Small business owners wear many hats from CEO to CSE (Chief Sanitation Engineer). They are often guilty of working too much in the business and not working on the business. As a result, business continues its trend albeit potentially changing. Business Drivers are the things that change the trend or orbit. Once a small business can identify their business drivers, a number of important things can happen and the business owner can if needed work on the business while also working in the business.
What are business drivers?
I like to think of a business driver as a force, something that is behind what happens to the business. Think of a business like a satellite in orbit. If left to its own it would stay in a steady orbit, never changing. Once you add a force to it the orbit changes. The force can be something like adding a new salesperson or something as complex as changes in long term interest rates.
Bridge the Gap
As mentioned business drivers are the levers that make change happen. Some are controlled by the business and some our outside of their control. The secret is to identify what drivers the business can control and try different forecast scenarios using different values for each driver. If there appears to be a gap between how the company delivered and the forecasted outcome, strategic discussions should be held to bridge the gap. External drivers can then be looked at if they are relevant and material.
Better business planning
A small business owner who understands what the business’s drivers are can then plan on what drivers they want to influence and how it will impact the business. When creating forecasts include the drivers to create your forecasts for Sales, Expenses/payroll, Capital Investments and Cash Flow. If the results of the forecast aren’t what we desired, you can modify the values for the drivers to get where you need to get and then analyze the driver assumptions and determine what strategic actions are need to get the metrics you need.
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The Shared Finance Center provides outsourced accounting, bookkeeping and CFO support to small business owners and in doing so we heavily focus on maximizing cash flow. If you think that this post would be helpful to anyone you know, please pass it along. Also, please follow our blog (follow link) for regular tips to grow your business.