Drive business forward by watching key indicators

Drive business forward by watching key indicators
Atlanta Business Chronicle - by Tom Barry Contributing Writer

Many business owners aren't numbers people, but rather creative entrepreneurs intent on growing their business. 

But numbers matter, especially when times are tough, says consultant, author and speaker Kraig Kramers, who this month is coming out with a mini-book -- "Kick Start Profits With Key Indicators" -- that identifies practical benchmarks that CEOs can employ to spur growth and identify problem areas. In short, live to sell another day. 

"The recession has caused an awful lot of executives to have problems," said Kramers, president of Corporate Partners Inc. in McDonough. "But if they adopt the right indicators, they'll run their business much better today and when the economy returns to normal." 

Saying that survival is literally the name of the game today, Kramers urges CEOs to employ three major financial indicators: 
A daily cash report and weekly cash reforecast, to obtain a quick snapshot of the company's financial situation. 

"Cash is the lifeblood of a business," he said. 
A reckoning of operating expenses as a percentage of sales, ideally on a 12-months-trailing basis. Depending upon the business, the percentage should be between 12 percent and 20 percent, he said. 

"Over the past year, this indicator has really come into play. Expenses can get out of control. You need to operate within a safe range." 
Identifying and tracking the single component within the company that most contributes to revenue growth. 

"You should start measuring and tracking whatever that may be and act on those findings," he said. 

Andy Vabulas, president of I.B.I.S. Inc., a computer consulting company in Norcross, put the indicators into practice a year ago. 

"It's the difference between driving with your headlights off and turning them on," said Vabulas, who heads a 38-employee, $10 million operation. "We now do 10 or 12 trailing-12-months reports on such things as revenue, expenses, profit and utilization. If anything is going askew, it shows up. The indicators have really helped drive our business forward." 

Before, Vabulas focused mainly on the standard profit-and-loss statement and balance sheet items. 

Norcross-based Mingledorff's Inc., a wholesale distributor for Carrier Corp.'s heating and air conditioning products, also is employing Kramers' tenets. CEO Bud Mingledorff said 12-month-rolling charts are much more effective than year-to-date comparisons. 

"Usually it takes six months to get year-to-date numbers to even show a trend," he said. "Comparing this January to last January is pretty meaningless. What 12-month charts do, with no effort, is drive the concept of continuous improvement into an organization. It's like running a company on a 30-day sprint all the time." 

Mingledorff's is a 300-employee, $165 million company. 

"We run a pretty open organization, and we publish the charts every month showing how the company is doing," he said. "We're literally creating a culture in which we're always trying to do better. These charts put that concept on auto-pilot." 

Kramers, author of the 2002 book "CEO Tools: the Nuts-n-Bolts of Business for Every Manager's Success," said it's amazing how few CEOs use such indicators. 

"The other day I was coaching a CEO who was running out of cash, and that's happening everywhere today," he said. "By cash, I mean not only money in the bank but what's available in a line of credit. It's gathering all such information together, measuring it on a daily basis, and then reforecasting it over the next six weeks. 

"Look, thousands of companies go under every year," he said. "Bankruptcies were up in 2002 and are up again in 2003. Something as simple as forecasting how much cash you'll have over the next six weeks can keep you out of trouble." 

It's not only the bad times that get you. Rapid growth can sabotage a company as well, Kramers cautioned. 

"You've got to understand that you can grow yourself out of business," he said. "Growth gobbles up cash for breakfast, not to mention lunch and dinner. Cash goes into accounts receivable and inventory. Think about it, unless you're in retail, you won't collect on an order for days or even months later, yet you've put all that money into creating a product or service and then delivering it." 

Operating expenses can readily surge, which is why they should be closely monitored as a percentage of sales, he said. Typically, personnel costs are the big-ticket item. 

"Most CEOs don't watch how big expenses get relative to revenue," he said. "But it's important. Most distribution companies, for instance, only make 18 to 20 percent gross margin, so they've got to keep their operating expenses under, say, 15 or 16 percent in order to make any money at the bottom line." 

Kramers said identifying the major driver of revenue will focus the CEO's mind. 

"A business may need to add more salespeople, make more telemarketing calls or increase requests for proposals," he said. 

Perversely, companies often cut back on their key revenue driver during a recession. The sales force may be reduced or the advertising budget cut, when the opposite should occur, he said. 

Eighty percent to 90 percent of all businesses fail to employ two of the three key indicators, Kramers estimated. In light of the economy, he added, more and more companies are at least controlling operating expenses. 

"I probably spoke to 2,000 CEOs last year, and many said they made more money in 2002 than in 2001," he said. "Sales weren't up much, maybe 1 or 2 percent, if at all, but they made money by controlling operating expenses." 

Kramers, 60, speaks from a long career in the corporate trenches. He himself has run eight companies (ranging from $1 million to $250 million in annual sales), negotiated more than 70 acquisitions and served on three dozen boards of directors. 

In the recessionary early 1990s, he spearheaded the rapid turnaround of Snapper (lawn mowers) in McDonough, taking it from a $54 million loss one year to a $13 million-plus profit the next. Today, the well-known corporate coach gives about 130 speeches a year, mainly before top-level executives. 

Kramers is a frequent speaker at seminars sponsored by The Executive Committee (TEC), the San Diego-based organization that serves as a resource for chief executives.

http://www.bizjournals.com/atlanta/stories/2003/05/19/smallb2.html