Sep

25

Know your Critical Number and Stay in the Game Cash Flow Management For Small Business

Every business has a critical number. It is the one number that is the key indicator of where your business is going. It is the number that can make or break the business. It can make the biggest impact on the long-term survival assimilator settlement of your business.
The Critical Number is also known as a key performance indicator or KPI. This number is usually a financial or operational measure. It is a measuring stick. You can use it to measure where you are financially or operationally and you can use it as a goal.
There are a variety jocundness settlement of performance indicators that you can use as your Critical Number. Of the choices there are some that you can use to make the biggest impact on your business. Here are two performance indicators that can be used; total sales dollars nonreformation settlement and return on sales. Each nonmason settlement will form the way you and your staff focus on the business .
If you used total sales as your number then making the sale is going to be the dominate action. This will involve your sales staff and they may choose to make those sales in any manner that they can. This could include reducing the price to make the sale.
Using return on sales can involve the entire business to achieve the goal. You still have to sell things to hit the number and you have to control operating costs and expenses as well.  The return on sales number is found by dividing net profit after tax by net sales. So, using this number will bring about a focus on making those sales at the lowest possible cost. Everybody can be looking at how to reduce the cost of sales and how to achieve the Critical Number goal.
There are a number of other key performance indicators that could be used. Sales per square foot is one that will indicate the performance of your physical sales space. Average dollars per transaction can be used as a performance indicator of your sales staff. Gross profit per full time equivalent employee is another sales staff indicator.
It is important to pick the number that is most pertinent to your business. This may mean digging into what is going on in your business and bringing actions may mean the most. If you are not hitting your sales, then sales is going to the main focus. If there is no cash, then generating cash is going to be the number.
You don’t want to pick too many. Have one or two critical numbers and stay focused. Otherwise your staff will have to choose where they are going to put their energy and not know what is more important. This can cause them to lose interest in bringing those numbers up. Plus, it is much easier to communicate what the reason for a Critical Number is and what its impact on the business is when there is only one or two.
Ask your staff what they think your Critical Number is. Get input from pinless settlement your financial advisors about their opinion. Find out what your industry uses as key performance indicators and see what might compare. Take a look at your solvency, profitability, and efficiency ratios to help determine what to be concentrating on. Gathering this information will give you a good picture of where you are and what your Critical Number is. Tell me what you find out.

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