Every business has to look after its finances or it is likely to run into problems quickly.

Many years ago when I was a young underwriter and risk manager the company I worked for bought a small insurance administration company. The MD very proudly told me that he could manage the business on two numbers and that was all he needed every month. I confess my thoughts at the time weren’t complimentary. I was asked to analyse the numbers from the business and there were lots and lots of them. We pushed and prodded and tested the trends and set the stone age computers to work, and after about a year concluded that he was right. Two numbers would do it. Damn.

The part I’d missed was that the two numbers didn’t inform decisions, they informed of the need for analysis that would inform decisions. They were symptomatic of something that is changing and that needed to be understood.

It taught me a valuable lesson. Finding the right metrics to measure a business isn’t about lots of analysis all the time, it’s about finding the indicators.

In my work, mentoring a variety of businesses, I’ve always got an eye for an understanding of what the symptomatic numbers are. No two businesses are quite the same. so there is no simple answer to the question of what they should be.

Do you monitor your business with just a handful of metrics? Or are you analysing too much, and too often?

#Business #Finances #Metrics

3 Comments

  1. Hans Woudboer

    Interesting question William,

    you are not revealing what those two questions were!

    Anyway, here’s what I would measure:

    Earnings before Interest and Taxes

    1.EBIT

    2.Percent of Unprofitable Customers

    3.Percent of Profit Improvement Versus Revenue

    Reply
  2. William Hargreaves

    Fantastic post, William. 

    Reply

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Written by: William Buist - all rights reserved.
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