Tips for Developing Individualized Key Performance Indicators

Set your goals. 

Without clear goals, performance indicators cannot measure progress because no one knows what they are progressing toward. Specific, clear goals for each area of the company from safety to sales to employee performance.

Attach numbers to each goal. 

Giving concrete value to each goal provides specificity and gives the company clear, measurable objectives.  How many new customers  are necessary? How many safety violations must be avoided? How much money needs to be saved through cost cutting measures? “Increase profitability” is a vague goal; add $1 million in new sales is clear and measurable.

Track progress that has already occurred.

 When key performance indicators are paired with specific company activities, it becomes easier to develop indicators that will measure progress toward future goals.

Take a close look at the current numbers.

Analyze the numbers in each area of review and determine the percentage of change that has occurred. Examining current numbers will help in developing effective goals for the future.

Decide how often the indicators will be reviewed.

Key performance indicators should be reviewed at set dates throughout the year; different areas will require different frequencies. For example, financial indicators may be reviewed monthly, but employee review indicators may only be reviewed annually.

Scalability as a Determining Factor for Outsourcing

 Several factors determine whether or not outsourcing specific tasks is the best option for your company’s needs.  Scalability is one of these.

At the core of the scalability factor rests the theory that you only pay for what you use.  This means that a small business can save a significant amount of money that would otherwise have been consumed by retainer costs.  Several advantages exist to working under a scalability model:

·       Allows for businesses to outsource only that portion of projects which may prove expensive to manage internally

·       Augment existing staff or services during identified high traffic or peak activity periods to better service clients and customers

·       Ability to draw on and access key expertise areas when needed for specific aspects of projects or services without having to absorb costs for that expertise full time and “in house”

Determining Scalability

Scalability, by itself, is a major factor in determining what to outsource and to whom.  The extent to which a vendor allows you to scale back operations can also influence the decision to outsource.  Other factors that influence outsourcing on the basis of scalability could include some of the following elements:

·       Scalability inherently requires some degree of automation.  A vendor with high investment in the latest technology and understanding of how to integrate business requirements with tools and applications is best suited to offer scalability.

·       Scalability may not be applicable to all processes; in services that are people driven, it may not be possible to scale back operations at all

·       Understanding how much to scale back, and when, can be determined only by a vendor with significant maturity or experience

·       An organization or a vendor offering scalability can demonstrate breadth and depth of services and have process – driven solutions with proven methodologies and strategies

·       Executing scalability requires the existence of quality infrastructure.  To ensure a steady stream of business continuity, it is essential that the documentation process be thorough and structure applied at all stages to ensure success of the project time and again

Scalability as a Reflection on the Vendor

A vendor who has invested significantly in training and coaching its manpower can ensure high returns for its clients by ensuring quality work.  The combined experience of efficient automation with experienced human resources and input positions a vendor to offer relevant client solutions, consistently and repeatedly.

How Small Businesses Can Leverage Cloud Computing

Cloud computing is redefining how businesses run, impacting the operations of large enterprises as well as start-ups.  For some the notion of “cloud computing” is a relative new concept. 

Cloud computing provides businesses with access to the valued end result or output of equipment and   Most often, cloud computing is delivered as software as a service (SaaS) where users can access a web based solution via a subscription without the heavy investment in the IT infrastructure to support it.  Recent growth in cloud computing is partly driven by the growth in mobile technology platforms that allow users to access information anywhere, anytime.

software, without the ownership or maintenance costs required by purchasing it.

Although large enterprises with multiple geographically dispersed offices have benefitted from cloud computing, it has been an even greater benefit to small business.  Small businesses now have access to enterprise solutions via the cloud computing that would otherwise be unaffordable for them.  Even more importantly, these cloud based solutions allow small business to function more like larger business in the information they can access while simultaneously maintaining the flexibility and agility of a small business, allowing them to react and adapt to situations. 

Some of the benefits cloud computing provides for small businesses include:

• No heavy investment or maintenance costs in IT.  The software as a service method allows multiple users to subscribe to the solution.  The vendor providing the solution- Intaact, NetSuite, etc., absorbs the maintenance costs, and by offering the service on a subscription basis can pass along cost savings due to economies of scale attributable to user volume.
• Ease of implementation. Cloud based solutions eliminate the need for small businesses to invest in infrastructure development, training, and support. Businesses subscribe to the service, and training and support are provided by the vendor on an as needed basis.  The business owner can subscribe and unsubscribe to the cloud service as they wish.
• Redeployment of IT.  For small business with limited manpower, cloud based services free up time for IT resources to be redeployed on more strategic initiatives or reduce the need for full time IT employees.
• Security. Business owners should always check this, but reputable cloud based solutions are knowledgeable about the most up-to-date security measures and encryption technology.  This becomes one critical task which the business owner does not need to address, as the responsibility is absorbed by the cloud service provider who may have more expertise in this arena. 
• Scalability.  Most cloud providers offer packages with different access levels so that small businesses only need to pay for the services they require and use, resulting in overall cost savings for the small business.
• Business Continuity/Disaster Recovery.  As a small business, this is a critical task which can often lack the attention it deserves simply due to manpower and bandwidth.  Cloud based services assist with this, as they back-up critical data offsite as part of providing the solution, facilitating access to this data in case of an emergency.

Small to mid-sized businesses have the most to gain from leveraging cloud based solutions in their business operations.  If you would like to learn more on how Alan Neal & Associates can assist you with selecting and implementing an appropriate cloud based solution for your business, please call me directly at 423-756-4076 or email me at alan@alanneal.com

Interpreting 6 Key Ratios

In order to make the best use of the three financial statements, business owners need to know how to interpret and compare particular data on them. There are five key ratios:

Current Ratio-(Current Asset/ Current Liabilities) A liquidity ratio that measures the quality and adequacy of current assets to meet current liabilities. In other words, can a company quickly convert its assets to cash in order to meet the immediate and short-term obligations.  

Sales to Receivable Ratio-(Sales/Receivables) A liquidity ratio that measures the number of times trade receivables turn over during the year. The higher the turnover of receivables, the shorter the time between sale and cash collection.

Cost of Sales to Inventory Ratio-(Cost of Sales/Inventory) A liquidity ratio that measures the number of times inventory turns over during the year. The higher the turnover of inventory, the shorter the time cash is tied up in inventory the sooner inventory is converted to cash therefore, increasing liquidity.

Debt to Equity-(Debt/Equity) A leverage ratio that measures how well a company is managing its debt and whether the company is reinvesting in itself or taking on more debt. It expresses the relationship between capital contributed by creditors and that contributed by shareholder.
Profit Margin Ratio-(Profit/Sales) Measures a company’s profitability and how much “cushion” it has.
Return on Assets-(Income/Assets) An operating ratio that measures the effective use of assets in generating earnings.

Interpreting key financial ratios correctly allows business owners to act quickly. Immediate corrective action increases efficiency and profitability -- two improvements all business owners want!  

Business Owners & Reading Financial Statements

In many companies, it is the CPA who performs the analysis of the financial statements. After all, as an accountant, the CPA has expertise in interpreting and drawing conclusions based on financial statements. However, business owners can reap great benefit from learning to read and understand financial statements. The information those statements contain reflects the overall health of the company. When the business owner can identify problematic indicators in the financial statements, he or she can take immediate corrective action.

There are three core financial statements, and each one depicts a different view of the company’s overall financial picture. The balance sheet, the income statement, and the cash flow statement provide three different snapshots of the company’s financial health at a specific point in time such as month end, quarter end, or year end.

The balance sheet provides and overview of the company’s financial position. It measures assets -- what the company owns -- and liabilities -- what the company owes, at a given moment in time.

The income statement reports the profitability of a company for a stated period of time such as a month or year It compares the revenues generated with the expenses incurred to produce those revenues. In other words, it shows the amount of money made through sales, minus what it cost to produce whatever is being sold.

The cash flow statement captures cash fluctuations for a company, at various points in time.  It lists all sources and uses of cash. More importantly, it can be used to gauge how much cash is on hand so that a company can determine if it can pay expenses and purchase assets.

Business owners who are able to read and understand their financial statements develop insights into the overall health of their companies. That additional information allows them to  confidently make decisions on how to move their business forward, often with a competitive edge that others lack.