Just in case you haven’t realized it yet, having good financial records and taking tight control of your business is more important now than ever. It is important to watch carefully and make adjustments to your business and personal life to compensate for the things happening around you. As Financial Consultant Roy Ferguson points out in a newsletter, you should be PTP (poised to pounce). Have you built your business on strong, sound, financial decisions, and built a reserve so you are in a position to take advantage of opportunities that might only be available for a short period of time?
Our job at Red Wing Software is to provide you with the tools to track and analyze your business investment. We can supply the tools, but we all have to use those tools to keep close tabs on what’s happening within the business. Do the reports you have been running show that you have been profitable for that few months, or are they telling you that you should be making changes in your business to make it better? What happens inside your business has a much greater effect on your success than outside forces.
I thought instead of telling you what I think in this blog post, I would just ask some questions to provoke some thought. I think you’ll likely know what I think by reading the questions I ask. Are you running your business, or is your business running you?
Do you control the expenses in your business by operating from a budget, or do you operate “seat of the pants”?
Do you have processes in place (and documented) for internal job functions, or do you assume everyone knows what they are supposed to be doing?
You know that everyone in your organization has certain responsibilities. Have they been clearly communicated, and do the people in your organization know they have these responsibilities?
Do you know the true cost of items that you produce or buy for resale, including indirect costs?
Do you know your most profitable items and those items that are not so profitable and maybe should be discontinued?
Do you know your businesses key financial ratios, what they mean, and where the danger levels are?
Do you analyze the return on new asset purchases before the purchase has been made?
If you think you have good answers to all of these questions, good for you. I challenge you to continually ask these questions throughout the year, and improve operations through better management.
At Red Wing Software, we evaluate our position and try to answer these questions regularly. We feel that once we think we know all the answers, we stop improving.
I want to use my space in this blog post to thank the many people that help us develop and deliver quality products that meet the needs of our customers. The people I’m talking about are the partners and customers that participate in our focus groups, and offer suggestions for improvements to our products.
As we continually work to improve any of our supported products, we use a documented process that includes reviewing all of the suggestions that have been submitted by the users of that particular product. We maintain a database of those suggestions, and have several design meetings involving staff members from every appropriate department in the organization.
As we finalize the new product features, we include a group of partners and customers to help us be assured that what we are implementing in the new software is actually what the market needs. We, of course, can’t include each and every suggestion to a product in any one release, but continue to review all suggestions received by our organization.
Thanks to all that participate in this process, and keep those ideas flowing.
In most industries, and even non-business related activities, there are tools you can use to compare how you’re doing to some compilation of data from other similar ventures. While I believe comparative analysis is certainly something that should be considered, a more important measurement is how you are doing in your own world today and your individual trends over time.
I’ll share a few personal and business examples of average statistics that aren’t necessarily good numbers to shoot for. A golfer on the PGA tour usually puts a new ball in play every few holes of a golf tournament because he hits the ball with such power that he actually wears out the ball, while the average golfer should be able to play the same ball for at least a couple rounds. I, too, put a new ball in play every few holes, but it’s because I either hit something that scuffed it up, or it’s too deep in the woods or the pond to find. Don’t quote me on this because the facts may be a little fuzzy, but I once read an article that, on average, most serious private aircraft accidents happen when the pilot has around four hundred hours of flying experience. Of course, this is not a statistic that most pilots want to aspire to.
On the business side, there are industry measurements that a software company like Red Wing Software should spend about sixteen to eighteen percent of its budget on development. Again, that might be something worth measuring against, but we as a company need to look at our particular situation and determine if that is the right allocation for us. Another example would be comparing a particular business ratio against a specific industry benchmark. While that individual indicator might be way off, you should look at several indicators and determine if there is an anomaly in that one measurement and everything else is in line. It might be because of some significant difference in your particular business.
When doing business (or life) comparisons, make sure you look at all the facts that could affect the validity of the measurements, and make appropriate decisions. I personally prefer to look at trends and make certain they are headed in a positive direction. I’m down to about five new golf balls per eighteen-hole round.
I recently attended an annual meeting of an organization that deals with financial standards, and how information should be tracked and analyzed for their particular industry. It’s amazing how many different ways accounting rules can be interpreted and applied, even though there have been generally accepted accounting principles (GAAP) for scores of years. One of the important things for this, and many other industries, is the ability to do comparative analysis with their peers. In order for this analysis to be meaningful, it is important that everyone be keeping records in a similar way, so they don’t end up comparing apples to oranges. So when people have differing ideas on how to do things right, it makes for interesting “discussion”.
We have similar issues within our own software products since we provide solutions to so many different kinds of industries. What works well for one company, might need to work differently for another. That raises some challenges when it comes to designing software. We are fortunate to have a wide range of knowledge within our organization, and try to make our software flexible enough to handle many complex scenarios. We often call on our customers to provide input during the design of features, and appreciate their willingness to share their knowledge, as well.
Please keep providing us with your input, and we’ll do our best to supply products that meet your needs.