Focusing On Your Company’s Vision Statement

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Dreams. Goals. Future. Inspiration.

These are all are words associated with a vision. Together, a company’s visionary words are often called a “vision statement.”

The phrase “vision statement” (and its cousin, the “mission statement”) often seem to trigger the eye-roll reflex in business people. (Go ahead, try it at your next networking function.)  Better yet, ask an employee to tell you their company’s vision statement. Do they know it?

The best vision statements – those that employees repeat without looking at the ceiling and with conviction – are not just a string of words that sound lofty and professional. They are timeless, simple, descriptive, and inspirational. They encompass a company’s values. A vision statement with impact defines a company and its direction.

A vision statement isn’t the same as a mission statement: while a vision statement is about the future, a mission statement is about the present. Vision statements are less specific and more “big picture” than mission statements. Your mission is the pathway to your vision.

To build a vision statement, consider starting with questions like: What resonates? What doesn’t? It’s important to differentiate your company. Next is good ol’ brainstorming. If possible, include all employees; otherwise, choose a diverse sampling representative of all. Focus on future goals that have real meaning. The hope is that employees will consciously work toward a collective purpose when they make day-to-day decisions. It should be a constant reminder that even small, everyday actions are essential to meet future goals.  The vision should be timeless.

The length of a vision statement isn’t important; some are short and pithy while others are a full paragraph. What matters is that a statement is one that employees believe in and customers believe. It is a waste of time to come up with a vision statement if no one buys it. Don’t overthink it. Just be real.

Here are the vision statements of several well-known brands:

  • Hilton Hotels and Resorts: “To fill the world with the light and warmth of hospitality.”
  • Samsung: “Inspire the world, create the future.”
  • Pepsi Co: “Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company. At Pepsi Co, we’re committed to achieving business and financial success while leaving a positive imprint on society—delivering what we call Performance with Purpose.”
  • LinkedIn: “Create economic opportunity for every member of the global workforce.”
  • One of the great examples of a vision statement is one that Walt Disney wrote himself over a half century ago and still remains true today for the Disney company:

“Physically, Disneyland is to be a small world in itself.  Encompassing the things that were good and true in American life…. dedicated to the ideals, the dreams, and the hard facts that have created America.  I don’t want the public to see or think about the world they live in when they are inside our world created for them.  Beyond the physical places, we want to bring people along into an entirely different world, with our philosophies and idea, our characters, our stories, our past, present, and future, so they are part of it and never want to leave it.  At age 12 or at age 62, we want them to feel curiosity, wonder, awe, fascination, joy, and attachment.  Within this world, we want them to experience discovery and adventure, fun and entertainment, education, participation, and recognition. They will not just come to visit our places or to the theater to see our films. They will bring us into their homes and into their hearts.  We will never settle for having customers or fans – they will be Disney people.  This world will never be completed, it will always be under construction; expanding, diversifying, playing more and more roles in peoples’ lives.”

What is your vision statement?  Can your employees recall it?  Maybe not verbatim, but in the context you want them to remember it?  Your vision is your destiny.  Take the next step and write it down to be the guiding light on your business journey.

Do You Need to Check Your Vision This Year?

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I often get confused on what makes up a good vision.  My finance background does not exactly lend itself to visionary thinking—we are trained to look at the present and history.  I know one underlying trait of a good vision is that it should be timeless.

One of the great examples of this notion is the vision that Walt Disney wrote himself over a half century ago and still remains true today for the Disney company:

“Physically, Disneyland is to be a small world in itself.  Encompassing the things that were good and true in American life…. dedicated to the ideals, the dreams, and the hard facts that have created America.  I don’t want the public to see or think about the world they live in when they are inside our world created for them.  Beyond the physical places, we want to bring people along into an entirely different world, with our philosophies and idea, our characters, our stories, our past, present, and future, so they are part of it and never want to leave it.  At age 12 or at age 62, we want them to feel curiosity, wonder, awe, fascination, joy, and attachment.  Within this world, we want them to experience discovery and adventure, fun and entertainment, education, participation, and recognition. They will not just come to visit our places or to the theater to see our films. They will bring us into their homes and into their hearts.  We will never settle for having customers or fans – they will be Disney people.  This world will never be completed, it will always be under construction; expanding, diversifying, playing more and more roles in peoples’ lives.”

 

When I read this vision statement and think about the time I visited Disney World with my young kids, I am awestruck with how this so closely aligns with my family’s experience.  Walt Disney built his visionary idea in such a manner that it strikes emotion into many who have experienced Disney films, theme parks, and books.  I did leave my world behind and entered the world of Disney when we visited…it was truly magical.So, what can we do to create a vision that can elicit a similar type of feeling and experience?  Start with asking yourself these questions:

  • Is your vision written in a manner that evokes emotion, or does it just feel like cold facts?
  • Is it about your customers’ experience with your products or services….an external focus?
  • Is it written with the intensity that you want your customers to feel, regardless of length?  (Obviously, Walt Disney’s vision statement was not written with the notion “It’s got to be short or people won’t remember it”)
  • Is it timeless?
  • Is it one that will be incomplete?
Simon Sinek did a TED talk with the theme of “Start with the Why”:  Why do people buy your product or service?  If you can answer that, it gives you a way to think more clearly on what your vision should be.
Cheers to your clear vision that will remain true throughout time,
Mike

Every Business Needs a Plan. . . But it Doesn’t Need to Be Long

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When a business owner wants to attract a business partner or hopes to raise investment capital, he or she needs a way to show where the company is headed. A business plan is the right tool for the job.

Many entrepreneurs don’t have business plans because they are unsure about how to begin, and the process seems terribly time-intensive. But, a business plan doesn’t have to be elaborate. In fact, the trend is toward something simple.

Have you heard of a one-page business plan? It is certainly a far cry from a traditional business plan that often runs 15 to 50 pages. A one-page plan is specifically requested by some investors, because they find it difficult to read all of the investment proposals that come to them.

The One-Page Business Plan

Proponents of a one-page plan believe there’s a great deal to be said for brevity. Most investors have neither the time nor the inclination to read more than the absolute essentials.

For instance, a one-page business plan is likely to describe:

  • The customer needs that your business addresses
  • Your products or services
  • Your principal customers
  • Your chief competitors
  • Your competitive edge
  • How you make money
  • Your management team
  • A financial summary
  • Your funding request

If you provide all the information on the list above, it’s likely enough for the typical investor. So, let’s focus on how to get all of the facts onto a single page.

For starters, don’t worry about writing complete sentences, and don’t spend time trying to make your plan look stylish. Commit to simplicity. Waste neither words nor space. For example:

Customer Need that the Business Addresses: LED lighting solutions for a variety of manufacturing applications

Products Sold: LED assemblies customized to a manufacturer’s specifications

Principal Customers: Warning Lights of North Georgia — 13% of annual sales; no other customer is > 5% of sales

Once you have compiled all of the information, consider hiring a professional to improve the presentation. A talented graphic designer can turn your information into a much more attractive page in a couple of hours by using business-appropriate spacing, fonts and icons that provide some visual interest.

As an alternative, software packages are available that provide templates for one-page business plans. Just answer the questions at the interactive prompts. It’s an easy, albeit more expensive, way to get started.

With a 20-year record of success, The One Page Business Plan Company is a testament to the power of the single-page approach. Its software solutions are cloud-based. If your business is ready for something more than the bare essentials approach, its one-page templates can help you develop:

  • A vision for your business success
  • A mission statement
  • Objectives
  • Strategies
  • Action plans

If you would like to get an example of a one page business plan that Trillium has used for clients feel free to send us an email request and we will send it out to you in a Word template form.

Why a Slow Economy Doesn’t Have to Mean Dire Straits for Your Business

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Is the slowing economy adversely affecting Atlanta’s businesses, or is it a great time to be in business?

Well that depends mostly on your recent revenues. But even if those are in reverse, a slowing economy can be a great time to take advantage of some opportunities and position your business to come out of the gate at full speed when the economy takes an upswing.

We wanted to hear what local professionals in finance and business had to say about the current state of affairs. CFO service provider Mike Iverson and Vistage Chair Tim Fulton had some good tips for bad times.

Cash is King

The first step to understanding how to make sure your glass is half full is to assess your financial situation and understand exactly how much cash and credit you have. Even if cash flow is good, “Now would be a good time to go the bank,” says Mike Iverson, CPA and Principal of Trillium Financial, “before the economy gets worse or your company financials get worse. Go to the bank and make clear why you want a line of credit and what you will use it for.” It’s important to be proactive when it comes to having the cash stores ready. If you wait until you need it, your statements probably won’t look as good, and the bank may decline a loan or line of credit. Planning ahead is always a good thing. “The key to survival in an economic downturn is to out perform the market, and accumulate cash”, says Tim Fulton, a Vistage International Group Chair which works with over 14,000 chief executives in 16 countries.

Another aspect of understanding your capital position is modeling. How long can your business last with a certain amount of decline? What will you do to make sure you can weather the storm and start growing again? Imagine the various scenarios – even the truly ugly ones – and devise solutions before they come to fruition. You’ll be able to think more clearly in the face of adversity if you have a battle plan and, again, a line of credit to back you up. This doesn’t mean that you have to focus on the worst case scenario, just plan for it, then focus on your everyday business.

Modeling the tough situations is especially important if you are in a cyclical business; for example, the automotive industry. When the economy hits the skids, the average car dealership will probably see sales decline rapidly. Managers must have enough cash reserves to ride out the storm, and to pay for overhead and inventory so they can still be in business a year from now.

If you are a manufacturer, or a company that manages a lot of inventory, be mindful of your production capacity. You don’t want to continue to run at full capacity and end up with an overstock. Go to your clients and continually measure what they anticipate ordering from you in the next two to three months. For production purposes, you might have to scale back so the inventory on hand can be used, and not end up obsolete. On the positive side, manufacturers are usually the first to see orders are picking up. They’re not necessarily the canary in the mine shaft, but these businesses tend to provide a leading indicator.

The Positives of Slower Times

Once your cash situation is well-positioned, the glass is definitely half full. Now is the perfect time to expand your business through capital investments such as acquiring a struggling competitor. You can often take advantage of businesses being sold at fire-sale prices.

“When the economy bottoms out, there will be an abundance of great investment opportunities,” says Fulton. “The business owner with cash will be in a strong position to take advantage of these opportunities.”

Companies with cash can also get the upper hand over competitors by investing in the introduction of new products and in new technology that other business can’t afford. “If you can do any of these things”, says Iverson, “you’ll be in a different place than your competitors because you will be nine to twelve months ahead of them.  You will have something to offer customers that your competitors cannot.”

Companies who differentiate themselves in this way will be growing when everyone else is declining. Constantly look at opportunities to grow with products and services that will serve others struggling with hard economic times and continue to help them through good economic times,” says Iverson.

Another way to grow through a slowing economy is to ramp up marketing. While other companies cut their marketing budgets, Fulton recommends against this instinct. “Be very, very focused in your marketing strategies. This is not a time to be spending a lot of money on broad branding efforts. It is a time to be laser-focused on acquiring new clients and retaining profitable existing clients,” he says.

Iverson agrees. “Marketing is the last place you should cut back,” he says. “Marketing initiatives are priming the pump to create your sales engine. If you cut back on that, you cut back on future sales and opportunities. If everyone else cuts back on marketing, you will stand out even more, possibly turning that half-full cup to overflowing.”

Solving Your Liquidity Crunch

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Sometimes business owners get into difficult situations because they don’t understand the likelihood of crisis and are unprepared when it strikes. One of the most likely kinds of crisis is a liquidity crunch.
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A liquidity crunch can occur as a result of a customer extending their time to pay you. This event may come unplanned, and therefore, put you in a cash crunch in the short-term. As the saying goes “cash is king.”
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Sometimes a liquidity crunch is the result of a business decision that doesn’t work according to plan. A business invests in a new product or service line, only to learn that market demand for the new offering is less than expected and the business needs some time to adjust. The money expended may eventually be recouped, but the payback period will be significantly longer than management had planned.
Lining Up a Credit Line
One way to prepare for a liquidity event described above is to line up a source of available cash while the business is flourishing. The best time to get a loan is when you don’t need it. However, in my experience, some business owners delay this process during good times because they are too busy to plan for lean times, then panick when trouble hits. The panic sometimes causes them to drain their personal bank accounts. This is a mistake that must be avoided. Nothing is worse than letting a business difficulty spill into the business owner’s personal life.
A far better option is to pursue a business line of credit, which is an agreement for a lender to provide a specified amount of short-term credit to a business owner for a period of one year or less. The maximum amount of the credit line typically depends on business revenues, the credit history of the business or its owner, their industry, and how long the business has been in operation.
The best thing about a line of credit is the flexibility it offers. I recommend using a line of credit prudently. You should not use it to shore up operating issues that are not getting addressed. It should be for a short period of time with a clear indication on how it gets paid back. You only borrow what you need, when you need it, and you are borrowing only for a short-term time horizon, less than 12 months. If you don’t see how you will be able to pay off the line of credit within the 12 months then it should not be used. Rather you should seek more long-term financing with your bank or other institution.
Where You Borrow and What You Pay
In years past, banks provided virtually all lines of credit. The documentation could be significant, but if you were approved the rate was usually very good. The interest rate charged on a credit line was generally stated as a standard rate like bank prime, plus a small spread for the lender.
Today, the process has changed some given new financial regulations. Many banks may not lend to a small business, unless the owner or business is a long-time customer with other banking needs (checking, savings…). But, it’s well worth asking banks if a business line of credit is available because of the competitiveness of their rates.
A whole new crop of online lenders has emerged to meet the needs of small businesses, including leaders like Kabbage, BlueVine and OnDeck. These lenders usually work with businesses seeking $10,000 – $200,000 as a line of credit. Rates are typically higher than those available from a bank. The range of APRs can easily exceed 18%. If you go down this path, find the right lender that is affordable for you. Be very careful taking on debt that is only “kicking the can down the road” and will ultimately result in a severely limited business operation.
Think of a line of credit as an insurance policy. You hope that tapping it won’t be necessary. But, when you face a liquidity crunch, you’ll be glad to have it. Remember, liquidity is a lifeline that might well save your business.
Have you considered a line of credit for your business? Call Trillium Financial. We can help you avoid the hazards and find the lender that best meets your needs.

What is the Best Pricing Strategy for Your Business?

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Smart business owners are always looking for ways to increase their business profits as they analyze their income statements. One area businesses can focus on to increase profits is in pricing strategy. Pricing is one of four levers that impact the quality of your profits. (The other strategies include direct cost control, indirect overhead cost control and volume).

In a competitive marketplace, businesses should routinely review their pricing strategies to maintain an edge and stay profitable.

“In addition to managing costs, our clients are continuously looking for better and smarter ways to set the optimal price so as to harvest that untapped profit while staying very competitive and maintaining a good position on market share,” says Phil Farris, Pricing Product Line Manager for Servigistics, which offers pricing software applications as part of their Service Lifecycle Management.

Small increases in pricing, even 1%, can also make a difference in the income statement. If you are holding your prices steady over an extended period of time, then you are actually giving a price break, because inflation erodes your purchasing power.  For example, if you sell a widget for $5.00 and it cost $3.00 then you make a profit of $2.00.  However, if inflation is 3% and you don’t change your price for the next three years then your cost is $3.28 and your profit is now only $1.72.

 

High or Low?  Which Way to Go?

A business has to make a fundamental choice: will it price at the higher end or the lower end? Of course, the best of both worlds is higher prices and higher volumes.  Understanding the price sensitivity in your market is important in order to get your product or service into your client’s shopping cart.

“There are generally two kinds of pricing and volume strategies,” explains Trillium’s own CEO, Mike Iverson. “High volume/low price or low volume/high price. Think about a Wal-Mart model versus a Saks Fifth Avenue model. They both might earn the same profit, but they earn it differently.”

“For service parts, high volume fast moving item are usually priced with a different and more competitive pricing strategy than low volume slow moving item,” Farris adds. “You do not want to lose sales volume by setting your price too high for products that are highly competitive.  Understanding sales volume history and seasonality for all your products is critical for setting the optimal prices at the right time.”

 

Value Pricing

Attracting customers and increasing value of a product or service to make the business stand out from the competition should be a priority.

“In the current economy, what I’ve seen in pricing is that many manufactures have held their prices, but added value; for example, buy one, get one free,” says Iverson.

Farris adds, “With new software tools and automation, our clients are finding it beneficial to change prices more frequently to maintain their preferred price positions in the market. We are also seeing an increase in the number of special prices (discounts) being offered to customers and also more demand for promotional pricing.”

 

Pricing Plans Pay Off

Pricing responses to market and income pressures differ from business to business. Yet, conscious business owners should consider the role price is playing in their income statements and develop both short-term and long-term strategies.

“We see clients who are very price margin conscious and some cost increases will immediately trigger a price change to maintain acceptable margins or it will force a renegotiation with a supplier to lower cost,” says Farris.  “On the other hand, for some products a flat cost line will often result in a flat price line over long periods of time.”

Pricing is just one lever that moves your bottom line. Pricing strategies should be flexible enough to respond to real time economic issues. We will discuss in future issues the other levers driving your bottom line: direct cost control, indirect overhead cost control, and volume.  Remember, pricing is the gateway to getting your product or service into your clients’ hands.

The Hidden Cost of Doing Nothing to Market Your Business

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by Tara Lamboley, CEO of REV Demand

Oftentimes I am asked “Who is your biggest competitor?”  And I always answer:  “Indecision.”

It’s quite true that the biggest hurdle we at REV (and I suspect many of you) must overcome in converting a prospect to a customer is to get that prospect to decide to do something, to make a change.   It’s often not the case that the prospect decides to business with another company—it’s that they don’t decide to do anything at all.

In his article “The Cost of Doing Nothing,” Michael Lippig of IDCON, Inc. asserts that:

“The cost of maintaining the status quo for professional services business owners is enormous. The status quo affects each and every one of us every hour of every day, at work and at home. We have come to accept doing nothing as a safe and acceptable alternative. We even make it the default solution.”

So why do business owners who want to grow their businesses default to doing nothing?  There are many reasons we can recite, including lack of money, lack of time, lack of desire, unsure of what to do, etc.  If we do nothing, it seems like a safe choice that protects our valuable time and resources.

However, there is a hidden cost, as Lippig writes:  “Doing nothing is the management equivalent of a baby’s pacifier. It makes us feel safe and comfortable. But there is a cost to doing nothing. Economists and accountants frequently refer to it as ‘opportunity cost;’ what you could do yourself with your resources if you were not doing what you are doing right now.”

By doing nothing different this quarter than last quarter with your marketing, you can be sure you will cost your business the following:

  • Your e-newsletter, direct mail, social media updates, prospecting emails, etc. will not go out, and so your prospects will get colder
  • Your customers—past, present, and future—will not hear from you enough to make repeat, expanded, and new business a consistent reality
  • You won’t build your reputation online and offline as an expert in your field that prospects must seek for solutions
  • You won’t invest in that training to make yourself that much more knowledgeable in your field of expertise
  • You won’t connect with strategic partners that can expand your sales capabilities
  • You won’t get off the unending roller coaster of project work and cyclical sales

Make no mistake:  When you decide to do nothing about marketing your business, you are still making a decision.   You are deciding to stay where you are and not grow your business.  You are saying you are comfortable with your current income, profitability, and lifestyle.

Of course, sometimes doing nothing may be the best decision for you at this time.  If you have other life priorities that need to take precedence right now over growing your business, it makes sense to maintain the status quo.

However, if you are ready to grow your business, then you have to start doing something to push your business forward (i.e., marketing) and/or stop doing the things that hold you back (i.e., not marketing).

Need help?  REV Demand offers a free, 1-hour, no-obligation assessment of your business development capabilities (including current marketing strategy and tactics as well as sales goals and processes).  We’ll help you build a plan of action to grow your business.  Contact us for more information.

What are the Benefits of a Diversified Revenue Stream?

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by Michael Iverson, Principal of Trillium Financial

When you think about the way America’s small businesses get started, it should come as no surprise that a relative few have revenue streams that could be considered diversified. A great many startups are the result of the entrepreneurial recognition of a market need.  In many instances, the market need is that of a single, sizeable customer.

For instance, I once made the acquaintance of a woman who helped manage the investments of a state pension fund.  One of the challenges of her position was keeping abreast of corporate governance matters for a universe of nearly 2,000 stocks owned by the pension fund.  Her team had a fiduciary duty to vote the shares in the best interests of the pensioners.  Yet, keeping tabs on executive compensation plans, auditor changes and corporate acquisition proposals for 2,000 different stocks was nearly impossible, given the small staff of the pension fund.  Why wasn’t there a service that could provide advisories on the stocks owned by her fund and other pension funds?

To make a long story short, she left the pension fund to become an entrepreneur and start the business that would address the very need she had identified.  She started a fiduciary advisory service to track corporate governance issues of stocks held by pension funds.  Her former employer became her first customer.

Starting Out

In the early years of a startup, it’s not uncommon for a business to be strongly dependent on its first customer. For some startups, it is 100 percent of first-year revenues and more than 50 percent of second-year revenues.

No matter how solid that first customer may be, it is prudent to become less dependent on the customer by diversifying the revenue stream.  Keep the original customer happy by providing outstanding service, but develop new customers as quickly as you can.

Diversification of revenues provides financial stability for your company, reduces business risk and makes your business infinitely more marketable when it comes time to sell.   Diversification can be number of customers, geography of customers, and product offering.  One of the metaphors that I have heard over the years is a three-legged stool offers more stability then a two-legged stool.

Shoot for 15%

As a goal, try to diversify your business to the point that no single customer is responsible for more than 15 percent of revenues.  Until you achieve that goal, the possible loss of your largest customer (due to reasons as varied as a change of ownership or a sudden downturn in the customer’s industry) carries significant financial risk to your business.

I have met any number of business owners who have lost a customer responsible for 30 percent or more of their revenues.  The results can be devastating.  Imagine having taken on debt to expand the business, only to lose a customer of that size.  Some businesses can’t survive that kind of a hit; others survive, but with great difficulty and sacrifice in the way of layoffs and contract renegotiations.

As many of my clients know, it’s not easy to achieve the 15 percent target. It’s not uncommon for talented service providers to be approached by a large customer who wants more of their time, not less. I advise clients to be disciplined and politely dismiss opportunities that would make them more reliant on a large customer.

Even though the initial financial rewards may be tempting, there is an important trade-off in terms of autonomy.  A business owner who hitches his wagon to a single customer often feels more like an employee than a business owner.

Is your business in need of a more diverse base of revenues?  We have ideas about acquiring new revenue streams. Give Trillium a call at (404) 353-2148 or send us an email.

The Numbers Coach Helps Medical Practice Improve Profits

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The Company

Choice Care Occupational Medicine and Orthopaedics (“CCI”), founded by Dr. Ish Khan, provides a 21st Century practice model which blends the two specialties of occupational medicine and orthopaedics. Dr. Khan’s unique program is the only one of its kind in Georgia that has proven enhance the quality of patients’ medical care along with dramatic cost savings for its clients.  (Now part of U.S. Healthworks, CCI has six locations in metro Atlanta.)

Situation

Dr. Khan wanted to enhance his team’s financial management and reporting.  The CCI team was looking to create a platform to communicate the company’s key performance indicators (“KPIs”) that drive its financial results.

Solution: The Numbers Coach Financial Leadership Services

According to Dr. Kahn, the Numbers Coach (“NC”) financial leadership services were an “ideal” fit for developing CCI’s performance metrics.  NC developed a financial dashboard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The dashboard offered both graphs and numerical charts to give an “at a glance” view of results.  In addition, TFI reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard.  Each month TFI assisted with the monthly financial results for the dashboard.   More importantly, NC’s methodical approach to measuring and reporting financial results provided the CCI team with timely information to take actions on profitable activities for bottom line results.

“Mike has been an integral part of our team over the years.  His solid understanding of financial reporting processes and systems provided our company with the right tools to navigate our finances successfully.”

Dr. Ish Khan, founder/CEO

What is the One Best Yardstick to Measure your Business Success?

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Mike Iverson’s client had it all figured out. He knew exactly how well his business was doing every month, without researching complicated data or paying an expensive consultant. He just looked at his phone bill. If the number of outbound calls was up, he could bet that his revenues for that month would be up, too.

A reckless, haphazard guess? Just the opposite. Iverson’s client had found a simple metric that he could track every month and immediately gauge the health of his business.

The concept of a simple metric as a forecaster of financial health belongs to Norm Brodsky, a successful serial entrepreneur and writer for Inc. magazine. The idea is for every company to find that one magic metric – the connection between a routine business function and the positive growth of a company.

“I think every business has it,” says Mike Iverson, Numbers Coach. “Every small business can put a finger on a certain key number that can tell you how you will end up that month.”

The trick, of course, is uncovering exactly which numbers have that relationship in your business. For example, if call volume goes up and sales go down, you’ve got the wrong metric. It is important to track as many numbers as possible in the beginning, because it may take two years (or more) to find the leading indicator. Also, recommends Iverson, track the numbers by hand. The process of writing the numbers down with a pencil and paper will help you realize the connections.

Here are seven important metrics for any business. Track them for 3 months and see which one gives the greatest transparency to the rest of your business:

  1. The Trailing 12-Month Sales Average: By monitoring – and graphing – sales from the 12 months prior, you’ll get a visual of the progress of sales, while taking seasonal issues out. If it’s July 2025, look at July 2024 through June 2025. Graph each month’s sales and see where the highs and lows were, and what the average was. If that 12 month average is trending up, it’s good. If the graph line is flat or declining something is causing sales not to perform.“If you look at just sales numbers month to month, you won’t see it,” says Iverson. “This is a visual metric: you want to see that 12-month trailing graph trending up.”
  2. Operating Profit Percentage: This shows the extent to which a company is making a profit on standard operations. When looking for indicating factors, ask, ‘Is this percent holding steady, increasing or decreasing?’  You can also examine this on a trailing 12-month average.
  3. Accounts Receivables Cash Conversion Cycle: If you extend credit to customers, track how long it takes to collect cash from the time the bill is sent. What is your cash conversion cycle (or DSO – Days Sales Outstanding)? Be careful about the terms extended to your customers; you have set them for a specific reason. If customers go beyond those time limits, you’ll feel the pinch.
  4. Days Inventory Outstanding (DIO): In theory, you should keep the least amount of inventory on hand as possible. In a perfect scenario, you would get the order in just in time to have it manufactured and sent out; the longer inventory sits unsold the more of a drain it is on your cash.
  5. Disbursement Cycle: These are the terms you get from your vendors. The longer you can hold on to your money and the faster you get it from your customers, the better.
  6. Working Capital as a Percent of Your Revenue: This is an important financial set of measures to look at because it is often overlooked by business owners, says Iverson. “They know to look at the income statement. But if all that operating profit is getting absorbed into working capital, then there won’t be enough cash flow to grow the business,” he says.Receivables and inventory are investments.  (And in the same way vendors have an investment in you.) You’ll want to invest as little as possible of your revenue in working capital. Turn your receivables to cash, your inventory into billing, and hold on as long as you can to your money. Look at the number of days net working capital is invested every month (or cents on the dollar of what’s invested). If you don’t have enough cash flow to cover what you’ve got invested, you’ve got a problem.
  7. Return on Capital Employed (ROCE ) Percent: According to FinanceScholar.com, ROCE measures the efficiency and profitability of a company’s capital investments. For example, capital assets such as trucks and computers should help make the business more efficient, cut down on costs and realize greater profits.  The ROCE percentage also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The higher the percentage the better.

Tracking the numbers involved with these seven metrics over a period of time will give you an idea of which is the leading indicator for your business.

“It seems like the concept would be complex, something more to it. But really there’s not. If you break it down and keep it simple, the metric can give a business owner an easier way to digest information and act,” says Iverson.

Start measuring today so you can figure out what actions to take in order to achieve your financial goals.   The Numbers Coach can help; just contact us at (404) 353-2148 or mike@numberscoach.net.

Numbers Coach Crafts Financial Models for Brewing Company

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COMPANY
In 1993, Red Brick Brewing (RBB) started as one of the first craft brewers in Atlanta.  The Red Brick team is dedicated to providing the consumer with world class Southern beers and ales.  The consumer gets a consistently great-tasting beer from unique blends of hops and other ingredients.  The RBB team of dedicated people are passionate about brewing the best-tasting Southern beer.  (Red Brick Brewing rebranded back to their original name of Atlanta Brewing Company in 2018.)

SITUATION
In 2012, the Red Brick team was transitioning its financial management and reporting with the goal of creating a financial model that would communicate the company’s key performance indicators (KPI) and drivers of its financial results to management and investors.  However, the team quickly found that it was challenging to accomplish this goal on their own.

SOLUTION: The Numbers Coach Financial Leadership Services
The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing RBB’s customized financial model and metrics.  NC’s,Mike Iverson, created the model and also reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

RESULTS
NC effectively pulled together the required financial and non-financial data to complete a customized financial model, providing insights for the team to do product and cash flow planning.  The model was developed with “what if” scenario planning capability.   This allows the team to see how changes to key metrics drive the financial results of the business.  The model also has the option to provide a rolling forecast for the team to get visibility on how they might finish the year given actual results to date.

According to RBB investor (and founder of North Highland Global Consulting) Dave Peterson:  “Mike at the Numbers Coach jumped in and set up a customized financial model that matched Red Brick’s business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tools for financial planning.  We would highly recommend the Numbers Coach financial leadership services.”

For more information on Red Brick Brewing Company/Atlanta Brewing Company, visit https://atlantabrewing.com.

To learn more about the Numbers Coach financial leadership services, click here.

“Mike jumped in and set up a customized financial model that matched our business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tool for financial planning.”  

Dave Peterson, Red Brick investor & founder of North Highland Global Consulting