, is look to the future. Running a business successfully is much more about looking at trends rather than absolute figures and you need to track key financial information month on month, year on year and against budget to really see the direction the business is going in. It is so easy to get bogged down in the detailed numbers and miss the big picture – and I’ve actually seen this more with Corporates than with SMEs.

I worked for Burmah Oil at one time and their monthly reporting packs and annual budget packs were up to 50 pages long! – and were not drawn up in any way to help the CEO run the business. When I was at BTR, however, the reverse was true. They had the most outstanding monthly reporting pack I have come across – it was never more than ten pages and the first page summary gave you an instant overview of the business from which you could then go further into any areas of concern. I’ve since used that format in many companies and if you’d like a copy just drop me an email at roger@rogerharrop.com

So what information do you need on this front summary sheet?

• Start with what’s most important - Profit – that is if your purpose in some way involves profitable growth.
• If you’re in the type of business where there is a time lag between receiving the order and the sale taking place then you need Order Input as this is the very first indication you get of what’s going on in the business.
• Also have Order Book so you can see what you’ve got to go at.
• ROS (Return on Sales) – see later
• Depending on the business, one or two balance sheet items always including Receivables.
• Cash Flow is very important
• People Numbers
• one or two non-financial ratios which are relevant to your business for example OTIF (delivery on time in full) and maybe a quality, customer satisfaction, service level or health and safety measure.

That information alone shown month on month, tracked against last year and your budget should give you sufficient trend indications to see instantly the health of the business and how things are going.

Next I have always found the need to get in the helicopter and look at the big picture more with financial information than probably any other area of the business. Along those lines, I would strongly recommend that you draw up a simple “helicopter” P&L account with only those 7 elements shown below whenever you are looking a budget - be it your own, or one that, maybe, a subsidiary company is putting forward to you for approval, or indeed merely to compare year on year performance:

If you're in a manufacturing business then as likely as not you will have some element of labour and factory overhead taken into your product costing and your gross margin calculation and I find whenever comparing year on year this can really make true comparisons difficult. So if you have such a business you will need to have a further line included above of labour, overhead and materials going into or coming out of stock (just one figure) to complete the P&L statement. How To Compete With The Big Boys
Every business needs to do everything it can to stand out from the crowd, to differentiate itself from the competition. This is a major challenge for companies that sell substantially the same thing as their competitors.The average business does not have the resources of a multinational corporation that often uses its substantial marketing muscle to buy market share or to drive competition out of the marketplace. Big business also uses its deep pockets to flood various media with advertising, making them a pervasive presence.The Web has always been an egalitarian environment where smaller companies could present themselves using the same techniques as the big boys, and if these companies did it well they could stand side-by-side with their competitive behemoths.One thing that small and medium sized businesses should take some comfort in is that many large corporations a. Running a business successfully is much more about looking at trends rather than absolute figures and you need to track key financial information month on month, year on year and against budget to really see the direction the business is going in. It is so easy to get bogged down in the detailed numbers and miss the big picture – and I’ve actually seen this more with Corporates than with SMEs.

I worked for Burmah Oil at one time and their monthly reporting packs and annual budget packs were up to 50 pages long! – and were not drawn up in any way to help the CEO run the business. When I was at BTR, however, the reverse was true. They had the most outstanding monthly reporting pack I have come across – it was never more than ten pages and the first page summary gave you an instant overview of the business from which you could then go further into any areas of concern. I’ve since used that format in many companies and if you’d like a copy just drop me an email at roger@rogerharrop.com

So what information do you need on this front summary sheet?

• Start with what’s most important - Profit – that is if your purpose in some way involves profitable growth.
• If you’re in the type of business where there is a time lag between receiving the order and the sale taking place then you need Order Input as this is the very first indication you get of what’s going on in the business.
• Also have Order Book so you can see what you’ve got to go at.
• ROS (Return on Sales) – see later
• Depending on the business, one or two balance sheet items always including Receivables.
• Cash Flow is very important
• People Numbers
• one or two non-financial ratios which are relevant to your business for example OTIF (delivery on time in full) and maybe a quality, customer satisfaction, service level or health and safety measure.

That information alone shown month on month, tracked against last year and your budget should give you sufficient trend indications to see instantly the health of the business and how things are going.

Next I have always found the need to get in the helicopter and look at the big picture more with financial information than probably any other area of the business. Along those lines, I would strongly recommend that you draw up a simple “helicopter” P&L account with only those 7 elements shown below whenever you are looking a budget - be it your own, or one that, maybe, a subsidiary company is putting forward to you for approval, or indeed merely to compare year on year performance:

If you're in a manufacturing business then as likely as not you will have some element of labour and factory overhead taken into your product costing and your gross margin calculation and I find whenever comparing year on year this can really make true comparisons difficult. So if you have such a business you will need to have a further line included above of labour, overhead and materials going into or coming out of stock (just one figure) to complete the P&L statement. Wake Up and Learn Something New
The US Government has just released last month’s job creation figures. It was the lowest number in two years. This is a revealing and disturbing snapshot of what is actually happening in the real economy, not the one artificially created for the headlines. Our US GNP or Gross National Product, is based upon manufactured durable goods. Unfortunately, the manufacturing economy in the US has not yet recovered from the devastating collapse it saw commence in the spring of 2000. The recent improvements in jobs and growth are substantially confined to the service sector. Manufacturing is what drives the US economy and it is suffering.Do you work in this market segment? Are you comfortable? Do you feel stable? Have you yet realized that there is no such thing as job security anymore? That concept is gone. Unlike our parents and their parents before them who could count on working in a selecmation do you need on this front summary sheet?

• Start with what’s most important - Profit – that is if your purpose in some way involves profitable growth.
• If you’re in the type of business where there is a time lag between receiving the order and the sale taking place then you need Order Input as this is the very first indication you get of what’s going on in the business.
• Also have Order Book so you can see what you’ve got to go at.
• ROS (Return on Sales) – see later
• Depending on the business, one or two balance sheet items always including Receivables.
• Cash Flow is very important
• People Numbers
• one or two non-financial ratios which are relevant to your business for example OTIF (delivery on time in full) and maybe a quality, customer satisfaction, service level or health and safety measure.

That information alone shown month on month, tracked against last year and your budget should give you sufficient trend indications to see instantly the health of the business and how things are going.

Next I have always found the need to get in the helicopter and look at the big picture more with financial information than probably any other area of the business. Along those lines, I would strongly recommend that you draw up a simple “helicopter” P&L account with only those 7 elements shown below whenever you are looking a budget - be it your own, or one that, maybe, a subsidiary company is putting forward to you for approval, or indeed merely to compare year on year performance:

If you're in a manufacturing business then as likely as not you will have some element of labour and factory overhead taken into your product costing and your gross margin calculation and I find whenever comparing year on year this can really make true comparisons difficult. So if you have such a business you will need to have a further line included above of labour, overhead and materials going into or coming out of stock (just one figure) to complete the P&L statement. Promote Your Business With The Right Logo
How important is a logo for the success of your business? Opinions might vary but the importance of a logo can hardly be overlooked. It's a logo that first catches the eyes of the onlookers and lends a concrete identity to a business enterprise. Can anything be more satisfying than popular logo? I guess not!A business or company logo creates the 'first impression’, which is extremely essential to attract its potential customers. Logos form an important parameter for the success of any business today. As such, its quality often decides the fate of a company. Poor quality logos hardly attract the attention of people and it is automatically concluded that the concerned enterprise offers sub-standard service. Unfortunately, even some quality enterprises suffer owing to their neglect of promoting their business the right way. Hence an entrepreneur should never overlook his marketing sthealth of the business and how things are going.

Next I have always found the need to get in the helicopter and look at the big picture more with financial information than probably any other area of the business. Along those lines, I would strongly recommend that you draw up a simple “helicopter” P&L account with only those 7 elements shown below whenever you are looking a budget - be it your own, or one that, maybe, a subsidiary company is putting forward to you for approval, or indeed merely to compare year on year performance:

If you're in a manufacturing business then as likely as not you will have some element of labour and factory overhead taken into your product costing and your gross margin calculation and I find whenever comparing year on year this can really make true comparisons difficult. So if you have such a business you will need to have a further line included above of labour, overhead and materials going into or coming out of stock (just one figure) to complete the P&L statement.

If your purpose, like many businesses, includes sustained profitable growth then a key performance indicator is ROS (Return On Sales). This is PBIT as a percentage of sales and what you are seeking to ensure is that not only your absolute profit figure increases year on year but also that your ROS also improves every single year. For that to happen, of course, one or more of the P&L elements below the sales level in the P&L must be reducing as a percentage of sales. The key ratios therefore you should look at in the above P&L when comparing, say, a budget for next year with forecast performance for the current year are simply the individual line ratios against sales - because only by each of those reducing can the ROS increase - it really is that simple!

We’ve concentrated so far mainly on the P&L but, of course, businesses go bust because of a lack of cash not a lack of profit. Control of working capital (essentially receivables, payables and inventory) is very important for you to monitor. You should regularly look at receivables days and inventory days (where appropriate) and have a discipline of doing regular cash flow forecasting -which really isn't hard to do with a reasonable degree of accuracy no matter your business. You may by now be saying to yourself that you can really rely on your Accountant or your Finance Director or Controller (depending upon the size of your business) to do all the above analyse and monitoring for you and you should not need to worry about this. Please do not make that assumption - it's very dangerous. It's your job to run the business, and that means that it’s your job to keep a grip on the key numbers and trends.

© 2006 Roger Harrop

* Before writing this article I put this list to about a dozen financial people around the world. I received back from a number of them some very pedantic statements that I was wrong and that certain terms were definitely not equivalent and had quite different meanings. The problem was, however, not all this pedantic statements agreed with each other!

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