What Numbers Should You Be Looking At In Your Business?

Four-Minute Read

"You have been blessed with a mind that can direct your actions in any way that you choose." -Ramon Luis

During the first Super Bowl® that Tom Brady won (with the Patriots), these were some of the companies who advertised (hat tip to Jon Erlichman of Bloomberg):

AOL®

Blockbuster®

Radio Shack™

Circuit City®

CompUSA™

Sears™

HotJobs®

Yahoo®

VoiceStream Wireless®

Gateway Computers®

The year was 2002, and life looked different. BUSINESS looked different. And this past year, we've all had to adjust to some things.

For investors, this will be an interesting few years ... and it pays to have someone in your boat who is attending to those things that you cannot. This blog is designed to be that 'someone', helping you navigate the changing sea of business as things ebb and flow.

It's a large part of my job to work with business owners by "picking up the pieces" of their finances, and unfortunately, it's often too late to have done any good.

Of course, we work with many thriving businesses by helping them spot hidden opportunities buried within a mess of data. For instance, we've helped businesses identify cost-saving measures, untapped market segments, and potential areas for business expansion.

That's because every day, my staff and I swim in an ocean of numbers, and we've become pretty quick about knowing what's happening in a business by seeing where the "currents" are leading (if you will).

But often, we're stuck looking historically instead of in real-time because too many business owners don't have a system to get those numbers to us quickly. But when they do, we can very quickly know how to help.

So today, I'm laying aside tax issues to help identify for you some numbers that don't necessarily show up on balance sheets -- and why they're perhaps even more important than what you see on a P/L (Profit & Loss) statement ...

It's easy to get lazy when a business can pick the low-hanging fruit in an easy marketplace.

But that's not always the case.

Markets shrink, funding dries up, prospects aren't as easily found, or profitability margins decrease. So, what do you do? Many business owners don't know how to tweak their marketing and sales systems so they can track the numbers at each step in the sales process and grow in new directions. Adapting to these changes is crucial, and with the right strategies, you can stay ahead of the game.

I have seen (in several industries) that the businesses that have weekly sales meetings, track their numbers, and hold team members accountable are successful ... while those that guess and "assume" are usually out of business. It's just a matter of time.

The key is knowing the numbers- what the average expected result is and how you are measuring up against that result for each step in the process.

Markets shrink, funding dries up, prospects aren't as easily found, or profitability margins decrease. So, what do you do? Many business owners don't know how to tweak their marketing and sales systems so they can track the numbers at each step in the sales process and grow in new directions. Adapting to these changes is crucial, and with the right strategies, you can stay ahead of the game.

Others do not have the systems or do not understand how to track those numbers or understand the benchmarks of the average business, the good business -- and the great business. The truth is, not tracking these metrics can lead to serious consequences for your business.

Many self-employed business owners feel what they are doing is "working just fine" without testing it or tracking where they are. Sadly, this reflects a naivete that will eventually bite you in the rear end.

Unless you have completed valid measurements and received statistically reliable results, you don't know whether you are improving or going backward. Measuring success empirically with numbers provides you with a clear understanding of your business's performance and inspires you to strive for continuous improvement.

When Lynn and I got married, he was trading commodities. In the first year, he experimented with commodity spread trading. This involves taking simultaneous long and short positions in related futures contracts. One of his trades in the first year was Long-December Soybean Oil and Short-July Cotton. It was a bear market, and both prices were in freefall. Finally, Lynn liquidated the losing bean oil contracts and started to add contracts to the cotton. Very profitable! At the end of the second year, I asked him if he had been tracking his profits. Lynn hadn't. I asked if he wanted to know where he stood, and his reply was, "Yes." He was not expecting the results. You are down $500 for the year. "That was a lot of work to lose $500. I'm not as clever as I thought. I'm done."

So, here is the cold, hard truth: if you don't know how to test scientifically- or if you do know but think it's unnecessary- your business is on the slow road toward oblivion.

Here are the sorts of things you should be watching...

If you want to develop business mastery, it starts with direct marketing and sales expertise. And that means establishing the ability to measure the following factors :

• >Statistically valid testing at each stage of the sales process
• >Structuring price, term, refund, and premium tests for profit -- and what works
• >Determining the actual lifetime value of every new customer/tenant.
• >Calculating "allowable acquisition costs" (what you can spend to get a customer/tenant)
• >Measuring responsiveness by advertising source
• >Identifying the "doubling date" or "half-life" of a new offer or customer
• >When is the right time to purge unproductive prospects and staff
• >How do you identify opportunities for multiple streams of revenue within your business (the numbers should tell you)

If you don't have the ability to measure these areas in your business -- or if your key people cannot -- consider your business to be in trouble.

I'm grateful for our readership and your engagement.

BE THE ROAR not the echo®

Warmly, Janet