When it comes to your business, to use a sports analogy, are you reviewing the score at the end of the game, or making in-game adjustments? Which one sounds like a more successful strategy? Any good coach will tell you that adjusting in-game will result in a higher win rate. Adjusting in-game allows you to pivot as things change and stay nimble. You may need to change your strategy to the changing environment.
When you meet with your accountant at the end of the year, you are reviewing the score and seeing where you did well, and where you could use improvement. When you review monthly or quarterly reports from your accountant, you are able to adjust “in-game”, and see where you are weak, and are able to make the necessary changes in order to “win” or come out ahead. Sure, reviewing the score after the game will allow you to revise your long-term strategy, and plan for the future, but if you are having a cash-crunch in the first quarter, reviewing the full year a few months after the year-end doesn’t help much. If you had known a cash-crunch was imminent, you could have made changes immediately, such as having your collections department follow up on old receivables, and delaying capital projects to a later date.
It is important to develop the right metrics to measure. Of course you’ll want to look at Net Income, Gross Profit, and other traditional metrics, but you also want to develop specific metrics for your business. For example, if you sell 4 different products, at 4 different price points, with 4 different costs, you’ll want to measure each one separately. Which product is your most profitable? Which product sells the most? Which product takes up the most of your team’s time? If you know these things, you’ll know where to focus your energy and attention, and when to remove a product that isn’t doing well or profitable.
We’re encouraging our clients to a move to a monthly or quarterly model with their bookkeepers. We’ve recently hired a bookkeeper so that we can provide this type of service, and we feel it adds a lot of value for our clients. If your bookkeeper isn’t doing this with you, or if you aren’t actually reading the reports, make sure you do, so that you are reacting “in-game” and not after its too late.