First, the obvious: On the most basic level, a business cannot survive over the long term without being profitable.
But when it comes to building consistent profits, there are myriad variables and key business drivers that come into play.
Previous installments of the CEO Evolution series have touched on the need for CEOs and top executives to constantly be developing a business strategy, while entrusting day-to-day operations and the monitoring of those key drivers to the management team.
But in order for managers to keep tabs on their staff”™s productivity and for executives to form a strategic plan based on indicators like revenues, customer growth, sales leads and inventory turnover, a comprehensive data reporting system must be in place.
Here, I will discuss some of the challenges and important features of a strong reporting system:
Readability
A 20-page report crammed with statistics and numbers will not accomplish the objective, which is to communicate certain key data to your management team in a powerful manner.
Keeping it simple and clean will allow you to focus on your company”™s five or six most important business drivers.
Key trends
For my monthly operations meeting, I have one sheet for each of my managers that reports things like the current monthly sales compared with the previous year, current year-to-date sales compared with the previous year, gross profit for the month and year-to-date, cash receipts for the month and year-to-date and total customer balances that are 60-plus and 90-plus days due.
In addition to comparing an individual or a location”™s sales with prior periods, it”™s important to include the percentage and dollar amount by which sales increased or decreased. It may be subtle, but it communicates the direction the office and those responsible are heading.
It is also important to create reports that identify issues before they become major problems. For instance, I separate the amount of receivables that are over 60 days past due with those that are over 90 days past due.
Finally, on a quarterly basis reporting should be more in-depth, with the objective of viewing trends over a three- to five-year period and addressing longer-term strategies.
Comparability
One of the most difficult tasks is analyzing the individual segments of a business and quantifying their progress.
If your operations include generating sales out of multiple locations, then the first place to start is a profit and loss analysis by location. But that alone is not enough.
Many companies with multiple locations have important functions being performed by the corporate office, or headquarters, on behalf of all the operating locations. While functions like purchasing, IT, marketing, accounting and customer service might be centralized at the corporate office, their costs should be factored into the expenses for the respective operating locations.
Comparing sales from each operating location may seem logical, but that too can present pitfalls. A problem location ”” which usually means lower sales or tighter margins ”” may be taking a disproportionate share of executive and management time.
Why would something like that need to be considered and detailed? Because if the poor-performing location is taking up valuable executive time, other, more profitable locations may not be getting the attention that could be spent on further expansions and product development.
Another important consideration is the separation of acquisitions, new hires and other factors that will affect comparability with prior periods. All reporting must identify the impacts of these changes so you are comparing apples to apples.
Labor costs
The cost of salaries and benefits cannot be overlooked as a key business driver.
Service-based companies that bill for time, such as law and accounting firms, require most of their employees to complete daily time sheets, which in turn can help to track profitability and utilization by employee.
Most companies don”™t follow this practice, but more should consider it. Your workforce is your most expensive asset, but you can”™t manage what you can”™t measure.
Instituting a straightforward, time and reporting system that tracks employee time to complete activities and projects will go a long way in making a company”™s workforce more efficient and give you a better understanding of what everyone is doing.
BY MARK FAGAN
With Patrick Gallagher
