Business ICU: Measuring Your Vital Signs in Tough Times

Posted by Laddie Blaskowski on Apr 08, 2009

Depending on your age, you may remember the old Dr. Kildare television series and everyone probably remembers George Clooney playing an emergency room doctor on the E.R. series. These episodes often depicted doctors hovering over a trauma victim, with someone calling out, “What are his vital signs?”

These days we’re all in an “emergency room” of sorts because of what’s been happening with the economy. If you’re a business owner or professional, how are your business’ vital signs? When the economy was running more smoothly, it might not have been as important to track various areas of your business but now it’s very important. The tougher the economy, the more we have to watch our significant business indicators.

Certain vital signs, or indicators, are universal in that they are significant to virtually all businesses, where others are more industry-specific. Regardless of your business or industry, there are three areas in every business where it is important to develop and monitor Key Performance Indicators (KPI’s):

Financial. This is perhaps the most important vital sign for your business because finance is the “pulse” that keeps your company up and running. We work with our consulting clients to help them develop KPI’s as a way to monitor the financial health of their businesses. Some universal KPI’s to consider are

1. Gross profit margins.

2. Operating expenses (as a percentage of sales or in total dollars).

3. Sales (in total, by division, by product line, etc.).

4. Customer profitability.

5. Cash flow items, such as accounts receivable collections You may want to listen my podcast, Seven Ways to Speed up Accounts Receivable Collection.

In addition to universal KPI’s, you should look at parts of your business specific to your industry that you may want to monitor, such as those related to liquidity, asset usage, financial leverage and profitability.

Sales. If finance is the pulse of your business, sales are the “muscles” that propel it and this is a vital area you should measure. None of us can survive in business without sales, whether they are derived from referrals or our own sales efforts. Monitoring various sales indicators can have a huge impact on their effectiveness and your profitability. The four key measurements for most businesses are:

1. Number of leads and how they are obtained.

2. Leads converted and how they were obtained.

3. Average dollars per transaction.

4. Average transactions per customer.

Operations. Similar to a body’s nervous system, operations need to run smoothly to keep all parts of the company healthy. In general terms, important things to track are the time it takes to complete a task or process, employee productivity time versus downtime, the time it may take to complete specific projects, and/or the time it takes to create a product or provide a service. While specific items needing to be tracked differ from industry to industry, KPI’s should be developed that are unique to your company.

A business is analogous to the human body in many respects because it must be nurtured to be healthy and successful. Just as the E.R. doctor wants to track his patient’s vital signs, you should track vital signs in your business. They will help you determine where you might need to take action and help you gauge how well you’re really doing.

BusinessTruth®: If you can’t put a number to it, you can’t measure it!