Several times in the last few months, I’ve come across a situation where a small window and door company has no accounting records. OK, not ZERO – there were bank statements and sales invoices. But that’s it. No regular bookkeeping, no monthly management accounts, no KPIs.
The only measure that these businesses have of their performance is by checking how much cash is in the bank. That’s worrying and it’s a recipe for disaster. It’s highly unlikely that a business in this situation will survive into the long term. It’s crucial for success and growth to regularly monitor business performance. Anything else is like being an air traffic controller in a power cut!
KPI’s matter. Successful businesses have a handle on all their key numbers. By maintaining accurate and detailed metrics, you gain a full understanding of your company’s health. These metrics help you make informed decisions, identify challenges, highlight growth opportunities, and take effective actions.
Consistency and regularity are vital. Waiting until year-end to assess your financial performance is folly. But too many companies in this industry do it because they don’t know any different. And year-end accountsprovide little value because the information is out of date, no longer relevant, and is very basic, often just a balance sheet, providing no real useful information about business performance.
Instead, monitoring your financials on a weekly and monthly basis is a game-changer. Metrics such as new order intake, order book, sales pipeline, survey volume, turnover, gross margin, overhead costs, operating profit, operating cashflow and many more are the heartbeat of the business.
Businesses should also consider implementing technology solutions such as modern accounting software and business management tools. These tools streamline the process of tracking KPIs, offering customisable dashboards and automated reporting features tailored to the window and door industry’s specific needs.
Education is key. Business owners should be educated about the significance of KPIs and how to effectively use them. Workshops, webinars, and online resources can help bridge this knowledge gap and empower businesses to harness the power of KPI monitoring.
Benchmarking against industry standards or competitors is essential. By comparing KPIs, businesses can identify areas for improvement and set realistic goals for growth. This practice fosters a culture of continuous improvement and strategic decision-making.
Financial forecasting is another critical aspect of KPI monitoring. By regularly tracking key metrics, businesses can better predict future trends and make proactive decisions to mitigate risks or capitalise on opportunities.
Regular performance review meetings give you real-time insights, allowing you to spot trends, patterns, and anomalies as they occur. I always advocate holding a review of prior week performance every Monday morning. This keeps you in control of your numbers and allows you to be agile.
But it’s not just about the financial metrics. It’s important to have a business wide set of KPIs that inform you about all areas of your organisation – sales, marketing, operations, HR, customer satisfaction etc. And it’s about understanding the story they tell. Are you experiencing an improvement in sales due to a recent marketing campaign? Are those leads you just purchased converting at an acceptable rate? Are your fitting costs out of line with industry norms? Are you spending too much on access equipment? Is your order book sufficient to keep your fitters busy? Will you have enough cash to pay your VAT bill? By asking these questions and digging deeper into the story the numbers tell, you gain vital information about what’s working in your business and what isn’t.
It’s not just you that needs your solid financial information. Suppliers want to determine your credit rating and the better it is, the better your credit terms will be, boosting your cashflow. You might want to apply for a business loan – you’ll need robust accounts for that. Or you might want to join the GGF, who’ll insist on seeing your trading history.
Conclusion
In conclusion, the absence of regular monitoring of KPIs in smaller businesses in this sector is deeply concerning. KPIs are not just optional but fundamental to success. Great businesses understand the importance of meticulously tracking the key metrics that empower informed decision-making, the identification of challenges and opportunities, and the implementation of effective strategies.