BOOM! The Only Acid Test
“As I hurtled through space, one thought kept crossing my mind – Every part of this rocket was supplied by the lowest bidder” ~ John Glenn.
There are some small numbers that can make a big difference to a business and there are some metrics that are readily available and ripe for easy improvement: the efficiency in using breeze blocks proportionate to bricks for a refurbishment, the types of stock allowed on the shelves longer than other types, the specific machine able to put out a new product, or even how the length of time taken to make a repair for a part that a customer doesn’t even realises exists.
And, glancing backwards over experience garnered in the daily running of a business, it’s probably the small tweaks and adaptations (how the day is organised, the sales cycle, staff issues… etc.) as being the most noticeable in having made or are still making a bigger difference for that business.
Putting aside the actual business type and market sector to isolate the financial aspect, too often financial decisions are also taken after, when the biggest numbers’ (gross profit, cost of goods, inventory and so on) history on the logs and spreadsheets have been looked over… and an accountant will likely guide through further changes to net better results (tax, VAT, company formation, bookkeeping….).
The small numbers that can make a difference get the attention they need. The mechanics are regularly overseen. The metrics are monitored. The financial statements have a regular MOT (Monitor or Terminate).
But what about, as we call it, the mysterious metric?
This is the measurement I use as a starting point for calculating lender’s interest for mortgages, loans and business finance. It isn’t a secret, obscure or hidden metric. It’s a usually overlooked business buffering opportunity made up of those small numbers – the little ones that make the difference amongst the numbers, spreadsheets and statements.
The financial statements might (maybe a year down the line) show where there is a problem (which six months ago was the future but is now the past). BOOM! While these numbers have been building up (or down), lenders have been building their key metrics using their own ratios and, a year ago, when there might have been wriggle-room in a business, so might a lender have had some wiggle room.
A business’s metrics (from its ratios) change, lenders’ metrics (from their ratios) change. The correct business metric directed at the correct lender metric, at the correct time is the acid test of fiscal health. BOOM!
Images and Article credit: Copyright SUF © 2014