What gets measured gets done

Like a lot of people do early after News Years comes around – I  joined the gym. Rather re joined.

I never really left – just changed tack after Covid.

What’s interesting about this gym is we wear Heart Monitors.

They track when we enter and leave the gym and during the session,  our heart rate.

Each session has a different aim of trying to test endurance or strength and get our heart rates to a certain level and keep them there. There are big flashy screens to show everyone in the room who is at what level. There is no place to hide and no where to run. You either meet the goal as you are working/sweating enough or you don’t!

I love it !

The other day I forgot my Heart Monitor at home – too late to run back to get it.

I spent the whole session wondering whether I hit the targets or was working hard enough. You see I love measurement and numbers – I know – what a shocker!

I found the fact I am being measured pushes me to hit my targets and go home satisfied I am working optimally.

When I am not measured I either over extend (usually push it too far) or I don’t get the workout I want and go home feeling like I could have given more.

The same can be said in business.

        Measurement of your numbers is critical to understanding if your business is performing where it should be.

Far too many business owners get up each day and judge this like this :

“There is money in the bank and I have enough to pay the bills so I'm doing ok”

Whilst from a basic level this is true – better measurement would deep dive into whether these statements are really accurate.

Let’s unpack those concepts a little

Money in the bank

How much money should be there ?

Lots of business advisors will say that you should have 3 months worth of your expenses in cash as backup. Solid plan.

Realistic ? Maybe not for all but it is a start.

This concept is about the unforeseen quick and dirty problems of cash flow – a staff member leaves and has a payout, a piece of equipment or vehicle dies or needs major repair, you get sick and cannot run the business etc etc. Your business should be able to sustain a short term dip and not cause it to spiral to trading in solvently.

So how do you know what to provision ?

I personally use a system called Profit First – there is book and try googling it as I am not going to get into detail here.

Each week I transfer monies to other bank accounts to provision. The most basic way you can start this is open an Online Business Saver (all banks have these) and move your GST money to this account. If you have employees- move their PAYG W tax and super also. The GST is not your money – you are a tax collector and it will be paid to the ATO on your BAS.

If you want to extend this concept – think about income tax. This is the tax you pay on your income/profits. Often as your Tax Return can be done many months after you have earned this money – this is forgotten about. If I had a dollar for every client that said “But I have already paid my BAS!” BAS will include lots of different taxes – GST being the main one – for others who employ it includes PAYG Withheld from employees (ie the employees tax) and for some PAYG Instalment (a pre payment to their Income tax) but not all. If you do not have an instalment – you have not paid in advance. I encourage you to contact your Tax Agent/Accountant and get an estimate and provision for income tax!

It is also wise to give yourself a personal budget of what you will take from the business monies and how much you need to leave for bills. Far too often we see business owners use their business bank accounts as an account to fund themselves in dribs and drabs paying for daily expenses – rather than setting a stable amount to take and use – holding them accountable to the budget. Not all business owners will be in payroll and have a set wage to take but if you draw bits and pieces it is much harder to keep yourself to a figure of spending. Any money you take from the business bank has an affect on how the Tax Agent/Accountant treats this at year end. Speak to them about the implications and review what you take out of the kitty.

What have you measured to assure you this is correct? What does 'ok' look like?

You need to run some reports and get some solid evidence around how much you should keep aside for materials, utilities, rent, car expenses, wages and wages on costs like super.

These will fluctuate so don’t make this measurement too hard – use round numbers and rough percentages to get started – you can always tweak later.

Running a Profit and Loss report and adding comparisons to prior months/years can help you establish patterns and trends to determine these numbers.

Is it time to do a Business Budget ? This sounds complicated but it really isn’t. A budget is really just another word for a plan – what you want to aim to spend or earn– then you can measure it to what you actually spend or earn.

In Xero you can add the budget and then at end of month run a Budget Variance to see how you did - whether you are meeting or exceeding(!) that budget.

Have a monthly business meeting with yourself to keep yourself accountable - run some reports, grab a coffee and review.

So what is measured gets done - since Feb and I have improved my health and fitness to the position that I can now deadlift 100kg (way more than my body weight!!!). This has only come about through persistence, pain and measurement. And I have not forgotten my heart monitor once since that fateful day!

Happy end of financial year!