We are pleased to introduce the first post in a new five-part weekly business management series titled “Five Things Small to Mid-Sized Businesses Need to Do to Succeed”.
#1) Identify and continuously monitor Five Key Performance Indicators.
The key is to compare data from period to period; one technique is to take the indicator (example: “cost f goods sold”) and divide it by income. Track your cost of goods expense as a percent of income and compare multiple periods. Even better – graph the percentages over time and you will have a clear picture of how your cost of goods is affecting profitability.
You can then use the information gleaned from these evaluations to make decisions regarding a price increase or a supplier switch for example.
Tip: Look for indicators that have a large affect on your business such as your largest expense or a particular revenue stream. You can analyze a combination of indicators to gain a solid understanding of how your business is performing, where it is going and where to focus your attention. If you would like more information and some examples of useful ratios go to www.investopedia.com and type “ratios” in the search field. The site is primarily for investors but it will give you a wide array of ratios that seasoned investors use to gauge the effectiveness of businesses.
Look for next week’s post where I’ll dive into benchmarking!
Also, don’t forget the Champlain Valley Folk Festival is going on this weekend, July 29-31. This Vermont event features three days of folk music concerts, participatory dancing, workshops, crafts, and jam sessions. Visit Champlain Valley Folk Festival for more information on this event.
Geoff Robertson, MBA, Entrepreneurial Advisor
Davis & Hodgdon Associates, CPA’s