Improvement is facilitated by the Business Improvement Cycle. It’s important to take the business through the Business Improvement cycle consistently and frequently to accelerate business improvement. This should be done ideally on a monthly basis, or at least quarterly for smaller businesses.
- RAW DATA
The process starts with Raw Data. What’s in your “shoebox?” Receipts, invoices, bank statements, and all the transactional documentation that comes in on paper, or even digitized, contains the seeds of intelligence, but uncompiled and unorganized, they convey no meaning.
The double-entry accounting system is the best established process to categorize, organize, and compile the raw data into useful Information. Once the data is organized into information, in the form of Financial Reports particularly the Income Statement and Balance Sheet. These are the foundational tools for business management and improvement. Unfortunately, many accountants simply deliver financial reports to their clients and think their job is done. Many small business owners never review or study their financials. Financial reports are not the END of accounting, but just the BEGINNING
The financial reports need to be ANALYZED, or taken apart, broken down. This is done by building context for the numbers. This can be done in a number of ways:
- Comparing one number of a report to another number of the same report. Net Income as a percentage of Total Sales for example, or Equity as a percentage of Total Assets from the Balance Sheet. There are many important financial ratios in this category including Current Assets to Current Liabilities (Current Ratio), Liquid Assets to Current Liabilities (Quick Ratio) and Current Assets less Current Liabilities (Working Capital).
- Comparing one number of a report to another number of a different report. This would include many key financial ratios such as Net Income to Total Assets ratio (Return on Assets), Net Income to Equity (Return on Equity).
- Comparing numbers outside the standard reports to numbers within the standard reports can also be helpful. For example, Total Sales per Employee can be extremely instructive. Revenue per customer, Revenue per newsletter subscribers, are other examples. Looking for correlations between inputs (customers, newsletter subscribers) and outcomes (total sales, net income) can reveal some primary indicators of success.
- Comparing internal company numbers to external industry numbers gives an added level of clarity to how the company is really doing. A company may be comfortable with their profit margins for example, until they find out that they are well below the standard for similar businesses in their industry. Likewise, they may be surprised in certain areas how much better they are doing than the industry standard.
- Comparing numbers from one time period to numbers from other time periods helps to clarify trends, and identify where the company is improving, and where performance is declining.
- Month to month year to date.
- This month to last month
- Current month to same month last year
- This quarter to last quarter
- Current quarter to same quarter last year
- Quarter to quarter year to date
- Current year to date to year to date last year
- There are many other ways to break the numbers down and put them into context.
- CONTEXT AND MEANING
Once the numbers have been broken down and put in Context, it is much easier to determine what the numbers mean. The numbers, ratios, comparisons, and context will show where the problems are, and often what the problems are. They should at least indicate where to look for further answers and what other questions need to be asked. There are as many possibilities as management can think of, though not all are significant. This is the discussion to determine the most powerful working levers of the business. What leading indicators are most consistently predict certain outcomes. This can usually be ascertained even without more complex statistical analysis. It is amazing how much can be learned from basic numbers. The answers are often so obvious, once the numbers have been broken down and put into context, that even a child could see them.
Once the numbers are fully understood, and the factors that drive performance are determined, decisions can more effectively be made. What are the most important things to do to improve the company? What actions can be taken that will make the greatest difference, in the least amount of time, with the least expense of resources, over which management has the most control. These often revolve around cutting expenses. Analysis should have revealed assets that are not profitably deployed. Which employees, products, clients, advertising sources, etc, are not paying for themselves. The company has less control about increasing sales as the market and individual prospects also have competing interests that affect whether or not the improvement is realized.
- ACTION PLANNING
Once the decisions are made and prioritized, regarding what needs to be done to realize improvement, creating action plans is the next step. The planning process includes for each priority:
- What is to be accomplished? The improvement initiative objective should be clear, specific and quantifiable.
- When should it be accomplished? A schedule for implementation should be laid out with incremental success goals along the way to the final objective.
- What resources are required to achieve the desired improvement? This would include people, equipment, training, raw materials, expertise, etc.
- Who is accountable for implementation? Someone should be given accountability and authority to get it done.
The final phase is to implement the action plan. With accountabilities assigned, frequent accountability sessions should be held to make sure that progress is being made as per plan, and if not, determine using the Business Improvement Cycle what improvements or changes need to be made. Think of these as “sub-cycles” – minor improvement cycles within the larger cycle. Every implementation creates new RAW DATA with which to begin the Business Improvement Cycle anew.
The power of the Business Improvement Cycle will manifest itself as the process is consistently implemented and repeated – FREQUENCY ACCELERATES SUCCESS.
BizBench Reports are a POWERFUL BUSINESS IMPROVEMENT TOOL. These reports give you the information you need, and the context and meaning to make better decisions, and take more transformative actions in the business. BizBench gives you an added layer of internal and external context as well as a comprehensive list of corrective action items to save you hours of time in compiling, analyzing, understanding, planning and implementing your business improvement plans.
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