It’s easy to get caught up in the crazy day-to-day activities of your business. But if you never set aside time for some serious planning, it’s almost impossible to get out of panic mode. Here are four things you can do to help keep your company on track.
Establish pertinent metrics and track them religiously
Revenue and net income numbers alone are not enough to give you an early warning system for financial trouble. Each company shoul track different metrics, depending on their stage and their industry. Here’s what we keep an eye on:
- Liquidity (Since we don’t have any debt, and do not consider our inventory to be liquid, our formula for liquidity is Cash + Accounts Receivable – Accounts Payable)
- Accounts receivable
- Accounts payable
- Open sales orders
- Monthly sales orders
- Monthly revenue
- Monthly net income
- Open purchase orders
- Monthly expenses
- Year-to-date sales orders
- Year-to-date revenue
- Year-to-date net income
- Accounts receivable over 90 days
Other metrics, such as quoting activity, can also be great early indicators.
To track these numbers on a daily basis, you need to have systems in place that make all this information easy to get at. We started doing this in 2008. All of the information is tabulated in a single graph for each year, and I’ve got the four graphs for 2008 through 2011 posted at my desk.
Essentially, they are EKG’s of the company’s health. And after four years, it’s easy to see the rhythms of the business. Patterns and seasonality issues stand out, and it’s easy to tell if progress is being made. The first thing I do each morning is to open the year-to-date graph and check it versus the other years. It takes less than five minutes and sets the tone for the whole day.
Use those metrics to set budgets and goals
If your fiscal year corresponds to the calendar year, make November and December your planning months. Take the time to make sure your planning is done right. Otherwise, you might as well skip it altogether.
Consider having your management team set the budget instead of the President or CEO. The more vested and involved they are in the process, the better the results will be. We made that change two years ago, and last year actual expenses came in at 98.7% of budget. I can’t ask for much better than that. With each additional year of financial reporting, the budgeting process becomes easier, faster and more accurate.
The budget will set the tone for the entire year. Aim to finish it by December 1, and also to establish any themes for the year that will help you hit your numbers. Your budget should include annual, quarterly, monthly, and yes, daily revenue and net income goals.
You might be surprised at how important daily goals can become. I regularly hear folks in sales say “We just hit our daily quota for new orders!” or someone in production say, “Shipped out the daily quota today.”
Communicate goals to the whole organization
The rest of December should be spent filling out……performance reviews. The worst performance reviews are those that have the “3” box checked (on a scale of 1 to 5) with no comments – the ones that the supervisor spent less than five minutes each working on. Good performance reviews take time, and they should – they’re important. The most critical thing to remember is that there should be no surprises at an annual performance review. If there are, then the supervisor did not do a good enough job communicating issues throughout the year.
Have your employees fill out a self-evaluation, using a form identical to the one their supervisor uses. This should validate that both parties are on the same page. Make goals for each individual and relate them to how they will help achieve the overall corporate goals.
Schedule the performance reviews in January, as early as possible just after the first of the year. People should be over the craziness of the holiday season. Use the performance review to analyze and reflect on the previous year, both from a company-wide and personal perspective. Talk about last years’ goals and what the actual results were. Make it very clear what the company wants to accomplish in the upcoming year, and what each employee’s role is in making that happen. The earlier in the year that everyone’s performance reviews are completed, the sooner that everyone can start working together toward a common goal for that year.
Communicate progress and reward achievement
Give your employees access to your financials, or regularly give them updates about the company’s progress. Consider rewarding employees based on your profitability. In 2006, we started a profit sharing program, and we use a very basic reward: cash. After the end of the quarter – typically within two weeks -- 10% of our net income before taxes is divided up between all the non-owner employees and distributed to them in the form of checks.
We realize that we are missing out on some of the tax advantages of a retirement fund-based profit sharing program, but getting a check two weeks after the end of the quarter has a real, tangible impact to our employees. When the company does well, employees don’t see some digits changed on their 401k statement. They get a check they can cash or put in the bank that day, and we make sure all the profit-sharing checks are handed out by supervisors.
And if you are more than just profitable for the quarter – if you hit or exceed the goals you communicated to everyone during their performance reviews--think about doing something above and beyond profit sharing. Bowling, lunch, laser tag, a river cruise, massages for everyone – do something fun to show everyone you appreciate their hard work. After all, spending a good chunk of time in planning mode doesn’t sound like fun. But beating your revenue and profit goals? That should be fun.