Over the last couple of weeks we have looked at monthly reporting and the kind of information a business owner should have at their fingertips.
In this blog post I will look at the other reports and information I believe are crucial to the success of any business.
The very basics:
Debtor days: this is about recording your average performance when it comes to collecting what is owed to you. If your payment terms are thirty days and some (or all) of your debtors are currently on day 90 this highlights a problem in your collections department which will quickly become a problem with your cash flow. Poorly collected cash leaves money in limbo that you could be using to purchase more stock. Whilst our sales growth at Pacific Direct remained exceptional, we milked every penny as fast as we could through the system with a world-class in-house collections team who handled their work with immense pride.
Creditor days: In our industry, payment terms were 30 days after month end. This means that most major companies in the hospitality industry order wherever possible on the first day of the month and pay on the last day of the following month – almost 60 days after placing their order. This makes good business sense for people who can make use of this window. The delay in cash outflow allowed us to make deals and to grow extraordinarily. Despite aims to get big companies to pay well small business is losing ths battle it seems and often companies do not get to the heart of the payment terms at the start of negotiations, sometimes taking a big hit on margins when offered “early” payment discounts which can shred margins. Always do your costing calculations accurately to avoid this.
Average sales per salesperson, and their profitability: it is so, so important to know who your best salespeople are and to reward them accordingly. Make it a friendly competition within your company to see who can make the most sales each month. Recruit based on a clear expectations that there are expected targets and open shared awareness of performance. Sales is a competitive industry in most cases but the quality of the sales person is not always as obvious as it seems. Some build long-term relationships and really penetrate accounts following all your operations and service rules; others break all the rules to win business fast but cost you administration support, process challenges and inefficiencies in the back end due to selling with exceptions. Take care to know who is really achieving total profit including the addiitonal cost drag poor sales people create by not following rules and by giving away too much. Have you done negotiation traning yourself? Have all of your sales team?
As you grow, you should also keep on top of best performers in global sales per individual region (read more about exporting here). It is important to establish which members of your sales team are natural rainmakers (hunters), and who is not. Everyone in your sales team needs a jointly agreed, achievable target and you as a business owner need to have a team of rainmakers to maximise your potential. It is not tough to hold people accountable if they have been recruited with transparency regarding fair expectations that have a proven foundation. Early on you may need to be more flexible to establish which are conversion trend in your sector or perhaps a new channel. Hence my belief that founders should also stay intouch with the direct sell. Selling is a conversation to solve problems and provide value for others. Put your feet in the shoes of your sales team also from time to time to see how they behave in the field, you will both learn lots.
Sales summary: nowadays this sort of thing is easily automated. A daily report from your accounts will show the market sales by sales person, as well as a running total both monthly and annually, towards your overall sales goal. The percentages this report gives you can show competitive gaps between individuals, and overall performance towards monthly targets. Better to look at this sort of thing daily than to get to the end of the month and wonder at how you didn’t hit your target. Every single person at Pacific Direct had access to the daily sales summary on their email. I know for a fact that at the end of the month the shipping, sales admin and inventory management departments – when working at their optimum – would work closely to ensure that every single penny was delivered, shipped and invoiced to achieve and smash the goals for which we all shared responsibility.
Note: A new sales person in a new territory who converts well and opens new accounts may appear to be doing well but what about repeat sell through and re-orders? Track trends against your usual customers and give notice to those who are not working innovatively to represent your product. Retailers have to be converting for the space your products takes in store.
Average gross margin: At the end of each month the accounts department at Pacific Direct produced a wonderful report which showed the reported profit per invoice and highlighted any customers showing less than appropriate profit for an order. In this situation it then became the responsibility of the sales people concerned either to implement a price increase for that customer, to explain the situation if it was an exceptional blip, or to sell something else that would bring up the overall margin above a company-set measure. Additionally accounts reported exceptions like airfreighted goods which destroyed margin (sales over promising and not planning stock) and other anomalies that affected profit and were unexpected exceptions.
In our case as we became bigger there was also quarterly sales reporting against plans for the preceding three months, looking ahead for key goals in the next three months, putting all the sales in the same room for a day for training and learning exchange on marketplace activity, Some of these reporting and accountability days became priceless for the company to align objectives and hold individuals accountable. Time well spent.
Ratio review reporting for annual progress: These allow a completely new view of the figures, and are incredibly powerful when considering the overall performance of the company – and when measured against those of the competition. In the early days of a business, when everyone is multitasking and wearing several different hats, ratio review reporting is a great way of seeing how the business as a whole is performing year on year. Efficiencies can easily be lost as a company grows and develops, but keeping hold of this measure will ensure you know where you stand as you go on to invest in new structures and efficiencies to get to the next stage of growth. I definitely see this as a stepping-stone system, and sometimes you literally are speculating/investing in order to accumulate in the next phase.
Revenue per head/overhead per head: Divide both your revenue figure and your overhead figure by the total number of people in your organisation. This will help to give you a clear picture of whether you are top heavy, or not bringing in enough revenue to support your current headcount. This information can be priceless when it comes to making employment decisions, and any other important cost decisions. In all honesty I have somehow procrastinated over employment decisions even when I knew my team were hard-pushed if the numbers did not support the role in the long term. Do not waste time on the often lengthy and expensive recruitment process if you don’t know that you will be able to afford the role further down the line.