How management information can make & save money
Here at Sochall Smith, the Leeds accountants, all too often we hear business owners complaining about having to ‘do their books’ and it’s fair to say that a lot of entrepreneurs see bookkeeping and accounts as a bit of a chore.
But simply changing the way you view your business records can provide a surprising outlook that you may not have considered. Having great Management Information, or MI is a must for ambitious businesses.
We’d argue that rather than being a cost in both time and money that has to be borne by a busy business, in fact a great set of accounts can provide a little gold mine of valuable information and actually provide companies with a real competitive advantage.
Traditionally accounts have been a backward looking view – a bit like stationing a lookout on the blunt end of a ship looking backwards and it’s probably this old fashioned approach that colours people’s perception.
But simply taking the time to understand where you are going and how your business intends to get there will pay dividends.
If we take sales, this is an area of keen interest for most business people but it’s worth taking a little time to graph out monthly or weekly sales for the last year. This will show you where sales have seasonal variations and will also allow you to spot times when you had a general downturn.
For example, a seaside cafe may graph out sales to show when they can expect busy times in the future allowing them to efficiently arrange their staff rotas rather than paying for people to be working when the customers are absent.
By the same token a clear graph of sales will show where changes to a website have improved (or worsened) conversions and thus give the owner an indication as to what things they need to optimise for the future.
Having in depth and properly ordered accounts will also allow you to link information.
If we extend our website example above, let’s imagine that our website owner has also accurately recorded their advertising spend with online sources such as Google and Facebook.
By matching these to their sales lines they can tell all sorts of things about their spend. Which channel is best for overall sales? What is the optimum level of spend for sales? What is the minimum they need to spend to hit their future targets?
By taking past information and using it to predict future performance business owners can not only work out what things will cost but also what they need to do to hit their targets.
MI can also help you to spot when things aren’t going the way you expected.
Let’s imagine a taxi owner who accurately records his mileage and fuel costs. He knows what it should cost per mile travelled but one month his fuel costs per mile suddenly jump up.
Higher fuel consumption is a sign that an engine is either not working as intended or even worse about to fail.
Our taxi owner can then get his car checked out by a mechanic and repaired so that his fuel consumption returns to its optimal level. This not only saves him money in the medium term but also means that he won’t suffer an unexpected and potentially catastrophic break down.
The same principle works for many assets such as machinery, livestock and heating or chilling equipment to name just a few. Monitoring consumption in this way a gives a data driven check on the condition of your important assets.
Although we’ve focused on monetary measures there are other aspects to MI that can help even the smallest business.
From a legal point of view, in the UK it is illegal to ask employees to work over 48 hours a week regularly. Monitoring hours worked allows employers to spot where they may be in danger of contravening the working time directive and also shows where staff may be under stress.
Similarly running a regular staff survey then using the results to produce employee happiness MI can help managers understand where things are going right and where they are going wrong.
Everyone knows how much it costs to hire new people and how long it takes to train them so if MI can help with staff retention then it will pay for itself in no time.
Management information is really useful in isolation but extending it by using time series or by linking it to other information can help increase the power and usefulness of the information.
As an example if we think of a retail company that measures sales as a sign of site efficiency, we can see that having a year’s worth of sales data will show up trends and comparisons with former periods.
Our shopkeeper can then cross match sales with opening hours to see whether being open longer is worthwhile and which hours in the day produce more sales (and need more staff).
They can then marry these up with stock levels in the shop to see if there is a minimum amount they need to hold and if holding more stock necessarily produces more sales. Given that holding stock ties up cash then having a clear sight of what the optimum level is will save the company money and allow it to use its working capital efficiently.
As we can see, investing in systems that allows businesses to mine their data for useful information can not only increase sales and profitability but it can also help to eliminate waste and inefficiencies.
All businesses are different of course but you may like to think creatively about what you do and what management information could help you to improve your bottom line.