I wrote recently about the business jargon I use regularly with my business advice clients, and explained a few of my favourite terms. You guys seemed to like it, and I’ve been noticing a few more terms I use regularly, so here are some more.
This sounds great in a meeting: “We’ll need to subject this to a rigorous sensitivity analysis before we can come to decision”. However, what it really means is playing around with the spreadsheet. Say you’ve done a profit and loss forecast, based on how many goats you think you’ll sell in the next year. You’ve projected 5 white goats per month, 10 black ones and 2 of the high end premium beardy goats. All is looking good. But then you think,
What’s the minimum number of goats I need to sell in order to break even? Just to reassure yourself that you’ll be okay, even if you don’t sell as many as you hoped. So you go back to your spreadsheet and reduce the sales numbers until net profit is zero, so you can see the minimum number of goats you need to sell just to get by. That’s a sensitivity analysis.
Everyone thinks you should have them, but what are they? KPI stands for Key Performance Indicators, which means the things you want to measure in your business to see if you’re doing well or not. KPIs are nearly the same as targets, but you probably want to look at all round business success indicators as well. Most businesses will look at turnover all the time. How much did we bill this month? Turnover is easy to measure, but it’s not necessarily the most important indicator to measure. Profit and cash flow are far more important indicators. You might also include:
- Gross profit margin – how much profit did we make on what we sold?
- New clients
- New contacts from networking, Twitter, website sign ups, RSS followers
- PR – mentions in the media
- How many days were we overdrawn in the month?
And don’t forget about net profit – the one you get to keep. Well, mostly, apart from the bit you have to give away to the government. I have a sheet of paper next to my desk to show all my KPIs and how I measure them on a 3 month basis.
What are the words you use all the time in business that might need explaining?