Every business has a number. Now I’m the numbers guy, so of course I’d say something like that. I’ve even written before about key performance indicators (KPIs) and how crucial they are to managing any business. I’ve discussed the ways in which numbers help our clients keep score of monthly, quarterly, and yearly results. And all those numbers are important and relevant, and I hope you’re already using them.
But today I want to talk about your unique number. The one that describes your specific business at a specific time on a specific date. The number that instantly allows you to assess the financial and operational health of your business, right now, right here. Every business has one. It is the number that is particular to your business model and the way you operate your business. I’m talking about the number that functions like the pulse of your business. Do you know your company’s pulse?
You have start by answering the question, “How do I make money?” I deliver services. I sell products. I drive a car. No, really answer the question. If you’re a consultant, it’s not enough to say you sell services. You typically make money by turning time into cash. You spend hours and minutes on behalf of your client and somehow that time gets turned into an invoice for services rendered which turns into cash in the bank. And that’s true for the consultant whether you send a bill for actual time and materials or charge a flat fee. I know because I am one.
In our firm, we are relentless in tracking time and monitoring billable hours. Because we turn billable hours into cash in the bank. We make a monthly forecast of our billable hours. We monitor billable time by person and for the entire company several times a week. This number is our pulse. After one week of activity we can monitor the billable hours and assess them against where we thought we’d be. And here’s the good part, this number is so central to the health of our business that we can take immediate corrective actions if we need to. And we have altered the work assignments and work schedules to get ourselves back on track.
So what’s your pulse rate? If you don’t know where or how to take this vital sign for your business, I hope you’ll reach out and ask me help. In the meantime, I direct you back to the question – How do you make cash?
- If you’re FedEx you make cash by honoring a promise to deliver some physical object from point A to point B on or before a specific date and time. Your pulse number probably has something to do with the percentage of packages delivered on time.
- If you’re Jiffy Lube you make cash by quickly assessing the health of my car’s engine and offering solutions to problems that you can deliver right now while I wait. Many of them beyond the mere oil change I drove in for. Your pulse number probably has something to do with the numbers of cars serviced in a day combined with the dollar amount of services sold to each customer.
- If you’re Advocate Health and operate hospitals, you make cash by providing medical services and acquiring reimbursement from insurance companies. Your pulse number probably has something to do with the ratio between the dollar value of claims submitted and the dollar value of claims received.
- If you’re Lettuce Entertain You, you make cash by delivering delicious food quickly and politely to justify the long wait I had at the bar. Your pulse number probably has something to do with the quantity of people served in an evening combined with the average dollar amount of food consumed by each person.
Are you getting my message? Your business, or more distinctly, your business model creates a special way that you turn whatever promise you’ve made to the customer into cash. And you want to have your finger on the pulse of your business by knowing how to measure and monitor that special promise you’ve made. Knowing that number should allow you to make adjustments and corrections before it’s too late.
I’d love to hear what you think your pulse number is. Till then, wishing you lots of positive cash flow.
What Can I Learn Today to Improve Our Financial Performance?
You can hear when an engine is running smoothly—or racing or sputtering. The same is true for the financial drivers of your business.
You just need to know what to listen for. The good news is that your numbers are talking all the time!
Here are the best ideas we can find on how to ask your business for the information you need, to understand what it says, and take action on what you learn.