Are You Driving Backward?

Next time you are driving your car, note how much time you spend looking forward versus looking backward in the rearview mirror. I guess you spend the most time looking forward. What if it was the opposite? Can you imagine driving a car and looking in the rearview mirror almost the entire time? It would be like driving backward. At some point, you would probably crash your car.

How about your business? How much time do you spend looking forward versus looking backward?

Most small business owners have a set of financial metrics, Key Performance Indicators (KPIs), that they look at regularly. These numbers may include sales, profits, cash flow, receivables, etc. These are all good metrics to track your company’s past financial performance. Analyzing these lagging KPIs is like looking in your car’s rearview mirror.

What about the future? What metrics do you look at that point at what’s approaching you? These leading financial indicators help you predict what your sales, profits, and other financial measures will be in the future. What are some examples? For sales, they might include the number of proposals you have outstanding, the sales backlog, or possibly the number of sales meetings your sales team has had with prospective clients in the past month. These would help you predict what level of sales to expect in the next month, quarter, or even year.

I was first introduced to Key Performance Indicators while working for my dad during a summer break in college. I was working in the warehouse of a large tire distribution business, loading and unloading trucks—not a glamorous job! One day after work, I sat down in my dad’s office and noticed a small piece of paper, like a sticky note, on the corner of his desk. I asked my dad what the numbers on the piece of paper meant.

My dad responded that these were the three most important numbers he needed to manage that business every day. They were the past day’s sales, his current accounts receivables, and the cash balance for that day. He said that as long as he had those three numbers, he could confidently make every key decision required of him that day. These decisions would include staffing, purchasing, customer requests, and more. Those numbers always showed up on his desk by 10 am each morning like a hot cup of coffee.

This experience with my dad led me to believe that every business and every business leader has at least three numbers that they should follow each day. What are yours? Are they leading or lagging indicators?

Safe driving.

If you’re interested, I’ll be happy to send you a list of examples of key performance indicators.