You can't manage what you don't measure, right?
When it comes to improving your financial performance the best advice I can give business owners is to numerate your strategic plan and then measure how you are doing against it.
What does that look like? Generally speaking it is laying out a monthly view to your revenues, expenses, capex purchases and loan payments based on an underlying set of assumptions that you are hoping to achieve over the next 12-18 months.
Here are 3 tips to consider when measuring your financial performance to your plan.
1. Add in some leading indicators
Business growth is all about driving new business. How many customers are you expecting to add each month? What price do you expect them to pay? These are the questions to ask yourself as you build out your financial plan. Each month, go back and look at the data to confirm the number of new customers added so that you can see how your business development investments are working for you.
2. Have the bulk of the plan mirroring your Profit and Loss line items.
It's important to have a thoughtfully considered P&L structure so that you can efficiently lay down the foundation for building your budget. Once confirmed this can be easily uploaded into your accounting software (like QBO) so that you can efficiently run a Budget vs Actual report to see how the revenues and expenses compared to plan.
3. Add in rows that confirm cash balances so you can anticipate any cash flow issues down the road.
Do you expect customers to pay in 30 days or 60 days? Are you anticipating your next HST payment? Have you factored in Income or Property Taxes that need to be paid annually? Ensure your financial plan includes these often overlooked outflows.
Bonus tip: Rely on your plan.
Often small business owners make adhoc daily decisions based on their current bank balance. To elevate your business practice, get into the habit of referring to your financial plan to reinforce decisions already made in order to stay on track.