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Getting To Grips With Business Managment & KPI's

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Thursday September 9, 2010 at 9:24pm

No doubt you have realised that times are tough at the moment. Customers are scarcer and they want to spend less or want more product or service for less money. The banks aren’t lending at the suggestion that you can easily borrow elsewhere if they say no. Their balance sheets are undercapitalised and lending targets have certainly shrunk regardless of what they say in public.

In such an environment it makes sense to move away from the seat of the pants approach to decision making. Gone are the days of changing direction on a hunch, assuming that future sales will cover the extra investment if cash gets tight or assuming that your mortgage provider will lend more money against the house as a last resort.

It seems the era of sound business practice based on relevant and timely management information has arrived. It is back to first principles of monthly profit and loss, balance sheet and cash flow. Key Performance Indicators (KPIs), monthly projections, management by exception and management meetings run to an Agenda with Minutes and actions for team members.

As a firm our biggest growth area at present is in the facilitation of monthly management meetings and helping clients decide their Key Performance Indicators (KPIs).

Here’s what we find works best when providing this service to clients.

  1. Agree financial projections for the coming 12 months. This avoids a lot of time (and boredom) spent pouring over the numbers in the management meeting. Once you have these projections or budget figures you have a picture of where you see your company going, the process then is really in comparing the reality to the projection. Crucial to this process is deciding the KPIs relevant for your business.

  2. Schedule a meeting with the company’s key team members every month once the financial information for that month is available. Review performance against budget, if in line with budget then move on. When I facilitate these meetings I am much more concerned with the current month’s sales to date and the order book and projected sales for the following month than looking back at the past. That is unless there is a big variance, in which case you want to understand why.

  3. Amend financial projections each month in the light of experience from the current or earlier months or from new developments coming to light that were not necessarily apparent when the first budget was agreed at the start of the year. This is particularly important as it enables you to always have the most up to date view of expected final year profits and tax.

  4. Review the cash flow forecast. This has one overriding purpose of telling you what bank balance to expect at the end of the month. By amending the forecast as information comes to light from monitoring progress or through information provided at the management meeting, you are able to determine the effect these unexpected changes will have on cash flow. You can then make provision with lenders before a problem becomes a real crisis.

  5. Take time to review non financial issues facing the company. These might be staffing issues, quality problems, competitor activity or customer feedback. They may be around new product development, product pricing or how to reach new markets. Make sure the relevant people are invited to discuss these issues and have time to prepare.

  6. Keep a record of actions from the meeting and agree the appropriate member of the team to deal with each action. Setting a deadline against each action and reviewing at your next management meeting is crucial, if you want to be effective.
    Regular management meetings aren’t a luxury reserved for big businesses, they are essential for family owned and smaller businesses too. They allow you to step off the treadmill of ‘doing’ and actually ‘manage’, to see what’s going wrong and quickly put it right and to learn from your successes.


Andy Parker
Chartered Accountant

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here