Lessons from the Past, Present, and Future

5 Feb

John F. Kennedy once said, “Change is the law of life.  And those who look only to the past or present are certain to miss the future.” This is profoundly true on so many levels.  We can all exercise this in our personal lives as well as our business.  There is much to learn from our past and we can use that knowledge to adjust the present in order to create the desired future.  If we burned our favorite dinner by cooking it too long, we take note and adjust the baking time for the next time that meal is prepared.  The same rule applies within our businesses.  But we first must be aware that there are lessons to be learned or improvements to be made  from past practices.

So the question remains; How do we know when past business practices are not best practices?  What if there are no signs of problems with past practices – like the burnt dinner? Most businesses review historical financial data such as income statements and balance sheets in order to create budgets and adjust operations for the future.   This practice is quite common, but begs the question, Are we performing ahead of the competition?  Without industry intelligence, a company may only know where they fall in the race when they reach the finish line.  So where and how is one to find such information?  The answer is there are several places and ways to acquire this data.  Most banks subscribe to RMA (Risk Management Association).   This tool provides comparative financial data within specific industries and is used as a measure of performance.  CPA Firms frequently will have access to this data too.  This information is very valuable however the information is publicized annually and can often be outdated depending on the industry.  Some banks and CPA firms use another subscription resource that collects and publicizes the data daily and can also provide Key Performance Indicators (KPI’s) within an industry.  It can be a more reliable resource when identifying trends and comparing performance; and this is the benchmarking tool that I personally prefer.

A friend and respected entrepreneur who owns and operates a very successful business enthusiastically agreed to have a Health Check-up done on the business.  There were no signs or symptoms of any problems and I might add that this business owner demonstrated great progressive and visionary business practices meeting with business mentors and  the accountant monthly to review the financials.  The Health Check-up that compared the operation to industry standard identified two rather critical issues that went undetected for years.  First, they consistently were holding three times the inventory than industry standard and their peers.  Second, although the gross profit margin was spot on, the net profit margin was off noticeably from industry.  This discovery has caused this business owner to “clean-up” in their exact terms, their business in the coming year. Benchmarking now has a whole new meaning for this business owner.

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2 Responses to “Lessons from the Past, Present, and Future”

  1. Amy Keth February 11, 2011 at 5:56 pm #

    Small Business Development Centers (SBDCs) can perform a financial check-up for free utilizing profit cents software. The SBDC is a state, federal and local grant funded program with its mission to assist small businesses start, grow, and thrive.

    • health4biz February 12, 2011 at 4:29 pm #

      Thank you for your comment Amy. Yes….a late shout-out for the Pennsylvania SBDC’s. They are an excellent resource for pre-venture and existing businesses…financial analysis, business plan development and market research. Check them out!

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