I get asked a lot in my role as a CPA to help diagnose problems in our client's businesses, the symptoms of which always fall into three categories:
- Low Cash
- Low Gross Margin
- Low Net Profits
The purpose of this three part series to help you figure out 'the right things' to measure in your business in order to determine how you can impact change. Many of us have heard the phrase 'you can't improve what you don't measure' and yet almost none of us actually measures anything (this applies to our personal lives too, like weight loss / fat reduction - and I am guilty as charged).
So... how do you diagnose the problem? Rather than re-invent the wheel let me point you to a great tool that really simplifies the diagnosis step - http://www.brs-seattle.com/toolkit.html. Look at the 'Road Map' and follow the instructions. As an example, if your problem is 'low cash' and you trace back your problem and find that you have 'too much inventory' as, based on your analysis, your inventory days have been growing steadily over the last few months or years - well, you've found your problem.
Although not in the instructions, I am a firm believer that you can also 'over measure' when you embark on a process of measuring for the first time. Therefore, I'd advocate simply picking either the symptom that is causing you the most pain and measuring 1-2 things associated with your actual problem OR pick 1 - 2 problems and measuring only 1 thing each. Don't get overwhelmed otherwise you are not likely to accomplish anything.
In the next post, we'll talk about setting a baseline and starting the measurement and improvement process. If you don't measure if - how can you improve it - #2.