By Brett Davidson
Most firms can produce loads of so called management information (MI), but in my experience what they actually produce is loads of numbers. It only becomes MI when it tells you something useful about your business and let’s you make better decisions for the future.
Typically, the data that firms call MI is merely historical performance; that is, they can produce the numbers they did over the previous month, quarter or year. Of course you need to see that sort of stuff but:
- What insight does it provide?
- How will it help you make better business decisions going forward?
This is particularly important if things are not going quite as you would like.
If you keep doing what you’ve always done you will keep getting what you’ve always got
One way of obtaining greater insight from the numbers is to convert the information into ratios.
These ratios allow you to examine various aspects of your business, compare your firm with other firms (regardless of size) and to see if actions taken are translating into better business performance. Top line revenue growth tells you none of this and yet this is what most people quote when asked if their business is going well.
This topic is covered very well in Marc Tibergian and Rebecca Pomering’s book, Practice Made More Perfect (www.amazon.co.uk) and I am using the ratios’s they describe there:
- Profitability ratios
- Productivity ratios
- Client selection ratios
If we look at some of the productivity ratios they include:
- Revenue per adviser
- Revenue per staff
- Clients per adviser
- Clients per staff
- Net profit per adviser
- Net profit per staff
You can probably see for yourself that analysing these aspects of your business will give you tremendous insight into how productive your business really is. For example, if you have a clients per staff ratio (i.e. Total Clients divided by No. of Total Staff) of 27 and the firm down the road has a ratio of 39 there might be some lessons you could learn from them about how they have structured their business processes.
Obviously, all of these ratios need to be looked at in context with each other rather than in isolation, but they start to shine light on the areas of your business that could be improved.
The productivity ratios in particular are often neglected completely by firms and this shows up as poor profitability and a difficult working environment (for you, your staff, or both).
Most adviser owners are front office, client-facing types who don’t have strong skills in designing better business processes. However, without a focus on this area you will struggle to break through and achieve your potential. But if you bring in a consultant or expert to assist you in this area, how will you measure their performance? The productivity ratios might provide some help here.
By tracking the various ratios quarter by quarter and year by year you can see the impact of the choices and decisions you have made
These ratios allow you to track progress even if there are major changes to your business such as a new acquisition, or a major re-structuring or downsizing. If you are not careful, these major changes to your business can hide a multitude of sins.
Growth by acquisition strategies in particular can allow the group to believe they are growing and performing better when in fact underlying performance might be deteriorating. Using the ratios can help you see through all of this.
In fact if you are contemplating an acquisition or disposal you can even model the likely impact on your financial ratios before you proceed, just to be sure that the right trends are likely to show up post transaction.
A key part of running a successful business
Identifying the management information that matters is a key part of running a successful business, rather than a sales organisation.
If you have been in business a long time but are still feeling like you haven’t fulfilled your potential then this may be an area that can help you break through.Join Brett’s BrightTalk MI webinar on Monday 16 July at 12.30