In Depth Look: Coordinating Operations and Finances
It goes without saying that a strong company has solid operational and financial management. However, it is not always the case that companies that have strong operational and financial management link these two core functions together so they can make better decisions. Therefore, we would like to pose the following questions that should help business owners and their management teams better define which operational areas are driving their financial results.
1. How do you conduct your budgeting process?: For many firms, the budgeting process is seen as a time consuming item on your annual checklist. We would like you to consider the budgeting process as the first place to check whether your operational focus areas are driving appropriate revenue numbers. In our last post, we discussed the importance of defining your sales process. If over the last year you have implemented a sales plan that targets your core customers with the right salespeople who have the right incentives, then your actual numbers at year end should reflect this implementation. Therefore, when you are budgeting for next year, you can refine your focus on your core customer and improve the incentives for salespeople who sell to these customers.
2. What metrics are you tracking?: The use of any budgeting or benchmarking process is to provide feedback about how well you understand what drives your business. For example, many businesses use client billing or sales per employee as a measure of their productivity. However, these are backward looking measures that measure what has happened as opposed to what we want to happen. We suggest you take time in your next budget meeting to discuss how to best target your core customer to reach your revenue goal and then figure out how you can shift resources to reach this goal. Remember, it is much easier to make follow on sales to existing customers than to continually sell to new customers. Having a budget that focuses your resources on your core customers can allow you to make more sales to existing customers while also helping to strengthen your brand.
3. How are you tracking data?: This may seem like a strange question because most businesses figure that they are always tracking data through their point of sales systems. But in this case, we are talking about tracking the internal data that matters for you to reach your revenue goals. For example, if you want to increase revenue by 10% this year, how many sales do you need to make to your core customers? To make a sale, how many visits does a core customer need to make to your store? Does your core customer prefer to purchase in store or online and are you capable of handling both sales channels? Once a sale has been made, when should you follow up with a suggestion for a complementary product? Designing the sales process is step one, the next step is to decide what metrics are the most important to track, how you will fund this tracking in your budget and finally, how you will hold your salespeople accountable. Keep in mind, if you are tracking the correct data, you will be able to make adjustments throughout the year before you stray too far from your sales goals.
By developing a focused operating report that makes sure that the right people are doing the right things in the most productive manner, you will be creating a process for growing revenue and profits that becomes a valuable asset to you and to any future owner. At Stratus, we believe that sustainable growth can only be achieved when your company's cash and working capital are funding your company's ability to target their most productive customers.