I have come across entrepreneurs who thought because they had the genius to come up with an idea they have the knowledge to run a business. After setting shop, they quickly find out that running a business and pursuing an idea are two different concepts. However, these concepts do not run in isolation of each other. A good concept can become a good business if entrepreneurs learn to keep an eye on the business. Keeping an eye on business can be broken into two success criteria’s namely: hard and soft measurements. Soft data are harder to define because they include factors that are difficult to quantify such as customer satisfaction, employee satisfaction, etc. These indicators can be derived through surveys and open honest discussions with employees and clients. Hard data are easier to quantify and include measurements like cost and revenue. There are three main areas of hard data a business owner should look at to determine their financial health namely:
1) Cost of operating the business: you should know total cost of running your business some of the questions to ask in this area are
- Am I spending too much on supplies?
- Can profit margin be increased by buying in bulk or paying on time? If your business is not taking advantage of opportunities presented to it then a plan should be devised to close the opportunity gap
- Are there any areas where I can cut expenses without compromising the integrity of the business?
2) Revenue: Some of the questions to ask are:
- Am I taking advantage of all revenue streams available to me?
- How can I integrate fresh ideas to increase revenue?
- Profit: In addition to revenue, profit should be considered. Profit is the difference between revenue and expenses. As a business owner it is important that all business lines are profitable
3) Cash flow: You also should keep a close eye on cash flow and make cash projections for adequate planning
There is no such thing as a stagnant business, a business that is not growing is a business that is dying. The extent which you choose to monitor these metrics corresponds to how big you will like to grow. Even business that want to remain same size have to have growth plans to make up for business lost.