Think about if you drove a car that didn’t have any gauges on it. You couldn’t check your speed, how much fuel you have left, the temperature of your engine, etc. Given enough time, your car will probably come to a stop for some reason. Maybe you ran out of gas, a cop stopped you for speeding, your oil was way too low, your engine over heated, etc.

You can say that all of this is a good analogy to a business. In the same way you have gauges in your car where you can check its vital signs at a glance, you can set up the same capability for your business. If you haven’t set this up for your business then you are practically driving a 100 year old car.

What entrepreneurs need to do is make sure they have the systems in place to collect the necessary data, have that data stored in databases, have reports that pull and organize the data from the databases, know how to read those reports and know how to adjust their business based on the analysis of the reports.

To some, that is super basic. To others, I just lost you. Let me break it down and make it simple with a real world example…

Say you own an apartment complex. One thing you could track is the number of people who inquire about renting compared to the number of people who actually do rent an apartment. This is just one simple ratio that will help you gauge the effectiveness of your business.

To implement this, all that needs to be done is to have your workers add an entry into the “inquiry” field every time someone inquires about renting an apartment and add an entry into the “rented” field every time someone signs a lease. Then on a monthly basis the manager can print out and review the report on this ratio. Say in the current month the ratio of rented/inquiries dropped 25% from last month and in the previous month a major change in the sales pitch was implemented. Given everything else stayed about the same it would indicate that this change in the sales pitch caused the decrease in the ratio. Managers should then revert back to the previous sales pitch or implement a new one.

Had the business not been tracking this ratio then they may have not realized that something was wrong until much later. A basic computer program to handle this scenario can be purchased for a couple hundred dollars. There is so much information businesses can track and they should too. Many entrepreneurs do not systemize these things and leave it up to raw human observation. Not setting these systems up usually causes you or your employees to notice problems only when they become large or see opportunities for greater profit much later than if the business was tracking key info.

A lot of the information businesses should be tracking is financial. Every business has the goal to be profitable so this makes financial data very important assuming this goal. As shown in the previous example even non-financial data is linked to the financial health of your business.

Isn’t it dumb how $30,000 automobiles that depreciate in value have been outfitted with sophisticated information systems to keep them running well but at the same time many owners of $3,000,000 businesses, which are intended to appreciate, will not invest in setting up the information systems to help profitably operate their asset?