August 7, 2012
Accounting & Taxation, Financial Strategy, Improve Cashflow, Increase Profit
- Map refers to mapping out what needs to be done to improve your cashflow situation – the plan.
- Move refers to identifying the areas that need to ‘move’ to see a real cashflow improvement – the strategies.
Now, the final part of the puzzle is to measure what you are doing and determine the success of each strategy. Here’s how I refer to it:
- Measure is about determining specifically which strategies have been successful, which haven’t, and which are providing the highest return on investment in the shortest time – the results!
Not sure if you have heard this story before, but I think it’s very relevant it this discussion. A father takes his son to his first football game with the intention of explaining to him all the fundamentals such as who the players are, what the rules are but his main intention is to teach him that it doesn’t matter if you win or lose, its how you play the game that is most important. Very naïve son turns to dad and says, ‘it if doesn’t matter who wins or loses, why do they keep score?’
So, my question from a business perspective is, ‘why do we keep score?’
The answer is of course obvious. We keep score in sports and in business so that we can determine:
- Are we improving?
- Are we achieving what we originally started out to do?
- Is it worth continuing in this business (or sport) or should we try something else?
- Are the next strategies I’m trying providing better results?
Next question is what should I be measuring? Answer, anything you want to improve.
If you need more leads in your business, measure where the current ones are coming from. Is it from your website, from referrals or from other sources? The other area to keep a very close eye on is the cost per lead. So, for example, if in the next quarter I spend $5,000 on a marketing campaign, and get 10 new leads, my cost per lead is $500. Depending on your business model, this may be acceptable, or may be too high, but you need to measure the number to find out.
If your working capital is suffering, measure your debtors days, stock days and creditor days. It may be just one of these that’s suffering, but until you know which one, how can you determine if your improvement strategies are working.
If your gross profit margins are slipping, measure this. It might be that you measure the margins by product, by salesperson, by geographical area... whatever is most relevant.
Remember this, what gets measured, gets improved!
Of all the clients we have worked with, almost without exception, the ones with the greatest results have employed a very strict measurement process for their key strategies. Two results come from this, firstly it normally means the strategy gets great results because we are giving it the attention it deserves. Secondly, if it doesn’t work, at least we have measured it and know quickly. By doing so, we can change or eliminate the strategy before it costs us too much.
Map, Move and Measure – The key to cashflow success, but also the key to any business strategy success.