The phone rang. It was an old friend.
“Pete,” he said, “I’m looking for help. We turned over R24 million last year, but the cash seems to go out faster than it comes in these days. We need a drastic re-think of the business.” We met a few weeks later. I’d asked him to bring along his most recent set of accounts.
READ:How to sort out facts and fiction
“But these financials are for 2011,” I said, as he handed them to me. “What about last year?”
The latest ‘management accounts’ were simply a six-month-old copy of their trial balance.
“What about your budget?” I asked.
“How does that look?” I got a blank look and realised that they had never prepared one or even really understood what it was. He simply could not give me any information on how his business was doing.
While he and his family were skilled producers of food and fibre, and had been able to keep going with their rudimentary, out-of-date ‘information system’ when times were good, the cost squeeze had now hit them, and they hadn’t even seen it coming!
Imagine that you’re the captain of a ship conveying a perishable cargo from South Africa to Europe. On the bridge is an instrument panel bristling with dials, monitors and communication devices feeding you information. Some of these display the minute-by-minute details you need to keep the ship moving – speed, engine revolutions, fuel consumption rates, engine temperature and so on. Linked to them are the alarms that signal if any of these go beyond their set limits.
Also displayed are data needed regularly, but not minute to minute. Temperature in the cargo holds is an example. Actual compass heading is another, just to make sure you are still on track. This reading should be observed hourly perhaps, logged, and any necessary adjustments made. Then there’s information needed a few times a day. The ship’s precise GPS location might be part of this.
In addition, you’ll have a lookout on the bridge 24 hours a day scanning the waters and horizon for any obstacles such as whales or abandoned boats which may pose a hazard. Finally, as captain you’ll need to monitor the weather ahead – not only tomorrow’s and the next day’s, but the likely outlook for the rest of the voyage.
Manage it
Welcome to the world of business – because this is exactly the kind of information you’ll need if you’re managing a business or part of one. Yes, of course, the precise information will be different, as will the frequency. But if you’re not going to blunder along, perhaps eventually to oblivion, you must have access to details such as these.
I know that sometimes we feel as if we’re facing an information tsunami. The volume can be overwhelming. And it’s not just in the office – it’s everywhere. Apart from the essential management information needed, we are bombarded by emails, television, radio, newspapers and magazines. Billboards line the roads. The phone is always ringing.
There’s no escaping it, and there’s only one way to deal with it: manage it.
Pyramid power
Think about it like our imaginary ship’s captain. Business information is a five-layered pyramid (see Figure 1):
At the top is the critical information you need often, which enables you to detect problems early. These are daily and weekly signals. The next layer may not require immediate action, but remains crucial. An example is well-designed monthly management accounts, monthly sales figures and productivity levels.
Figure 1: Business information can be depicted as a five-layered pyramid in order of priority.
The third is the information flow used to measure past performance, such as quarterly and half-yearly financial reports, and perhaps yield figures. Layer four is information to keep in touch with your industry and the broader business environment. It’s normally provided at farmer’s days, workshops, in industry journals and the financial press. Finally, there’s the information from newspapers and other external media that keeps you in touch with the wider world that may affect your business.
Identify the information you need in each of these five layers. Get it delivered to you in as brief a form as possible. If you’re not using it to make decisions, push it down a level or discard it entirely. Get organised and don’t be overwhelmed by a flood of useless information.
This article was originally published in the 23 August 2013 issue of Farmer’s Weekly.
