In managing your company, you likely keep a close eye on various key performance indicators to assess its overall performance. Whether focusing on financial metrics, advertising efforts, employee turnover, or website traffic, these indicators play a crucial role in gauging, maintaining, and enhancing your business’s success and growth in today’s competitive landscape.
Despite this, there are specific metrics critical to long-term success that often go unnoticed or are inadequately monitored by business owners. Neglecting these metrics can impede your company’s full potential. Here, we highlight three often-overlooked yet vital metrics that demand your attention. Should you need assistance in monitoring these metrics or establishing the necessary business systems for tracking them, consult with us, your Family Wealth and Estate Attorney® with business planning expertise.
01 – Employee Satisfaction
While recognizing the importance of employee satisfaction is common among business owners, its critical significance may be underestimated. Business experts even rank employee happiness as the primary driver of a company’s success. Happy employees not only exhibit enhanced productivity but also deliver superior customer service, potentially leading to increased sales and customer loyalty. Conversely, dissatisfied employees can result in sluggish sales, customer dissatisfaction, and increased turnover costs.
A satisfied team contributes to reduced turnover, a critical factor as employee turnover stands among the most costly business expenses, factoring in recruitment, hiring, and training expenses. Monitoring both employee satisfaction and turnover costs can be an effective strategy for sustainable growth. Increased employee satisfaction typically correlates with decreased turnover costs, promoting a positive cycle.
02 – Cash Conversion Cycle (CCC)
The Cash Conversion Cycle (CCC), often overlooked as a financial metric, is crucial for understanding your business’s cash flow dynamics. The CCC measures how swiftly your customers pay you compared to your payment timelines to suppliers. Amazon’s founder, Jeff Bezos, is known for mastering the CCC, freeing up substantial cash for strategic investments.
In managing cash flow, the timing of monetary transactions is more critical than the overall revenue generated. A negative CCC, indicating quick customer payments, efficient inventory management, and delayed supplier payments, translates to positive free cash flow. Calculating CCC involves determining the average days of holding inventory, adding the average days for customer payments, and subtracting the average days for supplier payments. A lower CCC is desirable, and single-digit values are often considered ideal.
Should you require support in optimizing inventory systems, negotiating supplier terms, or encouraging prompt customer payments, our services extend to these business system implementations.
03 – Profitability Per Product or Service
Contrary to the assumption that prioritizing the sale of high-priced products or services is optimal, tracking profitability per product or service provides valuable insights. By understanding the profitability of each offering, businesses can identify top-performing products or services that contribute most significantly to revenue.
For product-centric businesses, evaluating the gross profit margin, considering the cost versus selling price, is crucial. Higher gross profit margins indicate more profitable products. In the case of service-oriented businesses, profitability tracking is nuanced, requiring a breakdown of service-related hours, employee overhead, and associated expenses to identify top-performing services.
Notably, businesses might offer loss-leading products or services, accepting losses on certain items to attract customers or pave the way for more profitable offerings in the future.
We’re Here for You
As your Estate and Succession Planning Attorney with expertise in business planning, we offer insights into key metrics essential for maintaining the sustained growth of your business. By incorporating your financial, insurance, legal, and tax expenses into these assessments, we ensure precise measurements. Specializing in crafting robust systems tailored for small businesses, we play a crucial role in establishing a firm foundation for your company’s expansion.
Schedule a meeting with us, your Estate and Succession Planning Attorney with business planning expertise, to optimize and streamline your business operations. Our objective is to guide your company towards realizing its full potential and creating a enduring legacy for you and your family. Take the first step on this journey by reaching out to us today.
This article is presented by Michelle Bell, an expert in estate planning and business succession services. Our office provides comprehensive legal support for businesses, assisting you in making informed decisions throughout your entrepreneurial journey and in planning for future contingencies. We also offer a specialized session where we review your business’s legal structures. To arrange this consultation, please click the following link: https://calendly.com/mcblawpllc/30min.
The information in this article is intended purely for educational and informational use and should not be considered as advice on ERISA, tax, legal, or investment matters. For advice specifically tailored to your unique situation, such advice should be sought independently from this educational content.