Watch business metrics closely

The current national economic environment has impacted business both big and small. It seems that we read about bankruptcies, foreclosures, and financial losses on a daily basis. Retailers, restaurants, home builders, and banks have all been impacted by the economic slow-down. Businesses in the northern Nevada markets have not been immune to the downturn. A recent, well publicized local casualty was First National Bank of Nevada.

In some cases, the problems businesses face today are the result of poor decisions made in the past, and a slowing economy has served to bring these problems to the surface. In stronger economic times, these problems were brushed aside or hidden below acceptable results.

If you are a business owner faced with slowing sales, rising costs, credit difficulties, and poor financial performance, now, more than ever, is the time to closely examine your business. Do you understand the key drivers of your business and how closely are you monitoring them? Are you making adjustments quickly enough so that you minimize your financial risks?

Some key metrics business owners need to track include:

* Bookings

* Backlog

* Inventory levels

* Past-due accounts receivable

* Employee productivity

* Expenses - fixed and variable

* Product mix

* Debt service

* Gross margin and operating profit percentages

Your internal systems should be sufficiently robust that tracking and managing the key metrics for your business is a simple process. If you are struggling trying to find numbers and information, chances are your financial performance is not where it could or should be. Identify the key metrics for your business. Get those systems and processes in place so that you have timely, accurate information. Start understanding and managing those numbers.

Now that you have the numbers and understand them, it's time to optimize performance. If your margins are being squeezed, what can be done to improve them? If your overhead costs are too high, what are you doing to reduce them? Do you have past due accounts receivable which are hurting your cash flow? Maybe it's time to rethink your credit strategy. Are you getting behind on your debt service? Perhaps you need to restructure your loans.

Each business is different and faces different sets of challenges. However, each business needs to understand the numbers or metrics unique in their situation and use that information to react to changing conditions. Don't brush the problems aside. Understand and deal with the issues. Keep your bottom line and cash flow strong.

If the challenges seem overwhelming or you don't know how to start and what to focus on, think about working with someone that can help you. A qualified, external partner can provide objective advice and assist you through the process.

Alex Jitloff is a senior consultant with The CFO Group Inc. in Reno. Contact him at ajitloff@thecfogroup.com or (775) 359-7600, extension 103.