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Watching Your KPIs as a Recession Approaches

It’s June of 2022. The Federal Reserve has raised interest rates by 75 basis points, inflation has been at historic highs, stock market experts are arguing whether or not we are in a bear market, and there is uncertainty as to if the government can slow down the economy for a soft landing.

Question: After living through COVID shutdowns only two years ago, how do you manage your small business going into this uncertainty?

Answer: By the numbers.

As a TAB facilitator, one of the things I do is help members determine which KPI’s (key performance indicators) are appropriate to watch for their business. It’s been my opinion, after managing my own business for many years, that you need both backwards-looking indicators such as sales or profit, but you also need forward-looking indicators as well. Generally forward-looking indicators involve ‘pipeline’. It could be new orders from customers, sales appointments, or really any numeric tracking of customer activity that generally leads to revenue creation. For my former recruiting business, it was the number of new searches. For retail establishments it may be foot traffic. For businesses that depend on setting appointments, it could be the number of appointments set in the future. Regardless of your industry, it needs to be something that will give you a sign of what future revenue may look like.

But why is it important? Couldn’t you track historical data to see how you’ve been doing? Yes, you certainly can, and in fact you should! However, that is like trying to drive your car by only looking through the rear-view mirror. You need both. Yes, the rear-view mirror is vital, but obviously looking forward through the windshield is sort of important as well 😊. Having insight into forward-looking indicators is probably more vital as we enter what is likely to be a recession.

If you haven’t yet determined what forward-looking indicators you should track, now is the time. And if possible, go back a few months as well to get historical data on those KPIs so you have something to compare to in the future. Only by tracking forward-looking indicators will you be able to tell if the potential recession is starting to affect your business, and thereby signaling that it is time for you to take measures to curtail the damage by increasing sales activity or cutting costs. How to handle that portion is a topic for a future blog.

Until next time, please feel free to contact me if there is anything we can do for you. I wish you the best in your business.

Mark Goldman



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