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Aug 19Tom Matthews

Management by Exception

Aug 19Tom Matthews

My client base has grown quite a bit which means I get to see how many of you manage your business.  There are three categories of management:  people, processes and numbers (cash!).  As your businesses grow, you lose some of the insights you had when your business was small because of the number of transactions that you are not directly involved in.  So how do you manage your business at this higher level?

You do this by gathering information and looking at reports.  You have financial statements, productivity reports, sales reports, pipeline reports.  The trouble with all of this is you are looking at too much data.  You constantly have to sift through reams of this data to find what you want.   This raises the threat of making mistakes because you miss something.  All business owners are great at fixing problems if you know about these problems.  Oftentimes, you simply don’t know what the problems are.

Wouldn’t it be great if you walked into your office each morning and there was a one page report on your desk that only described the troubles brewing in your company?  This is what I call management by exception.  You don’t have to sift through many pages of information looking for those one or two or three items that need your attention.

Unfortunately, most of my accounting brethren believe they are measured by the size of the report we give you.  We are all trained to produce certain reports (for example the income statement and balance sheet) and oftentimes this training does not give us the insights into what you really need.  Here are some example of what I am talking about.

Category What you typically get Management by Exception
Sales A report of all salesmen with their current sales volume A report showing only salesmen that are underperforming compared to their goals.

 

A report showing salesmen whose sales are trending down.

 

A report showing salesmen who are way above their sales goals.

Customer productivity Maybe sales by customer, maybe no measure at all. Top customers.

Customer sales by month for the last year.

Same customer sales year over year.

Operating Costs The income statement that shows operating costs for the month and year to date. A schedule of only operating costs monthly for the last year.

A list of only those expenses that are over a threshold as a percentage of sales.

Staff Productivity You don’t measure anything Sales per FTE (full time employee)

 

These are just some examples.  We have to first believe that we will have a better, more profitable company if we measure things.  Then the big leap of logic:  we have to believe getting actionable information is better than getting all information.

My recommendation is for you to meet with your key staff and define the threats and opportunities in your company.  Turn this list over to your top accountant and have him or her recommend reports that will give you only the information needed to identify and act on these threats and opportunities.

You still need that 10,000 foot view of your company so I am not suggesting you give up your current reports.  All of this I am recommending is in addition to what you already get.

photo credit: Free 3D Business Men Marching Concept via photopin (license)

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