Hardwood Floors June/July 2018

BUSINESS BEST PRACTICES FINANCE

How Do You Know You are Successful and Secure?

How do you know you are successful and secure? This is a loaded question that would result in an infinite number of responses in a poll. Success and security are both very personal. Author Earl Nightingale defined success as the progressive realization of a worthy goal or ideal. Security may conjure up feelings of comfort that you are protected from future uncertainty. In the realm of finances, success and security are generally associated with the feeling that you have enough to provide for all of your needs and many of your wants with little worry that your status will change in the future. Most of us will never reach a point where we live with zero financial worries because most circumstances can easily change. Change is a certainty, and it is best to arm ourselves with tools, like benchmarking, that can help us anticipate or endure challenges ahead. Action through tracking can go a long way to ease financial worries and get you closer to knowing that you are successful and secure. WHAT IS BENCHMARKING? Benchmarking is the act of comparing a performance metric against a standard or trend. The performance metric can be compared to that of an entity that is achieving the success desired. Another healthy way to benchmark is to compare the metric to oneself over time to spot positive or negative trends. Spotting changes in performance metrics could lead to a proactive versus reactive approach to inevitable changes. Each organization should determine which performance metrics are their key performance indicators (KPIs). KPIs are the performance metrics that are most essential for each entity. Different business types have different KPIs that can be tracked through benchmarking. Some KPIs are standard like financial ratios (e.g., gross profit margin and current ratio) that can be calculated and tracked over time, and some are specific, like the price per thousand board feet of oak for a sawmill.

STANDARD FINANCIAL RATIOS Standard financial ratios are calculations that can be done for most businesses and compared to an industry standard. They can include liquidity ratios, profitability ratios, and funds management ratio among others.

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