A while back, I wrote Knowing Your Numbers-How To Measure Your Success, an article on the importance of developing your own set of metrics and benchmarks to accurately measure your success, or failure, which is something we all need to understand. In this Premium Membership post I expand on that theme; specifically how to use Business Metrics for your land surveying company.
If you're an owner of a land surveying company, then you regularly access and update many business metrics with your business accounting systems. If you're looking to start a land surveying company, then as a new business owner you will need to learn about business financial and accounting principles. Even if you are a manager or employee working on the front lines, like surveyors and crews working in the field, then understanding these basic business concepts will make you a better employee.
This article will not delve into the nitty-gritty of accounting - rather, let's try to pair down business accounting metrics to focus on running your business profitably.
If you don't measure, track and evaluate; then you can't apply Business Intelligence, can't find solutions and can't fix problems-it's that simple.
Business Metrics for Your Land Surveying Company:
While basic accounting is not overly complicated to master, you must first understand that broad accounting terms may be used to describe similar values accounted for in different ways, like varying time frames. Take Income, for instance: This is a broad term that could mean many things and several factors, like:
- Actual receipt of a payment for services rendered.
- Expected receipt of a payment which has been billed, but not yet received.
The first example accounts for Income on a Cash Basis - recognizes revenues and expenses at the time physical cash is actually received or paid out - and the second example accounts for Income using the Accrual Accounting method - recognizes revenues when earned (but not necessarily received) and records expenses when liabilities are incurred (but not necessarily paid for). Your Accountant or CPA will determine what accounting method is best for your your company, and in the big picture you will use these accounting figures.
What I recommend is first understanding what your accounting figures mean, and then boil them down (or recalculate them) to a small manageable list of focused Business Metrics for the day to day running of your business. For most small to medium land surveying businesses evaluating your Business Metrics using the Cash Basis may very well provide the best results. Therefore, if your accounting system is based on the Accrual Method then it is helpful to get reports converted using the Cash Basis, This can easily be done with most accounting software packages on the market today.
What Business Metrics to Collect?
I've taken my accounting and financial metrics reporting and paired them down to the following key elements for my land surveying business:
- Dollar amount of proposals created.
- Dollar amount of billing.
- Dollar amount of payments received (Income).
- Dollar amount of bills paid (Expense).
- Accounts Payables
- Accounts Receivables
How Often Should You Evaluate These Business Metrics?
How often you evaluate your Business Metrics depends on these two factors:
- What's a reasonable time-frame to make the Metrics pertinent. If you only bill at the end of the month, for example, then evaluating that Business Metric weekly is a waste of time. However, if you bill as your projects are completed, which I recommend, then evaluating your your billing business metric weekly may be in order.
- The second factor has to do with how successful your business is operating. Obviously, if your business is operating efficiently and profitably, then longer durations between reviewing your Business Metrics might be fine. But, if your land surveying company is experiencing any kind of business or financial stress, then you might need to stay on top of your operations by dedicating a weekly, or even daily, Metrics evaluation. Be the captain of your ship and navigate it towards success.
I look at at least all of the above Business Metrics weekly. I try to at least micro-evaluate, if you will, daily in these tough economic times.
What are Business Metrics Good For?
The key to collecting and evaluating your Business Metrics is to use them for:
- Planning / Budgeting.
- Business success.
- Operating your business for success.
- Correcting for underperformance.
- Recognizing where and when you're achieving success to manage and prepare for growth.
You can use this cycle:
- Create initial benchmarks, goals and budgets for each Business Metric. Your business plan may be to bill out $10,000 a week or you budgeted for $7,500 a week for expenses. These may be based on reliable past Business Metrics, or they may be educated estimations.
- Collect Metrics data.
- Per your schedule, review and evaluate your collected Business Metrics against your goals and budgeted numbers.
- Make adjustments to your operations, accordingly.
- Go back to Step 1 if your initial numbers require adjusting up, or down. If you're sticking with your base Business Metrics, proceed to Step 2.
A Few Tips
Here are a few parting tips:
- Initial goals and budgets may need adjusting. You just might have been wrong with your estimations, for many reasons, like for changing business climates, so don't hesitate to make adjustments, but: Adjust for success and not for capitulation. I've found that while shooting for the stars for Income can motivate you to do better than you would otherwise do, for planning purposes you might want to hedge your bets by underestimating your Income and overestimating your Expenses. That way, if you earn more and spend less, you'll be way ahead of the game.
- Creating a "Dashboard" for your Business Metrics is very handy. This can be done simply using an Excel sheet. You can set up columns for your planned for values, then enter your actual numbers as the weeks and months pass and chart, graph, and identify trends.
- Dedicate a specific preplanned scheduled time when you will enter data and evaluate your results.
- Do manage. Business is rarely static, it requires management. Correct for poor results as soon as possible and adjust for when you're being successful to create even more success.
- Don't overreact to short term issues, but don't underreact (or not react at all), either.
- Learn to identify trends. Day to day, week to week, or even month to month blips, up or down, might not mean anything. However, overall trends are very important.
- Work towards achieving focused consistent success.
This Professional Land Surveyor Premium Post has been brought to you by Eric Colburn, PLS, Professional Land Surveyor Revivalist & Adviser.