By Steve Pipe
What a great group WhatIf? is. It was a genuine privilege to spend the afternoon with you the other week.
Given that we covered so much ground, I thought you might find it useful if I reiterated what I think is the single most important thing we covered.
So here it is…
Some businesses produce a mind boggling amount of performance data and financial information. While other businesses produce almost no up to date and useful numbers at all.
Either way it’s a recipe for stress. Too much and the owners feel like they are swamped and overwhelmed. Too little and they have no real idea what is going on. The key is to get the balance right so that you have your finger on the pulse of everything that matters in your business, presented in a format that can be instantly understood and acted upon by all the decision makers in your business.
Achieve that and you will not only greatly reduce your stress, and the stress levels of your team, but you will also start making better decisions and getting better results.
Why Management Accounts Are Not Enough
Traditionally, most business information systems consist of a set of detailed management accounts, i.e. monthly profit and loss accounts, balance sheet and cash-flow. But most successful businesses recognise that traditional management accounts do not give them anywhere near enough information to really drive their businesses forward. So they also measure other Key Success Drivers (also known as Key Performance Indicators or KPIs), so that they can really understand what is happening while there is still time to do something about it.
For example, the only information traditional management accounts give about sales is the value of invoices raised. But for many businesses that kind of backwards looking lag indicator is not very useful for understanding what is already happening, or predicting what will happen next. Much more helpful for managing sales are Key Success Drivers such as the number of sales leads, the conversion rate from lead to sale and the size of the order book.
So most successful businesses now systematically map out and measure those kinds of Key Success Drivers too. In fact, the most successful businesses now systematically identify and measure Key Success Drivers for every key area of their business.
More Can Be Less
But how can you ensure this Key Success Driver approach doesn’t just add to your information overload? And how does it simplify matters?
The answer lies in creating a One Page Plan – which, as its name suggests, distils all the key numbers onto a single sheet of A4. And One Page Plans are normally structured like this:
- The One Page Plan starts at the bottom of the page and works upwards. So it starts with the business’s mission/vision/goals.
- Those goals, in turn, determine the key areas in which the business will have to excel in order to achieve its goals (i.e. the Underlying Success Drivers).
- Next come the key factors that directly drive the business’s sales, costs and cash-flow (which are so important that they are each given their own section of the page).
- Some of these numbers come from the management accounts – but many of them do not.
- Wherever possible they are lead indicators in that they help you understand what is going to happen in the future, i.e. just as the size of the order book helps you to understand and predict future sales. But in some cases they are unavoidably lag indicators, merely telling you what has happened already.
- And finally there are the key results that have been generated by all the underlying drivers. These key results are, of course, lag indicators. And they are deliberately positioned at the top of the page because they are the consequence of everything below them on the page.
In this way the One Page Plan describes all the key factors behind a business’s success, and maps them out in a logical way that mirrors the causal links between goals, success drivers and eventual results. Not only does this give you an early warning system by systematically measuring and monitoring everything that is really important in the business, but it also acts as a catalyst for identifying the action that needs to be taken, and as a mechanism for recording and monitoring your constantly updated action plan.
It Could Change Your Life
There are so many benefits from this approach, that it is not an exaggeration to say that it could change your business and your life.
- Because a One Page Plan is so simple and readily understandable by everybody from the shop floor to the Board, it will have a profound effect on their willingness and ability to contribute to the business.
- By sharing it with your team you instantly overcome the complaint: ‘they never tell us anything.’ As a result, they feel trusted, involved and empowered.
- It tells them how they are doing, helps them to identify the areas they need to work on, and forces them to think about, record and monitor the action they are going to take to do even better in the future.
- It can (and must) be updated easily and quickly on a monthly basis – making it a living document that always records the most up to date performance information and the most up to date action plans.
- By forcing them to draw up a monthly action plan, it helps them to actually take action … which, as you know, is ultimately the key to success (but is all too often overlooked because we are all too busy doing the things we have always done).
- It can (and ideally should) be posted on notice boards, etc., so that everybody in the business knows exactly what the business is trying to achieve, how far they have got towards achieving it, and what they can do to get the business there even faster.
When used in this way it provides a focus for discussion, effort and creativity. It also acts as a brilliant tool to motivate your entire workforce – because one of the main reasons for demotivation is that they cannot see the point or the importance of what they or the business are doing and the One Page Plan makes all of that a thing of the past.
This is a true story. Five years ago a small scaffolding contracting business was turning over £100,000 and its owner was working ten to fifteen hour days. Since starting to use a One Page Plan every month their sales have grown to over £1 million and the owner now works four to six hours a day.
According to the owner, 90% of that improvement is down to the systematic and disciplined use of a One Page Plan in a way that has focussed their attention on the key issues and helped them to continuously fine-tune their action plan in order to make the business more and more successful.
© Steve Pipe – October 2012
Steve Pipe FCA is officially the most highly rated accountant in the world (based on the number of LinkedIn testimonial received). He is also a prolific business writer and keynote speaker. He is also founder of www.accountantschangingtheworld.com. He can be contacted via firstname.lastname@example.org, and you can connect with him on LinkedIn at uk.linkedin.com/in/stevepipe.
As a business strategist with decades of expertise in helping owner managers and family businesses, contact me on email@example.com or go to @richardwhatif on Twitter, Richard Bosworth on LinkedIn or www.whatifforums.com.