As my clients will tell you, I’m constantly talking about the advantages of producing regular financial information to help their businesses achieve success. I put little, if any, value at all on annual information such as statutory accounts.
So I was interested to read in yesterdays Sunday Times magazine that staff at Goldman Sachs review daily profit & loss accounts.
According to Liz Beshel, the firms Global Treasurer (put another way, the person at Goldman Sachs who looks after the money!), reviewing daily P&L’s help the firm see market trends clearly and early, and helps them to minimise risk better than other banks.
For example, Goldman Sachs noticed that something was happening with sub-prime mortgages a year before all the trouble started with the banking industry. Acting on the information they had from one week of downward trending information (one week… only 5 days!), the bank was able to reduce their exposure to the mortgage market. Consequently, when the credit crisis took hold Goldman Sachs was hit with $1.7 billion mortgage losses. By comparison, UBS suffered $58.0 billion.
Now, I realise that many SME’s (my clients included) simply don’t have the resources to produce daily profit & loss accounts, but I don’t see their size as an excuse to ignore measuring their business performance regularly. Large businesses are successful because they have plenty of relevant information to hand – SME’s should be no different.
Work out what the one key performance indicator is in your business, and measure it daily. Your business will be all the better for it.