You have a plan that’s specific to your business. Now what? How do you execute on this big picture plan? Start by using your budget and forecast to run your business by the numbers. Running your business by the numbers also means tracking Key Performance Indicators (KPIs) and establishing a regular cadence for meetings to be able to execute your plan and measure your results.
YOUR KPIs VS YOUR FINANCIALS
Key Performance Indicators (KPIs) tell you something specific about a small segment in your business that may point to something bigger in your financials. Your financials give you the high-level overview of what happened. There are three main parts of your financials you should always pay attention to:
1. Balance Sheet: This is going to tell you whether your business is safe or risky
2. Statement of Cash Flows: The #1 reason given for business failure is a lack of cash, so you want to look here to see where your cash is going
3. Income Statement or Profit & Loss Statement: This will show how well you are operating your business model. Are you successful in doing what you said you’re going to do and making money doing it?
The best part is you can pull numbers out of your financials and turn them into KPIs that will give you a forward-looking information about the business. KPIs are metrics that look ahead and give you a more in-depth look at what’s going on in your business. The financials are a roadmap that tell you what happened.
BUDGET VS FORECAST
You have your business plan and a set annual budget. Why is it set? It’s set because a budget lasts the full year. It’s your best estimate of what’s going to happen within that timeframe. As always though, things change. Within the year, you will lose people, hire people, lose customers, gain customers etc. and all these changes will impact your financials, which means your budget may start to look out of date. You can fix this with a forecast. To properly forecast, you roll one quarter back and then roll three quarters forward. What happened in the last quarter and what’s coming up in the next three quarters? You can start to anticipate what’s going to occur based on these changes that you didn’t see when you first created your budget.
You can also think of your budget as your target. You want to keep your target steady and you don’t change it because you need to know exactly where your arrow hit on that overall target. You’ll be better able to adjust if you don’t fool yourself by moving the target around and getting incorrect information to run your business. When you do reforecast, you’re simply reforecasting cash, income, etc. so you know where you’re going to be and more importantly, you’re not changing the budget. If you leave your budget as-is and stay the course, you can manage your business by the real numbers.
CADENCE AND CHECK-INS
Another key aspect of executing on your business plan is how to best manage it. At TGG, we like to set up our budgets by management divisions, so each person has monthly responsibilities and KPIs to track. We have monthly executive management meetings where everyone self-reports on their successes or failures based on their metrics. We also have a weekly huddle with our executive team. We spend 5 minutes going around letting everyone know what happened last week, what’s going on this week, and if anyone needs help. A quick roundtable increases communication and team bonding, so everyone is informed as to what’s going on in the organization at all times. On an annual basis, you’ll want to gather your executive team for a comprehensive meeting to drill down on the strategy and vision for the business. Reiterate the strategy and vision throughout the year, but only focus once a year on the long-term plan. That’s the big picture. Schedule weekly huddles, monthly management meetings, and an annual strategy meeting to fully execute your business plan.